<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission File Number O16441
CODE-ALARM, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
MICHIGAN 38-2334698
- ----------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 E. WHITCOMB, MADISON HEIGHTS, MICHIGAN 48071
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (810) 583-9620
---------------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the Registrant's common stock,
without par value, as of October 26, 1995 is 2,320,361.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Notes to condensed consolidated financial statements:
1. These condensed consolidated interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to
fairly state the results for the interim periods presented. Except for
$1.8 million recorded in connection with the ETC litigation in the
first six months of 1995, all adjustments are of a normal and
recurring nature. Results of operations for the interim periods
presented are not necessarily indicative of results to be expected for
the fiscal year.
2. These condensed consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
3. The Company's credit arrangement includes a $13.8 million revolving
credit facility for working capital requirements, $1.3 million secured
notes and $2.2 million unsecured notes. The revolving credit facility
has an expiration date of May 23, 1997 and bears interest at the bank's
prime rate (8.75% at October 26, 1995), or at the Company's option, at
the London Inter-bank Offered Rate ("LIBOR") plus 2.5% for maturities
ranging from one to six months (8.125% and 8.375%, respectively, at
October 26, 1995).
The revolving credit facility is subject to covenants which require
certain debt and cash flow ratios and minimum levels of current assets
and tangible net worth, and is collateralized by substantially all the
assets of the Company and its domestic subsidiaries. Total credit
availability under the arrangement is subject to a formula of accounts
receivable, inventories and net fixed assets. As of September 30,
1995, the Company was in violation of certain covenants. The Bank has
agreed to amend the credit agreement as of September 30, 1995. Such
amendment, when effective, will place the Company in compliance.
The Company's foreign subsidiary's credit arrangement with its
commercial bank includes term loans totaling approximately $2.5
million, with interest rates ranging from 8.0% to 11.0%. Payments are
due monthly, with final payments due in 1996.
<PAGE> 3
CODE-ALARM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
ASSETS 1995 1994
------- --------
<S> <C> <C>
Cash and cash equivalents $ 261 $ 107
Accounts receivable, net 13,104 11,530
Raw material inventories, net 6,793 7,217
Work-in-process inventories 173 1,552
Finished goods inventories 7,846 4,123
Refundable income taxes 634 323
Other current assets 1,387 1,229
------ --------
Total current assets 30,198 26,081
Property and equipment, net 4,484 4,130
Goodwill, net 4,217 4,293
Other intangible assets, net 992 1,272
Other assets, net 2,580 2,045
------ --------
$ 42,471 $ 37,821
====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term liabilities $ 2,431 $ 1,443
Accounts payable 11,258 8,791
Accrued expenses 2,775 3,131
------ --------
Total current liabilities 16,464 13,365
Long-term liabilities, net of current portion 10,085 9,511
Reserve for litigation 5,440 3,729
------ --------
Total liabilities 31,989 26,605
------ --------
SHAREHOLDERS' EQUITY:
Common stock 12,210 12,209
Foreign currency translation adjustment 49 49
Accumulated deficit (1,777) (1,042)
------ --------
Total shareholders' equity 10,482 11,216
------ --------
$ 42,471 $ 37,821
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CODE-ALARM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
1995 1994 1995 1994
---------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales 18,756 18,663 $54,825 $56,435
Cost of sales 11,838 11,847 35,284 35,352
------ ------ ------ ------
Gross profit 6,918 6,816 19,541 21,083
Operating expenses:
Sales and marketing 3,039 3,361 8,845 9,984
Engineering 872 709 2,317 1,892
General and administrative 2,011 1,707 6,307 6,494
------ ------ ------ ------
5,922 5,777 17,469 18,370
------ ------ ------ ------
Income from operations 996 1,039 2,072 2,713
Interest expense (326) (199) (956) (425)
Litigation expense (1,825)
Other income (expense) (21) (10) (86) (88)
------ ------ ------ ------
Income (loss) before income income taxes 649 830 (795) 2,200
Income taxes 219 363 (60) 774
------ ------ ------ ------
Net income (loss) $430 $467 $ (735) $1,426
====== ====== ====== ======
Net income per common share $0.19 $0.20 $(0.32) $0.60
====== ====== ====== ======
Weighted average common shares 2,320 2,389 2,320 2,392
====== ====== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
CODE-ALARM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months
Ended Sept 30,
---------------
1995 1994
---- ----
<S> <C> <C>
Increase (decrease) in cash
and cash equivalents from:
Operating activities $ (406) $ (217)
Investing activities:
Capital expenditures, net (806) (1,246)
Cash received (paid) in acquisition of EAE 605
Other (37) (514)
Financing activities:
Net borrowing on credit facilities 4,761 257
Net borrowing (repayment) on long-term debt (3,359) 1,077
Purchase and retirement of common stock (117)
Issuance of stock options 1
----- ----
Net change in cash and cash equivalents 154 (155)
Cash and cash equivalents, beginning 107 227
----- ----
Cash and cash equivalents, ending $ 261 $ 72
===== ====
Supplemental disclosure of cash flow information:
Cash paid for interest $ 814 $ 204
Cash paid for income taxes $ 150 $ 200
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Code-Alarm's consolidated net sales increased $93,000, or less than
1.0%, for the quarter ended September 30, 1995 as compared to the
quarter ended September 30, 1994. For the nine months ended September 30,
1995, consolidated net sales decreased $1.6 million, or 2.8%, to $54.8 million
as compared to $56.4 million for the nine months ended September 30, 1994. The
decrease is attributable to a decline of $1.6 million, or 7.9%, in the quarter
ended June 30, 1995. The nine month results were primarily due to a decrease
in sales to mass merchandisers and independent dealers in the quarter ended
June 30, 1995 and were partially offset by increases in OEM and expediter sales
in the quarter ended September 30, 1995. The Company expects sales in the
quarter ending December 31, 1995 to be slightly below sales for the
comparable period in 1994, with higher OEM sales in Europe being offset by a
decrease in domestic OEM and independent dealer sales.
The Company's consolidated gross profit increased $102,000 or 1.5%, for
the quarter ended September 30, 1995, as compared to the quarter ended
September 30, 1994. For the nine months ended September 30, 1995, consolidated
gross profit decreased $1.5 million, or 7.3%, to 19.5 million as compared to
$21.0 million for the nine months ended September 30, 1994. As a percentage of
consolidated sales, gross profit decreased to 35.6% in the nine months ended
September 30, 1995 from 37.4% in the comparable period of 1994. The decrease
was due to the Company's emphasis on OEM sales in both Europe and the United
States primarily due to start up manufacturing problems with the Company's
European products production in the United States in the first two quarters of
1995. The OEM sales have lower profit margins, but are generally
characterized by lower selling costs, than retail sales. The Company expects
continued lower gross profit margin in the remainder of 1995 due to continued
emphasis on OEM sales.
Consolidated operating expenses increased $145,000 or 2.5%, for the
quarter ended September 30, 1995 as compared to the quarter ended September 30,
1994. For the nine months ended September 30, 1995, consolidated operating
expenses decreased $901,000, or 4.9%, to $17.5 million as compared to $18.4
million for the nine months ended September 30, 1994. The decrease in
consolidated operating expense was attributable to decreased sales and marketing
expenses, partially offset by increases in engineering and product development
costs. The Company expects to sustain decreases in marketing and
administration expenses as a result of continued emphasis on OEM sales, but
expects engineering and product development costs to level off for the
remainder of the year.
