<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
CODE ALARM, INC.
(Name of Issuer)
COMMON STOCK
(Title of Class of Securities)
191 893 10 6
(CUSIP Number)
PEGASUS INVESTORS, L.P.
99 RIVER ROAD
COS COB, CT 06807
ATTN: MR. RICHARD M. CION
(203) 869-4400
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
COPIES TO:
NANCY FUCHS, ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
425 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 836-8000
OCTOBER 27, 1997
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
Page 1 of 14 pages.
<PAGE> 2
SCHEDULE 13D
CUSIP No. 191 893 10 6 Page 2 of 14 Pages
<TABLE>
<CAPTION>
<S><C>
1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Pegasus Partners, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS (See Instructions)
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(c) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SOLE VOTING POWER
SHARES 7 1,314,025 shares of Common Stock, subject to the Warrants described herein
BENEFICIALLY
OWNED BY
EACH 8 SHARED VOTING POWER
REPORTING -0-
PERSON
WITH
9 SOLE DISPOSITIVE POWER
1,314,025 shares of Common Stock, subject to the Warrants described herein
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,314,025 shares of Common Stock, subject to the Warrants described herein
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Approximately 36.2% (based on 2,320,861 shares outstanding on August 18, 1997)
14 TYPE OF REPORTING PERSON (See Instructions)
PN
</TABLE>
<PAGE> 3
SCHEDULE 13D
CUSIP No. 191 893 10 6 Page 3 of 14 Pages
<TABLE>
<CAPTION>
<S><C>
1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Pegasus Related Partners, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS (See Instructions)
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SOLE VOTING POWER
SHARES 7 3,417,326 shares of Common Stock, subject to the Warrants described herein
BENEFICIALLY
OWNED BY
EACH 8 SHARED VOTING POWER
REPORTING -0-
PERSON
WITH
9 SOLE DISPOSITIVE POWER
3,417,326 shares of Common Stock, subject to the Warrants described herein
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,417,326 shares of Common Stock, subject to the Warrants described herein
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Approximately 59.6% (based on 2,320,861 shares outstanding on August 18, 1997)
14 TYPE OF REPORTING PERSON (See Instructions)
PN
</TABLE>
<PAGE> 4
SCHEDULE 13D
CUSIP No. 191 893 10 6 Page 4 of 14 Pages
<TABLE>
<CAPTION>
<S><C>
1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Pegasus Investors, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF, WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY
OWNED BY SHARED VOTING POWER
EACH 8 4,731,351 shares of Common Stock, subject to the Warrants described herein
REPORTING
PERSON
WITH 9 SHARED DISPOSITIVE POWER
-0-
10 SOLE DISPOSITIVE POWER
4,731,351 shares of Common Stock, subject to the Warrants described herein
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,731,351 shares of Common Stock, subject to the Warrants described herein
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Approximately 67.1% (based on 2,320,861 shares outstanding on August 18, 1997)
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
PN
</TABLE>
<PAGE> 5
SCHEDULE 13D
CUSIP No. 191 893 10 6 Page 5 of 14 Pages
<TABLE>
<CAPTION>
<S><C>
1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Pegasus Investors GP, Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF, WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY
OWNED BY SHARED VOTING POWER
EACH 8 4,731,351 shares of Common Stock, subject to the Warrants described herein
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
10 SHARED DISPOSITIVE POWER
4,731,351 shares of Common Stock, subject to the Warrants described herein
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,731,351 shares of Common Stock, subject to the Warrants described herein
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS) [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Approximately 67.1% (based on 2,320,861 shares outstanding on August 18, 1997)
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
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<PAGE> 6
SCHEDULE 13D
CUSIP No. 191 893 10 6 Page 6 of 14 Pages
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<S><C>
1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Craig M. Cogut
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [x]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS (See Instructions)
AF, WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SOLE VOTING POWER
SHARES 7
BENEFICIALLY -0-
OWNED BY
EACH 8 SHARED VOTING POWER
REPORTING
PERSON -0-
WITH
9 SOLE DISPOSITIVE POWER
-0-
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
-0-
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [X]
Excludes shares beneficially owned by the other persons joining in the filing of this
Schedule 13D, as to which beneficial ownership is disclaimed.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
14 TYPE OF REPORTING PERSON (See Instructions)
IN
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<PAGE> 7
ITEM 1. SECURITY AND ISSUER
This Statement relates to the common stock, no par value (the "Common Stock")
of Code Alarm, Inc. (the "Issuer"). The shares of Common Stock reported in
this statement include 4,731,351 shares of Common Stock purchasable pursuant to
certain presently exercisable warrants, dated October 27, 1997 (the
"Warrants"), issued to Pegasus Partners, L.P. ("Partners") and Pegasus Related
Partners, L.P. ("Related Partners"), each a Delaware limited partnership, by
the Issuer. The principal executive offices of the Issuer are located at 950
East Whitcomb, Madison Heights, MI 48071.