As a result of the foregoing, the Company earned consolidated income
from operations of $996,000 in the quarter ended September 30, 1995 compared to
$1.0 million in the quarter ended September 30, 1994. Consolidated income from
operations declined $641,000 or 23.6%, for the nine months ended September 30,
1995, to $2.1 million as compared to $2.7 million for the nine months ended
September 30, 1994.
Interest expense increased $531,000 in the nine months ended September 30,
1995, or 124.9%, to $956,000 as compared to $425,000 for the nine months
<PAGE> 7
ended September 30, 1994. Increases are attributable to higher interest rates
and increased indebtedness associated with European Operations.
Other expenses for the nine months ended September 30, 1995 increased
by $1.8 million, to $1.9 million as compared to $88,000 for the nine months
ended September 30, 1994. The increase was attributable to the accrual in the
first half of the year of an additional $1.8 million for damages, including
interest and costs, related to a patent infringement judgment on the ETC
litigation.
The Company had an effective domestic income tax rate of 34% on current
operating income. Income taxes on foreign operations were approximately 33%.
In the third quarter of 1995, the Company charged off state and foreign tax
refunds determined to be uncollectable in the amount of $210,000.
As a result of the foregoing, the Company earned consolidated net income
of $430,000 in the quarter ended September 30, 1995 compared to $467,000 in
the quarter ended September 30, 1994. The Company recorded a net loss of
$735,000, or $0.32 per share for the nine months ended September 30, 1995,
compared to net earnings of $1.4 million, or $.60 per share, for the nine
months ended September 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital was $13.7 million at September
30, 1995 compared to $12.7 million at December 31, 1994. The current ratio
(current assets divided by current liabilities) as of September 30, 1995 is
1.83 to 1, compared to 1.95 to 1 at December 31, 1994.
Net cash used in operating activities for the first nine months of
1995 was $406,000, including $1.3 million of depreciation and amortization
charged during the nine months ended September 30, 1995. Cash consumed during
the first nine months reflect an increase in inventories and accounts
receivable of approximately $3.5 million. The Company experienced a $3.7
million increase in finished goods inventory in Europe most of which was
attributable to the Company's efforts to meet expected customer requirements.
Lower than anticipated European sales volumes also contributed to this higher
than normal inventory level. This increase was partially offset by an increase
of accounts payable in the amount of $2.5 million.
As of October 26, 1995, $1.4 million of the $13.8 million revolving credit
facility was unused and available. Additionally, $7.0 million and $1.0 million
of amounts outstanding under the revolving line of credit were borrowed under
the LIBOR option available to the Company at interest rates of 8.375% and
8.125%, respectively.
During the first nine months of 1995, the Company concluded a loan
agreement with NBD Bank. Under the terms of the agreement, the Company has
secured a $13.8 million revolving credit facility, $1.3 million in secured
notes and $2.2 million in unsecured notes. The Company has used these
facilities for operating capital and to provide financing for an appeal bond
in the amount of $5.9 million for the patent infringement litigation. The
Company is considering issuance of some form of public debt in the fourth
quarter of 1995 to provide additional capital for its business.
<PAGE> 8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the Matter of Certain Starter Kill Security Systems, Inv. No.
337-TA-Docket No. 1883, The International Trade Commission. On October 18,
1995, the Company filed a Complaint with the International Trade Commission
against Directed Electronics, Inc. ("Directed") of Vista, California and the
Nutek Company ("Nutek") of Taipei, Taiwan, alleging the manufacturing goods
infringing United States Patent Number 4,740,775 by Nutek and the importation
and sale of these infringing goods in the United States by Directed. More
particularly, the Complaint seeks to halt the importation and sale of these
infringing goods in the United States. No response, as yet, has been filed by
Directed or Nutek to the Complaint and this matter remains in the early stages
of discovery.
Intercept Security Corporation v. Code-Alarm, Inc. Case No. 95-40239,
United States District Court, Eastern District of Michigan, Southern Division,
filed July 19, 1995. The suit alleges that certain home security products
built and sold by the Company failed to perform in a manner consistent with the
alleged representations of the Company. More particularly, the Complaint
alleges that the Company committed fraud, misrepresentation, and breached an
implied warranty emanating from the sale of these goods to the Plaintiff. The
Company denies these allegations and intends to defend against these charges.
The Company has not, as yet, answered the complaint and the case remains in the
early stages of discovery. The exposure, if any, to the Company cannot be
ascertained at this time; however, an adverse Judgement could materially
adversely affect The Company's Business and Financial condition, including
working capital and results of operations.
Code-Alarm, Inc. v. Electromotive Technologies Corporation, et al. Case
Number 87-cv-74022-DT. The Company has filed an appeal of the District Court's
judgment against Code-Alarm in the amount of $5.5 million in damages. More
particularly, the Company is appealing (1) the inclusion of unpatented
components of Code-Alarm's security system in the damages calculation
("convoyed sales") and (2) the doubling of "actual damages" after November,
1990 based upon a holding of "willful patent infringement." In the course of
preparing the appeal brief, it was discovered that the Plaintiff, ETC, had
failed to timely pay the first maintenance fee in April, 1990 to maintain the
patent-in-suit with the U. S. Patent Office. The Company subsequently filed a
motion with the United States District Court for the Eastern District of
Michigan, Southern Division requesting certification for remand of the case for
consideration of (1) Code-Alarm's intervening rights for the ten month lapse in
the patent-in-suit, (2) reconsideration of the award of enhanced damages and
attorney fees in view of ETC's failure to notify the Company and the Court of
the lapse, and (3) an appeal of the U. S. Patent Office's decision to reinstate
the patent in suit. This motion was denied without prejudice by the United
States District Court and the Company is preparing to file motions with the
Court of Appeals for the Federal Circuit for remand or dismissal of the appeal
based upon lack of jurisdiction for consideration by the District Court of the
motion.
<PAGE> 9
Code-Alarm, Inc. v. The United States International Trade Commission.
Appeal No. 94-1433, United States Court of Appeals for the Federal
Circuit. On September 19, 1995, the United States Court of Appeals for the
Federal Circuit affirmed the invalidity of United States Patent Number
5,049,867, owned by the Company. The Company is considering a possible appeal
of the ruling to the United States Supreme Court.
M. and Mme. Sydney Drahy, from whom the Company purchased shares of its
French subsidiary Europe Auto Equipement, S.A. ("EAE") filed suit against the
Company in the Commercial Court in Paris, France on August 1, 1995, seeking
FF3,160,000 (approximately $645,000) based on disputed price adjustment
provisions in the purchase agreement. The Company believes that there are
offsets to the disputed adjustments under the purchase agreement, some of which
have been acknowledged by the Drahys, and that no additional amounts are owed
the Drahys in respect of the purchase price. A decision on this case is not
expected to be rendered before mid-1996. Mme. Drahy brought a separate action
in the Industrial Court of Paris against EAE, filed June 20, 1995, seeking
damages of FF1,268,800 (approximately $260,000) for alleged wrongful
termination of her employment and breach of an employment contract. The case
is in the early stages of document production and the Company is unable at this
time to assess its exposure, if any, to Mme. Drahy.
There were no material developments during the quarter ended September 30,
1995 in the remaining legal proceedings involving the Company. Reference is
made to the Company's Form 10-K for the year ended December 31, 1994 and Form
10-Q's for periods ending March 31, 1995 and June 30, 1995 for a description of
material pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K:
(10) Material Contracts:
The following exhibits are being filed with this report:
10.2 Amendment No. 3 to Employment Agreement with Rand W. Mueller.
10.28 First Amendment dated June 30, 1995; Waiver Letter dated
October 3, 1995; Second Amendment dated October 17, 1995;
Letter Agreeing to Amend dated November 1, 1995 to Loan
Agreement with National Bank of Detroit as of May 23, 1995.
10.29 Purchase Agreement with Subaru of America, Inc.
(11) Statement regarding computation of per share earnings:
Warrants issued to purchase common stock and shares issuable under
employee stock options were excluded from the computation of weighted
average number of shares outstanding (reference Part I, Item 1)
since such shares were either anti-dilutive or their dilutive effect
was not material.
(27) Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K on July 22, 1995
concerning the change in the Company's certifying accountant. The Company
filed a first amendment on Form 8-KA#1 on August 25, 1995 to the Form 8-K
filed on July 22, 1995. The Company filed a second amendment on Form -KA#2 on
September 1, 1995 to the Form 8-K filed on July 22, 1995.
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CODE-ALARM, INC.
--------------------------
(Registrant)
Date: October 31, 1995 /s/ Robert V. Wagner
------------------- --------------------------
Vice President of Finance
(Chief Financial Officer)
Date: October 31, 1995 /s/ David L. Etienne
------------------- --------------------------
Principal Accounting Officer
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------ --------
<S> <C> <C>
10.2 Amendment No. 3 to Employment Agreement with Rand W. Mueller.
10.28 First Amendment dated June 30, 1995; Waiver Letter dated
October 3, 1995; Second Amendment dated October 17, 1995;
Letter Agreeing to Amend dated November 1, 1995 to Loan Agreement
with National Bank of Detroit as of May 23, 1995.
10.29 Purchase Agreement with Subaru of America, Inc.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT
AMENDMENT, dated as of June 1, 1995 (the "Amendment"), to the
Agreement, dated as of May 29, 1987, as amended (the "Agreement"), between
Code-Alarm, Inc., a Michigan corporation (the "Company"), and Rand W. Mueller
(the Executive");
WHEREAS, the Company and Executive have heretofore executed and entered
into the Agreement pursuant to which the Executive is employed by the Company
for the consideration stated therein; and
WHEREAS, the Company and the Executive desire to amend the Compensation
and Benefits section of the Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Paragraph 3 of the Agreement is amended and restated as follows:
Commencing on June 1, 1995, and continuing during the Employment Term,
Executive shall be paid a salary by the Company not less than $200,000 per
annum, payable in monthly installments. During the Employment Term, the
Company will provide Executive with the perquisites comparable to those which
have been provided to him heretofore as an employee of the Company. Executive
shall be entitled to participate in those of the Company's benefit plans for
which he is eligible. During the Employment Term, the Company will pay
Executive an annual incentive bonus, in addition to his salary, equal to six
(6) percent of the first one million $1,000,000 dollars of Operating Income
(pre-bonus and pre-interest and pre-taxes), and five (5) percent on every
dollar of Operating Income thereafter, as shown by the audited financial
statements sent to the shareholders of the Company, payable within sixty (61)
days after the end of the calendar year; provided, however, that the Board of
Directors of the Company may allow Executive, not more often than quarterly, to
draw up to seventy (70) percent of the Executive's projected bonus based upon
the year-to-date results of operations of the Company.
2. This Amendment shall be governed by and construed in accordance
with the laws of the State of Michigan.
3. In all respects not inconsistent with the terms and provisions
of this Amendment, the Agreement is hereby ratified, adopted, and approved and
confirmed.
4. All other terms of the original and amended Employment Agreement
shall remain unchanged.
<PAGE> 2
IN WITNESS WHEREOF, the parties thereto have caused this Amendment to be duly
executed and delivered, all as of the date and year first above written.
CODE-ALARM, INC.,
By: /s/ Robert Wagner 5/16/95
------------------------------
Robert Wagner
Vice President of Finance,
Secretary and Treasurer
/s/ Rand Mueller
------------------------------
Rand Mueller
<PAGE> 1
EXHIBIT 10.28
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT, dated as of June 30, 1995 (this
"First Amendment"), is between CODE-ALARM, INC., a Michigan corporation (the
"Company") and NBD BANK, a Michigan banking corporation (the "Bank").
RECITALS
A. The Company and the Bank have executed a Loan Agreement dated as
of May 23, 1995 (the "Loan Agreement"), to provide for a revolving credit
facility and term loans to the Company.
B. The Company has defaulted under the Loan Agreement.
C. The Company has requested that the Bank waive such defaults and
the Bank is willing to do so strictly in accordance with the terms hereof, and
provided the Loan Agreement is amended on the terms and conditions set forth
herein.
AGREEMENT
Based upon these recitals, the parties agree as follows:
1. Upon satisfaction by the Company of the conditions set forth in
paragraph 4 hereof, the Loan Agreement shall hereby be amended as of the
effective date hereof as follows:
(a) Section 5.1(d)(vi) shall be amended by deleting the
reference therein to "the following Business Day" and inserting "30 days after
the end of each quarter" in place thereof.
(b) Section 5.1(d)(ix) shall be deleted in it entirety and the
following shall be inserted in place thereof:
(ix) As soon as available and in any event within 30 days
after the end of each quarter with respect to clause (A) and within 30
days after the end of each month with respect to clauses (B) and (C), a
report with respect to the Company setting forth a summary as of the end
of such quarter or such month, as the case may be, of (A) accounts
payable of the Company, containing an aging of such accounts payable and
consolidated totals, (B) accounts receivable, indicating the total of
accounts receivable by type, by account debtor, by terms and by age,
describing any returns, defenses, setoffs or other pertinent information
in connection therewith, and (C) inventory, indicating the types of
<PAGE> 2
inventory, amounts, locations and values of the types of inventory, in
form and detail satisfactory to the Bank, certified as true and correct
by the Vice President-Finance of the Company;
(c) Section 5.2(d) shall be amended by deleting the reference
to "6.25 to 1.0" contained therein and inserting "6.50 to 1.0" in place
thereof.
(d) Section 5.2(e) shall be deleted in its entirety and the
following shall be inserted in place thereof:
(e) Fixed Charge Coverage Ratio. Permit or suffer the
Consolidated Fixed Charge Coverage Ratio of the Company and its
Subsidiaries to be less than 0.90 to 1.0 as of June 30, 1995 as
calculated for the fiscal quarter then ending, 1.0 to 1.0 as of
September 30, 1995 as calculated for the two (2) consecutive fiscal
quarters then ending, 1.0 to 1.0 as of December 31, 1995 as calculated
for the three (3) consecutive fiscal quarters then ending and 1.0 to 1.0
as of March 31, 1996 and as of the end of each fiscal quarter
thereafter, as calculated for the four (4) consecutive fiscal quarters
then ending; provided, however, for the purpose of calculating the Fixed
Charge Coverage Ratio under this Section 5.2(e), for the period from and
including the Effective Date to and including December 31, 1995, the
Company may add back to Consolidated EBITDA the lesser of (i) $1,825,000
or (ii) the amount of litigation expenses reflected in the financial
statements of the Company delivered pursuant to Section 5.1(d).
(e) Section 6.1(f) shall be amended by deleting the reference
to "$5,200,000" contained therein and inserting "$5,900,000" in place thereof.
2. From and after the effective date of this First Amendment,
references in the Loan Agreement, the Notes, the Security Documents and all
other documents executed pursuant to the Loan Agreement (as each of the
foregoing is amended hereby or pursuant hereto) to the Loan Agreement shall be
deemed to be references to the Loan Agreement as amended hereby.