ITEM 2. IDENTITY AND BACKGROUND
This Statement constitutes the filing on Schedule 13D by Partners, Related
Partners, Pegasus Investors, L.P. ("Investors"), Pegasus Investors GP, Inc.
("Investors GP") and Craig M. Cogut (collectively, the "Reporting Persons").
Investors, a Delaware limited partnership, is the managing general partner of
each of Partners and Related Partners. Pegasus Administration Limited, a
Cayman Islands limited duration company ("Administration"), is the
administrative general partner of each of Partners and Related Partners.
Investors GP, a Delaware corporation, is the general partner of Investors. Mr.
Cogut owns 100% of the capital stock of each of Investors GP and
Administration.
The principal business of Partners and Related Partners is investing in
securities. The principal business of Investors is being the managing general
partner of Partners and Related Partners. The principal business of
Administration is being the administrative general partner of Partners. The
principal business of Investors GP is being the general partner of Investors.
The present principal occupation of Mr. Cogut is serving as the president of
Investors GP.
Mr. Cogut is the sole director and the president, treasurer and secretary of
Investors GP. Each of Messrs. Joshua Brain and Richard Cion is a vice
president and assistant secretary of Investors GP. The directors of
Administration are Mr. Cogut, David Sargison, David Burge, Kate Bowring and
Bernard McGrath. Each of Messrs. Sargison, Burge and McGrath and Ms. Bowring
is employed by Caledonian Bank & Trust Limited, Ground Floor, Caledonian House,
P.O. Box 1043, George Town, Grand Cayman, Cayman Islands, British West Indies.
The address of the principal business office of each of Partners, Related
Partners and Administration is c/o Caledonian Bank & Trust Limited, Ground
Floor, Caledonian House, P.O. Box 1043, George Town, Grand Cayman, Cayman
Islands, British West Indies. The address of the principal business office of
each of Investors and Investors GP is 99 River Road, Cos Cob, CT 06807. The
address of each of the directors and executive officers of Pegasus Investors
GP, Inc. is c/o Pegasus Investors, L.P., 99 River Road, Cos Cob, CT 06807. The
address of each of the directors of Administration is c/o Caledonian Bank &
Trust Limited, Ground Floor, Caledonian House, P.O. Box 1043, George Town,
Grand Cayman, Cayman Islands, British West Indies.
Page 7 of 14 pages.
<PAGE> 8
During the past five years, none of the Reporting Persons or any general
partner, executive officer or director of any of the Reporting Persons has been
convicted in a criminal proceeding (excluding traffic violations and similar
misdemeanors).
During the past five years, none of the Reporting Persons or any general
partner, executive officer or director of any of the Reporting Persons has been
a party to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which such person was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal and state securities laws or finding
any violation with respect to such laws.
Each of Messrs. Cogut, Brain and Cion is a citizen of the United States.
Each of Messrs. Sargison and Burge and Ms. Bowring are British citizens and Mr.