3. The Company represents and warrants to the Bank that:
(a) (i) The execution, delivery and performance of this First
Amendment and all agreements and documents delivered pursuant hereto by the
Company have been duly authorized by all necessary corporate action and do not
and will not require any consent or approval of its stockholders, violate any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability
-2-
<PAGE> 3
to it or of its Articles of Incorporation or By-Laws, or result in a breach of
or constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Company is a party or by
which it or its properties may be bound or affected; (ii) no authorization,
consent, approval, license, exemption of or filing a registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary to the valid
execution, delivery or performance by the Company of this First Amendment and
all agreements and documents delivered pursuant hereto; and (iii) this First
Amendment and all agreements and documents delivered pursuant hereto by the
Company are the legal, valid and binding obligations of the Company enforceable
against it in accordance with the terms thereof.
(b) After giving effect to the amendments contained herein and
effected pursuant hereto, the representations and warranties contained in
Article IV of the Loan Agreement and the representations and warranties of the
Company in the Security Documents are true and correct on and as of the
effective date hereof with the same force and effect as if made on and as of
such effective date.
(c) Other than the Existing Defaults as defined in, and to be
waived pursuant to paragraph 5 hereof, no Default or Event of Default has
occurred and is continuing or will exist under the Loan Agreement as of the
effective date hereof.
4. This First Amendment shall not become effective until:
(a) This First Amendment shall be signed by the Company and
the Bank;
(b) The Company shall have delivered or caused to be delivered
to the Bank such other documents and instruments as the Bank may request in
connection herewith and all documents which have not been delivered as required
pursuant to the Loan Agreement, including without limitation the opinion of
counsel for the Company and the Guarantors.
5. The Company acknowledges that Events of Default have occurred
because the Company has breached Sections 5.2(c), (d) and (e) for the fiscal
quarter ending June 30, 1995 (the "Financial Covenant Defaults") and an Event
of Default has occurred under Section 6.1(f) because the Expected Judgment was
in excess of $5,200,000 (this Event of Default, together with the Financial
Covenant Defaults shall be referred to collectively as the "Existing Defaults")
and the Company has requested that the Bank waive such Existing Defaults
subject to the terms and conditions set forth herein. In consideration of the
execution of this Amendment and subject to the satisfaction of all conditions
required by paragraph 4 hereof, the Bank agrees to waive the Existing Defaults,
provided that such waiver of the Financial Covenant Defaults shall be only for
the fiscal quarter ending June 30, 1995 and provided further that such waiver
shall waive only the Existing Defaults and does not waive any other Event of
Default, including without limitation any future Event of Default caused by any
violation of Sections 5.2(b), 5.2(c), 5.2(d) or 6.1(f),
-3-
<PAGE> 4
and this waiver shall not be deemed to be a waiver, or a consent to any
modification or amendment, of any other term or condition of the Loan Agreement
or any term or condition of any agreement, instrument or document referred to
therein or executed pursuant thereto, or to prejudice any present or future
right or rights which the Bank now has or may have thereunder.
6. The Company hereby agrees that the Security Documents to which it
is a party are each ratified and confirmed and shall remain in full force and
effect, and the Company acknowledges that it has no defense, offset or
counterclaim with respect to any Security Document.
7. The Company agrees to pay and save the Bank harmless from
liability for the payment of all costs and expenses arising in connection with
this First Amendment, including the reasonable fees and expenses in Dickinson,
Wright, Moon, Van Dusen & Freeman, counsel to the Agent, in connection with the
preparation and review of this First Amendment and any related documents.
8. The terms used but not defined herein shall have the respective
meanings ascribed thereto in the Loan Agreement. Except as expressly
contemplated hereby, the Loan Agreement, the Notes, the Security Documents and
all other related agreements, certificates, instruments and other documents,
are hereby ratified and confirmed and shall remain in full force and effect and
the Company acknowledges that it has no defense, offset or counterclaim with
respect thereto.
9. This First Amendment is a contract made under, and shall be
governed by and construed in accordance with, the law of the State of Michigan
applicable to contracts made and to be performed entirely within such State and
without giving effect to choice of law principles of such State.
10. This First Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one in the same
instrument and any of the parties hereto may execute this First Amendment by
signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered as of the day and year first above written.
CODE-ALARM, INC.
By: _____________________________________
Its: ___________________________________
-4-
<PAGE> 5
NBD BANK
By: _____________________________________
Its: ___________________________________
-5-
<PAGE> 6
NBD Bank
2155 West Big Beaver Road
Troy, Michigan 48084-3422
Phone 810-816-0235
FAX 810-816-0254
[NBD LOGO]
Kathryn M. Ritter
Vice President
October 3, 1995
Mr. Rand W. Mueller
Chief Executive Officer
Code Alarm, Inc.
950 E. Whitcomb
Madison Heights, Michigan 48071
Dear Mr. Mueller:
Re: Loan Agreement as of May 23, 1995, as amended
Reference is made to the Loan Agreement dated as of May 23, 1995, as amended,
between NBD Bank and Code Alarm, Inc. Notwithstanding section 5.2(f)(viii)
which prohibits subordinated debt in excess of $5,000,000; NBD Bank agrees to
waive this provision on a one time basis as follows: Code Alarm, Inc.
anticipates issuance of a public offering of subordinated, unsecured,
convertible debentures in an amount not to exceed $11,500,000. The offering is
scheduled to be made prior to January 31, 1996. NBD Bank on this occasion
waives the $5,000,000 limit on subordinated debt. However, a waiver on this
occasion shall not be construed as a waiver for any future occasion.
Please indicate your agreement with this waiver by executing below.
Sincerely,
Kathryn M. Ritter
KMR:mlp
Accepted and Agreed to this 10th day of October, 1995
CODE ALARM, INC.
By: Rand W. Mueller
---------------
Its: President CEO
---------------
Subsidiary of NBD Bancorp, Inc.
<PAGE> 7
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT, dated as of October 17, 1995
(this "Amendment"), is between CODE-ALARM, INC., a Michigan corporation (the
"Company") and NBD BANK, a Michigan banking corporation (the "Bank").
RECITALS
A. The Company and the Bank have executed a Loan Agreement dated as
of May 23, 1995, as amended by a First Amendment to Loan Agreement dated as of
June 30, 1995 (the "Loan Agreement"), to provide for a revolving credit
facility and term loans to the Company.
B. The Company has requested that the Bank temporarily increase the
amount available under the revolving credit facility and the Bank is willing to
do so strictly in accordance with the terms hereof, and provided the Loan
Agreement is amended on the terms and conditions set forth herein.
AGREEMENT
Based upon these recitals, the parties agree as follows:
1. Upon satisfaction by the Company of the conditions set forth in
paragraph 4 hereof, the Loan Agreement shall hereby be amended as of the
effective date hereof as follows:
(a) The first paragraph of the "Introduction" shall be amended
by deleting the reference to "$13,000,000" contained therein and inserting
"$13,750,000 for the period from the Amendment Effective Date to and including
February 29, 1996 and $13,000,000 thereafter" in place thereof.
(b) Section 1.1 shall be amended as follows:
(i) The definition of "Commitment" shall be amended by
deleting the reference in clause (a) therein to "$13,000,000" and
inserting the following in place thereof: "(i) at any time during the
period from and including the Amendment Effective Date to and including
February 29, 1996, $13,750,000 and (ii) at any time thereafter,
$13,000,000".
(ii) A new definition of "Amendment Effective Date"
shall be added in appropriate alphabetical order to read as follows:
"Amendment Effective Date" shall mean October __, 1995.
<PAGE> 8
(c) Exhibit C to the Loan Agreement shall be deleted and the
form of Exhibit C attached hereto (the "New Revolving Credit Note") shall be
substituted in place thereof.
2. From and after the effective date of this Amendment, references
in the Loan Agreement, the Notes, the Security Documents and all other
documents executed pursuant to the Loan Agreement (as each of the foregoing is
amended hereby or pursuant hereto) to the Loan Agreement shall be deemed to be
references to the Loan Agreement as amended hereby.
3. The Company represents and warrants to the Bank that:
(a) (i) The execution, delivery and performance of this
Amendment, the New Revolving Credit Note and all agreements and documents
delivered pursuant hereto by the Company have been duly authorized by all
necessary corporate action and do not and will not require any consent or
approval of its stockholders, violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to it or of its Articles of
Incorporation or By-Laws, or result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease
or instrument to which the Company is a party or by which it or its properties
may be bound or affected; (ii) no authorization, consent, approval, license,
exemption of or filing a registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary to the valid execution, delivery or
performance by the Company of this Amendment, the New Revolving Credit Note and
all agreements and documents delivered pursuant hereto; and (iii) this
Amendment, the New Revolving Credit Note and all agreements and documents
delivered pursuant hereto by the Company are the legal, valid and binding
obligations of the Company enforceable against it in accordance with the terms
thereof.
(b) After giving effect to the amendments contained herein and
effected pursuant hereto, the representations and warranties contained in
Article IV of the Loan Agreement and the representations and warranties of the
Company in the Security Documents are true and correct on and as of the
effective date hereof with the same force and effect as if made on and as of
such effective date.
(c) No Default or Event of Default has occurred and is
continuing or will exist under the Loan Agreement as of the effective date
hereof.
4. This Amendment shall not become effective until:
(a) This Amendment shall be signed by the Company and the Bank;
(b) The Company shall have executed and delivered the New
Revolving Credit Note to the Bank;
-2-
<PAGE> 9
(c) The Company shall have delivered or caused to be delivered
to the Bank such other documents and instruments as the Bank may request in
connection herewith and all documents which have not been delivered as required
pursuant to the Loan Agreement, including without limitation the opinion of
counsel for the Company and the Guarantors; and
(d) The Company shall have paid an amendment fee to the Bank
in the amount of $5,000.
5. The Company hereby agrees that the Security Documents to which it
is a party are each ratified and confirmed and shall remain in full force and
effect, and the Company acknowledges that it has no defense, offset or
counterclaim with respect to any Security Document.
6. The Company agrees to pay and save the Bank harmless from
liability for the payment of all costs and expenses arising in connection with
this Amendment, including the reasonable fees and expenses in Dickinson,
Wright, Moon, Van Dusen & Freeman, counsel to the Agent, in connection with the
preparation and review of this Amendment and any related documents.
7. The terms used but not defined herein shall have the respective
meanings ascribed thereto in the Loan Agreement. Except as expressly
contemplated hereby, the Loan Agreement, the Notes, the Security Documents and
all other related agreements, certificates, instruments and other documents,
are hereby ratified and confirmed and shall remain in full force and effect and
the Company acknowledges that it has no defense, offset or counterclaim with
respect thereto.
8. This Amendment is a contract made under, and shall be governed by
and construed in accordance with, the law of the State of Michigan applicable
to contracts made and to be performed entirely within such State and without
giving effect to choice of law principles of such State.
9. This Amendment may be executed in any number of counterparts, all
of which taken together shall constitute one in the same instrument and any of
the parties hereto may execute this Amendment by signing any such counterpart.
-3-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
CODE-ALARM, INC.
By: _____________________________________
Its: ___________________________________
NBD BANK
By: _____________________________________
Its: ___________________________________
-4-
<PAGE> 11
[NBD Letterhead]
KATHRYN M. RITTER
Vice President
November 1, 1995
Deloitte & Touche
C/O Robert V. Wagner
Code Alarm, Inc.
950 E. Whitcomb
Madison Heights, MI 48071
RE: Code Alarm, Inc. Loan Agreement dated as of May 23, 1995 and all
amendments.
Ladies and Gentlemen:
NBD Bank agrees to amend the above referenced Loan Agreement as to the
following, subject to documentation and other conditions of effectiveness.
1) Section 1.1 Certain Definitions
A. The definition of "Tangible Net Worth" shall be amended to exclude
deferred taxes, in an amount not exceeding $1,600,000, as a reduction
to "Tangible Net Worth".
2) Section 5.2 (d) Total Liabilities to Tangible Net Worth (as previsouly
amended).
The phrase "decreasing by 0.30 as of the end of each fiscal quarter ending
after the Effective Date" shall be deleted in its entirety and replaced
with the phrase "decreasing to 6.25 to 1.00 at September 30, 1995 and
decreasing to 6.00 to 1.00 at fiscal year end December 31, 1995 and further
decreasing by 1.00 at each successive fiscal year end.
3) Section 5.2 (1) Capital Expenditures
This section shall be revised to limit capital expenditures by the Company
to $1,500,000 at fiscal year end December 31, 1995 and to $750,000 for
each fiscal year end thereafter.
4) In addition the Loan Agreement will be appropriately amended to exclude
from the definition of Total Liabilities two leases which were previously
classified as operating leases, but will be shown as capitalized leases by
fiscal year end December 31, 1995. These are leases for test lab equipment
in an amount not exceeding $200,000 and for computer hardware and software
in an amount not exceeding $500,000.
The amendment will be effective as of September 30, 1995.
Sincerely,
Kathryn M. Ritter
Subsidiary of NBD Bancorp, Inc.
<PAGE> 1
EXHIBIT 10.29
[SUBARU LETTERHEAD]
PURCHASE AGREEMENT
CODE ALARM, INC., a Michigan corporation, maintaining a place of
business at 950 East Whitcomb Avenue, Madison Heights, Michigan 48071
(hereinafter referred to as "Seller"), and SUBARU OF AMERICA, INC., a New
Jersey corporation (hereinafter referred to as "Purchaser"), hereby agree as
follows:
1. DESCRIPTION OF PRODUCT UNITS
AND CONTRACT PERIOD
Purchaser agrees to purchase from Seller and Seller agrees to sell to
Purchaser by individual purchase orders the following products (hereinafter
referred to jointly and severally as the "Product Unit" or "Product Units") on
the terms hereinafter indicated:
<TABLE>
<CAPTION>
Purchaser's No. Description Unit Price
-------------- ----------- ----------
<S> <C> <C>
H7110AS000 Keyless Entry System $88.00
</TABLE>
This Agreement shall apply to all purchase orders for Product Units
received by Seller from June 1, 1995 to and including May 31, 1996. This
Agreement will extend automatically year-to-year thereafter, provided however,
this Agreement may be terminated in its entirety or with respect to any Product
Unit at any time by either party giving not less than six (6) months prior
written notice of termination to the other party. Such termination shall in no
way affect any rights or obligations that may have arisen with respect to
Product Units purchased prior to the effective date of any such termination.
2. PRODUCT UNIT SPECIFICATIONS
AND GOVERNMENTAL COMPLIANCE
(a) Seller represents and warrants that each Product Unit sold
pursuant to this Agreement will be of the same quality, design,
characteristics, function and operation as the sample(s) previously furnished
to and approved by Purchaser. Seller agrees that the specifications for the
Product Units are subject to change only upon the written approval of
Purchaser. Seller further agrees to meet the continuous quality control
requirements of Purchaser.
<PAGE> 2
(b) Seller warrants that Seller and each Product Unit manufactured
or supplied by Seller shall comply with all applicable federal, state and local
laws, rules, orders, regulations and standards (including, but not limited to,
provision of information and materials required under the federal Occupational
Safety and Health Act (OSHA) Hazard Communication Standard and state "Right to
Know" laws and compliance with safety standards) in effect on the date each
particular Product Unit is shipped to the destination specified by Purchaser
pursuant to Paragraph 5 of this Agreement. Seller and each Product Unit shall
remain in compliance with those laws, rules, orders, regulations and standards
in effect on the date of each such Product Unit shipment for the entire period
of use of the Product Unit.