McGrath is an Irish citizen.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Pursuant to a unit purchase agreement dated as of October 27, 1997 among the
Issuer, Partners and Related Partners (the "Unit Purchase Agreement"), Partners
purchased Warrants to purchase 1,036,298 shares of Common Stock at an exercise
price of $1.8759559 per share, in the form of Exhibit 3, as part of units with
shares of Series A-1 Preferred Stock of the Issuer ("Units"), for total
consideration of $1,944,049.25. Related Partners purchased Warrants to
purchase 2,695,053 shares of Common Stock at an exercise price of $1.8759559
per share, in the form of Exhibit 3, as part of Units, for total consideration
of $5,055,800.75. Partners and Related Partners obtained funds for such
purpose from working capital.
In addition, Partners obtained Warrants to purchase 277,727 shares of Common
Stock at an exercise price of $1.8759559 per share, in the form of Exhibit 4,
in exchange for a guarantee of approximately $1,110,909 of the Issuer's
obligations to General Electric Capital Corporation. Related Partners obtained
Warrants to purchase 722,273 shares of Common Stock at an exercise price of
$1.8759559 per share, in the form of Exhibit 4, in exchange for a guarantee of
approximately $2,889,091 of the Issuer's obligations to General Electric
Capital Corporation. See Exhibit 8. In the event the guarantees are called,
Partners and Related Partners intend to obtain the funds to pay the obligations
from various sources, including, without limitation, from working capital
and/or from their partners.
If the Warrants are exercised, Partners and Related Partners intend to obtain
the funds to pay for the shares of Common Stock to be purchased thereunder from
various sources, including, without limitation, from working capital and/or
from their partners.
ITEM 4. PURPOSE OF TRANSACTION
Partners and Related Partners purchased the Warrants and the Preferred Stock
for investment purposes.
Page 8 of 14 pages.
<PAGE> 9
(a) In the event Partners and Related Partners provide the Issuer with
financing (including, without limitation, by way of an effective guarantee of
the Issuer's obligations) for a judgment, appeal bond or settlement in
connection with the litigation pending with the United States District Court
for the Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive
Technology Corporation, case number 87-CV-74022-DT, the Issuer will issue to
Partners and Related Partners, in proportions consistent with their relative
investments in the Issuer, Warrants in the form of Exhibit 5, to purchase such
number of shares of Common Stock which, at the time of issuance will increase
the aggregate ownership interest of Partners and Related Partners in the
Issuer, on a fully-diluted basis, by 2% for each $1,000,000 of financing
provided, for an aggregate exercise price of $164,731 for each 1% interest.
Each of Partners and Related Partners have given a guarantee to General
Electric Capital Corporation agreeing to guarantee up to $12,000,000 of such
litigation obligations in the event the Issuer issues the Warrants described
above. See Exhibit 9.
In addition, Partners and Related Partners have certain rights to purchase
the obligations owing to General Electric Capital Corporation and the other
lenders under a $25.5 million Credit Agreement with the Issuer, in the event
such obligations are accelerated. See Exhibit 10.
Partners and Related Partners have no current plans to dispose of the shares
of Common Stock purchasable upon exercise of Warrants in the near future, but
possess registration rights with respect to such shares. See Exhibit 6.
(b) Not applicable.
(c) Not applicable.
(d) Partners and Related Partners have the right to appoint two of nine
members of the Issuer's Board of Directors and have appointed Richard Cion and
Rodney Cohen to serve in such capacity.
(e) Pursuant to the Unit Purchase Agreement, the Issuer is required to take
all action reasonably necessary or appropriate to solicit and obtain proxies
and votes in favor of an amendment to the articles of incorporation of the
Issuer, pursuant to which the number of authorized shares of Common Stock of
the Corporation would be increased from 5,000,000 to 20,000,000.
(f) Not applicable.
(g) Certain change of control events require an affirmative vote or written
consent of the holders of a majority of the then outstanding shares of Series
A-1 Preferred Stock of the Issuer. Upon the occurrence of certain events,
including, without limitation, the failure of the Issuer to amend its articles
of incorporation to increase the number of authorized shares of Common Stock to
20,000,000 on or before May 31, 1998, the holders of Series A Preferred Stock
will be entitled to vote on all matters requiring action of the stockholders of
the Issuer, voting together with the holders of Common Stock. In such case,
holders of Series A Preferred
Page 9 of 14 pages.