3. PRICE, SHIPPING, TITLE & RISK OF LOSS
(a) The price of each Product Unit shall be as indicated in
Paragraph 1 of this Agreement. These prices shall not be adjusted except upon
a change in specifications ordered or approved by Purchaser, and then only to
the extent of the actual increase or decrease in the component and production
costs directly attributable to the change in specifications so ordered or
approved.
(b) The price or prices indicated in the preceding subparagraph (a)
of this Paragraph 3 are F.O.B. the Seller's place of business as specified at
the beginning of this Agreement and include all applicable federal, state and
local taxes and all packaging and handling charges. Seller agrees to forward
such shipments to the destination specified in the purchase order freight and
insurance prepaid third party billing to Purchaser. All shipments are to be
made in accordance with Purchaser's routing instructions.
(c) Title to and risk of loss on each Product Unit shall pass from
Seller to Purchaser upon receipt and acceptance of the Product Units by the
carrier designated by Purchaser.
4. INVOICES AND PAYMENTS
Invoices sent to Purchaser must separately itemize all charges to be
paid by Purchaser and must be sent to:
Subaru of America, Inc.
Subaru Plaza
P.O. Box 6000
Cherry Hill, NJ 08034-6000
Attention: Accounting Department
2
<PAGE> 3
Payments by Purchaser shall be sent to Seller at the address set forth
at the beginning of this Agreement (or to such other address as Seller may
specify pursuant to Paragraph 15(a) hereof) thirty (30) days after receipt by
Purchaser of Seller's invoice. Seller agrees to provide the Bill of Lading to
Purchaser upon Purchaser's request. Invoices may be rejected by Purchaser for
noncompliance with the provisions of this Paragraph 4, and in that event,
payment will date from the time an invoice complying with the provisions of
this Paragraph 4 is received by Purchaser. Seller's invoices must be sent to
Purchaser within six (6) months of Purchaser's issuance of a purchase order as
specified in Paragraph 5 of this Agreement.
5. PURCHASE ORDERS
Purchaser shall issue separate purchase orders from time to time, at
its sole discretion, for specific quantities of Product Units to be shipped to
the destination as indicated on each purchase order. Each purchase order shall
be filled and shipped within ten (10) days after receipt thereof, unless a
longer period of time is specified by Purchaser in a particular purchase order.
This shipment deadline may be extended by Purchaser to the extent that Seller's
delay is caused by labor strike, war, fire or other similar major casualty
beyond Seller's reasonable control, provided that, upon the occurrence of such
a force majeure condition, Seller immediately notifies Purchaser in writing of
the cause for delay and requests a revised shipment date. Purchaser may, in
its sole discretion, send Seller a written confirmation of the revised shipment
date or cancel the purchase order affected by the force majeure condition. The
terms of this Agreement shall be deemed to be incorporated by reference into
and made a part of each purchase order issued by Purchaser to Seller, whether
or not such incorporation is specified in each purchase order. Time of
delivery is of the essence of this Agreement and of each purchase order issued
hereunder. Purchaser may cancel all or any part of any purchase order without
any liability in the event of a delay in the delivery of any of the Product
Units ordered thereunder. Delivery of the Product Units specified in a
purchase order shall not be deemed complete until the Product Units ordered
thereunder have been received and accepted by Purchaser or its designee at the
destination specified by Purchaser. Acceptance of any part of an order shall
not bind Purchaser to accept future shipments, nor deprive it of the right to
return nonconforming Product Units previously accepted.
6. PROJECTIONS AND INVENTORY
(a) Purchaser shall furnish to Seller, at Seller's request,
Purchaser's written estimates or projections of future order volumes. These
projections, when issued, are for the sole purpose of allowing Seller to plan
future production. Such estimates or projections shall not be deemed to be
commitments to purchase any Product Units.
3
<PAGE> 4
(b) Seller shall maintain in inventory and available for
shipment at all times a minimum of Purchaser's thirty (30) day finished
inventory requirement. The thirty (30) day inventory requirement will be
determined by Purchaser based upon projected future orders and forwarded to
Seller. The Seller may, at its discretion, carry additional safety stocks of
either finished product or components in order to comply with the ten (10) day
shipment requirement set forth in Paragraph 5.
(c) From the time Purchaser suspends orders for Product Units for
any reason, Seller agrees to maintain an availability of adequate quantities of
all component parts for said Product Units for a period of seven (7) years.
"Adequate quantities" are those deemed to meet Purchaser's inventory and supply
requirements as communicated to Seller over the seven (7) year period. Seller
agrees to advise Purchaser of all component parts which, after the seven (7)
year period has expired, will no longer be available, and to offer Purchaser a
last time buy for such parts.
7. INSTALLATION AND REPAIR INSTRUCTIONS AND PACKAGING
Seller shall include in a conspicuous manner inside the packaging of
each Product Unit complete installation and repair (if applicable) instructions
in the wording and format prepared by Seller and approved in writing by
Purchaser. All packaging and labeling used for each Product Unit and all
wording and markings appearing on the Product Units shall be subject to the
prior written approval of Purchaser and each package shall clearly designate
Purchaser's part number and Purchaser's logo. Seller shall not place its name
on any packaging and labeling or on any Product Units unless Purchaser
otherwise agrees. Seller hereby warrants that all Product Units and packaging
will bear all markings and labels required by applicable federal, state and
local laws, rules and regulations, as such requirements may be amended from
time to time.
8. PRODUCT WARRANTY
(a) Seller warrants to Purchaser that each Product Unit will
conform to the specifications identified in Paragraph 2 hereof and to all other
descriptive information furnished by Purchaser, will be of merchantable
quality, will be fit for the particular purpose intended , will be of good
material and workmanship, and will be free from defects in material and
workmanship for a period of thirty-six (36) months or 36,000 miles, whichever
occurs first, from the date of sale of each Product Unit to a retail
customer, regardless of when the sale occurs. Seller hereby agrees that all
servicing, repairs and replacements of Product Units not conforming to the
foregoing warranty shall be performed by Purchaser or its designee and that
Seller shall be solely responsible and shall reimburse Purchaser, in the manner
set forth in Paragraph 8(d) below, for all costs and expenses for parts, labor,
handling and other charges incurred by Purchaser in connection with this
4
<PAGE> 5
warranty, provided that and notwithstanding the foregoing, Seller shall
have the right to inspect all allegedly defective Product Units, for a period
not to exceed twelve (12) months or until mutually agreed otherwise, and shall
only be responsible for those Product Units which Seller agrees are defective
(the "Verified Defective Product Unit").
(b) For 1993 model year vehicles and prior, Seller shall reimburse
Purchaser for the replacement of Product Units an amount equal to Purchaser's
actual payment to the servicing dealer which includes a 30% handling allowance
on the replacement part, or the retail price of the replacement part in effect
in those states designated as "retail states."
For 1994 model year vehicles and forward, Seller shall reimburse Purchaser for
the replacement of Product Units as follows:
(i) For Product Units (a) which are authorized warranty
related parts replaced by an authorized dealer of Purchaser, and (b)
which have a suggested dealer price under $500.00, reimbursement shall
be the actual payment made to the servicing dealer which includes a 40%
handling allowance;
(ii) For Product Units (a) which are authorized warranty
related parts replaced by an authorized dealer of Purchaser, and (b)
which have a suggested dealer price of $500.00 or over, reimbursement
shall be the suggested retail price of the replacement Product Unit;
(iii) For all Product Units in those states designated by
Purchaser as "retail states", reimbursement shall be the suggested
retail price of the replacement Product Unit.