<PAGE> 10
Stock will be entitled to three votes for each share of Common Stock for which
Warrants purchased or otherwise received as part of Units with such preferred
shares may be exercised. See Exhibit 2.
(h) Not applicable.
(i) Not applicable.
(j) Not applicable.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Partners is the beneficial owner of 1,314,025 shares of Common Stock,
subject to the Warrants described herein, or approximately 36.2% of the issued
and outstanding shares of common stock of the Issuer as of August 18, 1997.
Related Partners is the beneficial owner of 3,417,326 shares of Common Stock,
subject to the Warrants described herein, or approximately 59.6% of the issued
and outstanding shares of Common Stock of the Issuer as of August 18, 1997.
The Warrants are exercisable at any time through and including October 27,
2004, and certain Warrants may be exercisable thereafter, in certain
circumstances. See Exhibit 3.
Investors and Investors GP, through their direct and indirect ownership
interests in Partners and Related Partners, may be deemed to be the indirect
beneficial owners of such 4,731,351 shares of Common Stock. Mr. Cogut
disclaims beneficial ownership of the shares of Common Stock beneficially owned
by the other Reporting Persons.
(b) Upon exercise of the Warrants, Partners will have the sole power to vote
and dispose of 1,314,025 shares and Related Partners will have the sole power
to vote and dispose of 3,417,326 shares acquired thereby. Investors and
Investors GP, through their direct and indirect ownership interests in
Partners and Related Partners, will have the shared power to direct the vote
and the disposition of all of such 4,731,351 shares. Prior to exercise, the
Warrants are not accorded any voting rights.
(c) See the response to Item 3.
(d) To the best knowledge of the Reporting Persons, no person other than the
Reporting Persons has the right to receive or the power to direct the receipt
of dividends from, or the proceeds from the sale of, the shares of Common Stock
issuable upon exercise of the Warrants, except that limited partners of each of
Partners and Related Partners may receive distributions including a portion of
such dividends or proceeds.
(e) Not applicable.
Page 10 of 14 pages.
<PAGE> 11
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE COMMON STOCK OF THE ISSUER
To the best knowledge of the Reporting Persons, except as set forth herein or
in the Exhibits filed herewith, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) among the persons named in
Item 2 and between such persons and any person with respect to any securities
of the Issuer, including, but not limited to, transfer or voting of any
securities of the Issuer, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or loss
or the giving or withholding of proxies except as set forth in the other items
hereof and the Exhibits, and except as follows: The partnership agreement of
each of Partners and Related Partners contains provisions whereby the
partnership's managing general partner, Investors, will receive a certain
percentage of net income, if any, derived from the partnership's investments.
In addition, Partners and Related Partners have entered into an agreement with
each of the Robyn L. Mueller Trust, the Kenneth M. Mueller Charitable Remainder
Unitrust and Mr. Rand Mueller, pursuant to which such parties, who collectively
own approximately 29% of the outstanding Common Stock, have agreed to vote
their shares in favor of an amendment to the Issuer's articles of incorporation
increasing the number of authorized shares of Common Stock to 20,000,000 in
order to allow for, among other things, the exercise of warrants issued to
Partners and Related Partners, and have agreed to certain restrictions on the
transfer of their shares. See Exhibit 7.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. Unit Purchase Agreement dated as of October 27, 1997 among the
Issuer, Partners and Related Partners
2. Certificate of Designation, Numbers, Powers, Preferences and
Relative, Participating, Optional and Other Rights of Series A
Preferred Stock of the Issuer
3. Form of Attached Warrant to purchase Common Stock of the Issuer
4. Form of Shortfall Warrant to purchase Common Stock of the Issuer
5. Form of Litigation Warrant to purchase Common Stock of the Issuer
6. Registration Rights Agreement dated as of October 27, 1997 among the
Issuer, Partners, Related Partners and General Electric Capital
Corporation
7. Letter Agreement dated as of October 27, 1997 among the Robyn L.
Mueller Trust, the Kenneth M. Mueller Charitable Remainder Unitrust,
Mr. Rand Mueller, Partners, Related Partners and the Issuer
8. Limited Supplemental Guaranty dated as of October 24, 1997 by and
among Partners, Related Partners and General Electric Capital
Corporation
Page 11 of 14 pages.