For all repairs and replacements of Product Units performed by dealers
of Purchaser's products, including but not limited to removal of the defective
Product Unit and installation of a replacement part, Seller shall reimburse
Purchaser for the labor portion of warranty repairs and replacements based upon
the applicable provisions of the current Subaru Flat Rate Manual, including the
applicable Warranty Time Allowances set forth therein, multiplied by the same
labor rates per hour which Purchaser shall use, from time to time, for
reimbursing the servicing dealer for other types of warranty work. These
Warranty Time Allowances may be adjusted from time to time by Purchaser upon
timely written notice to Seller and are to be mutually agreed to by both
parties. Seller further agrees to reimburse Purchaser for the cost of all
materials utilized by the servicing dealer in the repair or replacement of a
Product Unit and for any claims for towing charges caused solely by a defective
Product Unit furnished by Seller. After the expiration of each Product Unit's
warranty period, Seller agrees that its charges for replacement parts, repairs
and servicing shall be reasonable and competitive and are to be mutually agreed
to by both parties.
5
<PAGE> 6
(c) Purchaser shall return to Seller, freight collect, certain
"allegedly defective" Product Units, as mutually agreed to by both parties,
pursuant to Paragraph 8(a) above. Within fifteen (15) days from receipt by
Seller of the "allegedly defective" Product Units, Seller shall review each
claim submitted by Purchaser and advise Purchaser in writing of Seller's
acceptance or rejection of said claim. Upon Seller's review, and Purchaser's
subsequent agreement, Purchaser shall issue an invoice for all Verified
Defective Product Units. Seller shall reimburse Purchaser for the entire
amount within thirty (30) days from receipt of said invoice.
(d) For those Product Units which Purchaser and Seller have agreed
not to hold for Seller's inspection, Purchaser shall provide Seller with a
computer-generated recap of all claims processed (the "Warranty Claim
Statement") and an invoice reflecting all amounts expended by Purchaser in
connection with this warranty, on a monthly basis. Said Warranty Claim
Statement and invoice shall be sent by Purchaser to Seller no later than the
15th day of each month. Seller shall reimburse Purchaser for the entire monthly
invoice amount within fifteen (15) days of receipt of such invoice. Within
thirty (30) days from receipt by Seller of the Warranty Claim Statement,
Seller shall review each claim on the Warranty Claim Statement, advise
Purchaser in writing of Seller's acceptance or rejection of the claim, and the
parties shall negotiate in good faith to resolve any disputed claims. Seller
shall not unreasonably reject any claim submitted to it by Purchaser. To the
extent Seller successfully disputes claims on the Warranty Claim Statement,
Purchaser shall credit the amount of such claims on the next month's Warranty
Claim Statement.
(e) Purchaser shall invoice Seller for all amounts expended by
Purchaser in connection with this warranty and Seller shall reimburse or issue
credit memos to Purchaser for such amounts.
9. PRODUCT DEFECTS AND
PRODUCT LIABILITY INSURANCE
(a) Seller covenants that both at the time of sale to Purchaser
of each Product Unit and during the entire period of its use, each Product
Unit and every part and component thereof shall be free from defects in design,
manufacture and assembly.
(b) Without limiting the extent or generality of subparagraph (a) of
this Paragraph 9 and Paragraph 14 of this Agreement, Seller hereby agrees to
purchase and maintain throughout the term of this Agreement, any extensions and
renewals thereof, and for a period of at least five years thereafter, the
following insurance coverages:
(1) Products and Completed Operations Liability insurance
covering all product units manufactured and sold pursuant to this
Agreement, such insurance having minimum limits of $1,000,000 per
occurrence and $1,000,000 in the annual aggregate.
6
<PAGE> 7
(2) Contractual Liability insurance in the minimum amount
of $1,000,000 per occurrence and $1,000,000 in the annual aggregate
covering liabilities assumed by Seller under this Agreement.
(3) A vendor's endorsement (ISO form 20-15 or its minimum
equivalent) shall be issued and shall include the following as
additional insureds and vendors: Subaru of America, Inc. and its parent
company (Fuji Heavy Industries), subsidiaries, distributors and
dealers.
(4) No change, cancellation, or reduction of the terms or
coverage of this policy shall be effective against Purchaser unless at
least thirty (30) days prior written notice is given by the Insurer to
Purchaser.
A Certificate of Insurance evidencing these coverages shall be
submitted to the Purchaser's Risk Management Department prior to the execution
of this Agreement and upon the renewal of such insurance coverages thereof.
Such Certificate of Insurance shall also indicate whether the insurance is on
a "claims made" (with associated retroactive date) or "occurrence", form.
(c) The provisions of subparagraph (a) of this Paragraph 9 together
with those in Paragraph 14 of this Agreement shall remain enforceable against
Seller regardless of whether Purchaser has been notified of any changes in
required insurance coverage. In the event that (i) insurance coverages are not
maintained as required under this paragraph or (ii) suitable evidence of such
coverage, such as a Certificate of Insurance, is not delivered to Purchaser's
Risk Management Department as required under this paragraph, at its option and
with prior notice to Seller, Purchaser may purchase comparable insurance for
Purchaser's interest only and for a period of at least one year. Such premium
payments made by the Purchaser shall be recoverable from Seller on demand
together with interest at the rate of 12% per annum (or the maximum lawful
interest rate of less than 12%) from the date of payment by Purchaser.
Purchaser may recover from Seller any and all costs and expenses (including but
not limited to counsel fees and legal expenses) incurred by Purchaser in
collecting such payments from Seller and enforcing Purchaser's rights
hereunder. The purchase of comparable insurance coverage by Purchaser for its
interests shall not relieve Seller of its obligations under Paragraph 14 of
this Agreement.
10. PROTECTION OF PRODUCT AND NAME
(a) Seller acknowledges that Purchaser has created and developed
certain plans, drawings, specifications and requirements which incorporate
various trade secrets as well as other improvements and modifications owned by
Purchaser which make the Product Units particularly suitable for installation
and use in Subaru vehicles. Seller further acknowledges that such trade
secrets, improvements and modifications constitute Purchaser's proprietary
information and that they have been disclosed to Seller
7
<PAGE> 8
on a confidential basis for the limited purpose of manufacturing Product Units
conforming to Purchaser's plans, specifications and requirements. Therefore,
Seller agrees that both during and after the term of this Agreement, Seller
shall not sell to any person or entity, either within or outside the
continental United States, other than to Purchaser, any Product Units or any
other product which incorporates any of such trade secrets, improvements or
modifications which make the product particularly suitable for installation and
use in Subaru vehicles.
(b) Neither party, without obtaining the prior written consent of
the other party (i) shall knowingly use, either during or after the term of
this Agreement, for any purpose or in any manner, any of the other party's
trademarks, service marks, collective marks, certification marks, logos,
insignias, product designations, slogans, fictitious names, trade names,
copyrighted materials, coined words, symbols, devices, abbreviations, or any
combination thereof, and (ii) neither party shall take any action, directly or
indirectly, either during or after the term of this Agreement, to inform any
person or entity that the Product Units, or any other Product Units, are being
or have been manufactured by Seller for Purchaser.
(c) Each party acknowledges that each of the foregoing provisions
of this Paragraph 10 is reasonable and necessary to protect the legitimate
interests of the parties, that upon breach of any of these provisions by one of
the parties, the other "nonbreaching" party shall not have an adequate remedy
at law, that any such breach would cause irreparable damage, the exact amount
of which would be impossible to ascertain and, therefore, that the
"non-breaching" party shall be entitled, as a matter of right, in addition to
any and all other remedies which may be available, to obtain preliminary and
permanent injunctive and other equitable relief in any court of competent
jurisdiction.
11. SELLER'S WARRANTY AGAINST INFRINGEMENT
Seller warrants that the design, manufacture, packaging and sale of the
Product Units and every part or component thereof will not and does not violate
or infringe upon any patent, mark, trademark, tradename, copyright, or any
other rights of any person or entity.
12. TITLE TO DRAWINGS, SPECIFICATIONS
At all times and at no additional cost, Purchaser shall have title to
any and all drawings and specifications (and to all copies of each of the
foregoing) intended for use in connection with this Agreement. Seller shall
use the drawings and specifications only in connection with this Agreement and
shall not disclose any one or
8
<PAGE> 9
more of the foregoing to any person or entity without obtaining Purchaser's
prior written consent. After the term of this Agreement or upon Purchaser's
earlier request, Seller shall promptly return to Purchaser all such drawings
and specifications (and all copies of each of the foregoing).
13. ASSIGNMENT AND SUBCONTRACTING
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators and
personal representatives or successors and assigns, except that the rights and
obligations of Seller hereunder shall not be assignable or delegable without
obtaining the prior written consent of Purchaser. Seller shall not employ any
new subcontractors to manufacture the Product Units (a) without notifying
Purchaser in writing, prior to the award of the proposed subcontract, of the
name of the proposed subcontractor, and (b) without obtaining Purchaser's prior
written consent thereto. Notwithstanding Purchaser's approval of any
subcontractors, Seller shall be fully responsible to Purchaser for the actions
and omissions of subcontractors and of persons directly or indirectly employed
by them.
14. INDEMNIFICATION BY SELLER
Seller hereby agrees to indemnify and hold harmless Purchaser, its
distributors and their dealers, and as to each of those parties, their
respective shareholders, directors, officers, principals, agents and employees,
as now and hereafter constituted, from and against any and all loss, liability,
damage (including any punitive or exemplary damages), cost and expense of every
kind or character (including but not limited to counsel fees and legal
expenses) which any or all of them may incur, suffer or be required to pay by
reason of any claim, suit, demand, proceeding or other action that may be
brought against any one or more of them arising from or related in any way to
the failure or alleged failure of a Product Unit to comply with any of the
warranties, representations, covenants or agreements of Seller contained in
this Agreement (including but not limited to the provisions of Paragraphs 2, 8,
9 and 11 hereof), whether or not caused or occasioned by, or alleged to be
caused or occasioned by, any act, omission, fault or negligence of Seller or of
anyone acting on Seller's behalf or with its consent. In the event that any
such claim, suit, demand, proceeding or other action shall be brought, Seller
covenants that upon notice from Purchaser, Seller shall defend such claim,
suit, demand, proceeding or action (or, if applicable, Seller shall cause it to
be defended by Seller's insurer) at Seller's sole cost and expense, and Seller
shall keep Purchaser fully advised of the continuing status of each such
defense. The provisions of this Paragraph 14 shall remain and continue in
effect after the term of this Agreement. This indemnification shall not apply
to any claims and/or causes of action which can be demonstrated to have been
directly caused by the gross negligence or willful tortious conduct
9
<PAGE> 10
on the part of the Purchaser, its distributors and/or their dealers, and/or
the shareholders, directors, officers, Principals, agents, and employees of the
Purchaser, its distributors, and/or their dealers, as now and as may hereafter
constituted.
15. MISCELLANEOUS
(a) Notices. Except for the mailing of invoices, which is provided
for in Paragraph 4 hereof, all notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be addressed as set forth below:
(i) If to Seller:
To the address set forth at the beginning of this
Agreement,
Attention: John Moffat, Vice President
OEM Business Development
(ii) If to Purchaser:
Subaru of America, Inc.
Subaru Plaza
P.O. Box 6000
Cherry Hill, New Jersey 08034-6000
Attention: Vice President - Parts
with a copy sent simultaneously to the above
address:
Attention: Manager, Product Sourcing
Any party may alter the address to which communications are to be sent
by giving notice of such change of address in conformity with the provisions of
this subparagraph for the giving of notice.
(b) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement are for convenience only; they form no part of this Agreement
and shall not affect its interpretation.
(c) Indulgences, etc. Neither the failure nor any delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise by either party of any right, remedy, power or privilege
preclude any other or further exercise of the same of any other right, remedy,
power or privilege nor shall any waiver by either party of any right, remedy,
power or privilege with respect to any occurrence be construed as a waiver
thereof with respect to any other occurrence.
10
<PAGE> 11
(d) Entire Agreement. This Agreement contains the entire
understanding between the parties hereto with respect to the purchase and sale
of Product Units during the time period specified in Paragraph 1 of this
Agreement, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or
written, relating to the purchase and sale of Product Units during that time
period. The express terms hereof control and supersede any course of
performance, usage of trade or terms contained in any acknowledgment or similar
document utilized by Seller which are, in any of these cases, inconsistent with
any of the terms hereof. This Agreement may not be varied, modified or amended
other than by a written instrument duly executed on behalf of the party or
parties to be bound thereby, provided, however, that Purchaser shall only be
bound by a written instrument executed by one or more of its corporate
officers.
(e) This Document a Proposal. The submission of this document to
Seller by Purchaser for examination and execution constitutes only a proposal
by Purchaser to Seller, it does not constitute a formal offer by Purchaser to
Seller, and this document shall become effective as an agreement only upon
being executed and delivered by both Seller and Purchaser.
(f) Supplementary General Principles of Law. Unless displaced by
the particular provisions of this Agreement, the principles of law and equity,
including the law merchant and the law relative to capacity to contract,
principal and agent, estoppel, fraud, misrepresentation, duress, coercion,
mistake, bankruptcy and other validating and invalidating causes shall
supplement its provisions.
11
<PAGE> 12
(g) Jurisdiction. Seller hereby voluntarily submits to the
jurisdiction of the courts of the State of New Jersey and the courts of the
United States in New Jersey.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Purchaser
and Seller have each caused this Agreement to be executed and delivered by
their proper and duly authorized officers on this 5th day of June, 1995.
Seller Purchaser
CODE-ALARM, INC. SUBARU OF AMERICA, INC.
By: John C. Moffat By: T. H. Braun
-------------------------- --------------------------
Name: John C. Moffat T. H. Braun
Title: Vice President OEM Vice President - Parts and
Development Governmental
Affairs
(CORPORATE SEAL)
Attest/
Witness: Suzanne Janowiak
---------------------
Name: Suzanne Janowiak
Title: Sales/Marketing Coordinator
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000821509
<NAME> CODE-ALARM, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 261,177
<SECURITIES> 0
<RECEIVABLES> 13,301,626
<ALLOWANCES> (839,366)
<INVENTORY> 14,812,021
<CURRENT-ASSETS> 30,277,955
<PP&E> 10,338,593
<DEPRECIATION> (6,419,210)
<TOTAL-ASSETS> 41,986,818
<CURRENT-LIABILITIES> 15,979,531
<BONDS> 0
<COMMON> 12,210,590
0
0
<OTHER-SE> (1,728,563)
<TOTAL-LIABILITY-AND-EQUITY> 41,986,818
<SALES> 18,756,368
<TOTAL-REVENUES> 18,756,368
<CGS> 11,837,880
<TOTAL-COSTS> 11,837,880
<OTHER-EXPENSES> 5,922,919
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 325,849
<INCOME-PRETAX> 648,812
<INCOME-TAX> 219,000
<INCOME-CONTINUING> 429,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 429,811
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