<PAGE> 12
9. Limited Litigation Guaranty dated as of October 24, 1997 by and among
Partners, Related Partners and General Electric Capital Corporation
10. Letter Agreement dated as of October 27, 1997 among General Electric
Capital Corporation, Partners, Related Partners and the Issuer
11. Joint Filing Agreement
Page 12 of 14 pages.
<PAGE> 13
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated as of November 6, 1997
PEGASUS PARTNERS, L.P.
By: Pegasus Investors, L.P., its general partner
By: Pegasus Investors GP, Inc., its general partner
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
PEGASUS RELATED PARTNERS, L.P.
By: Pegasus Investors, L.P., its general partner
By: Pegasus Investors GP, Inc., its general partner
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
PEGASUS INVESTORS, L.P.
By: Pegasus Investors GP, Inc., its general partner
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
PEGASUS INVESTORS GP, INC.
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
/s/ Craig M. Cogut
---------------------------
CRAIG M. COGUT
Page 13 of 14 pages.
<PAGE> 14
Index to Exhibits
EXHIBIT PAGE NO. IN
- ------- SEQUENTIAL
NUMBERING SYSTEM
----------------
1. Unit Purchase Agreement dated as of October 27, 1997
among the Issuer, Partners and Related Partners
2. Certificate of Designation, Numbers, Powers, Preferences and
Relative, Participating, Optional and Other Rights of Series A
Preferred Stock of the Issuer
3. Form of Attached Warrant to purchase Common Stock of the
Issuer
4. Form of Shortfall Warrant to purchase Common Stock of the
Issuer
5. Form of Litigation Warrant to purchase Common Stock of the
Issuer
6. Registration Rights Agreement dated as of October 27, 1997
among the Issuer, Partners, Related Partners and General Electric
Capital Corporation
7. Letter Agreement dated as of October 27, 1997 among the Robyn L.
Mueller Trust, the Kenneth M. Mueller Charitable Remainder
Unitrust, Mr. Rand Mueller, Partners, Related Partners and the
Issuer
8. Limited Supplemental Guaranty dated as of October 24, 1997 by
and among Partners, Related Partners and General Electric Capital
Corporation
9. Limited Litigation Guaranty dated as of October 24, 1997 by and
among Partners, Related Partners and General Electric Capital
Corporation
10. Letter Agreement dated as of October 27, 1997 among General
Electric Capital Corporation, Partners, Related Partners and the
Issuer
11. Joint Filing Agreement
Page 14 of 14 pages.
<PAGE> 1
EXHIBIT 1
UNIT PURCHASE AGREEMENT
AMONG
CODE ALARM INC.,
PEGASUS PARTNERS, L.P.
AND
PEGASUS RELATED PARTNERS, L.P.
DATED AS OF OCTOBER 27, 1997
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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<S> <C>
RTICLE I AUTHORIZATION, PURCHASE AND SALE OF UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Authorization of the Preferred Shares, the Units and the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Purchase and Sale of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II PREFERRED SHARE CERTIFICATES; CERTAIN TERMS OF THE PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . 2
2.01 Form of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.02 Replacement of Preferred Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.03 Registration; Transfer; Registration of Transfer and Exchange
of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.04 PPN Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.05 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.01 Conditions to Purchasers' Obligations , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) All Proceedings to be Satisfactory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) Necessary Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(g) Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(h) No Injunctions, Restraining Order or Adverse Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(i) Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(j) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(k) Exemption from Chapter 7A of Michigan Business Corporation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(l) Amendment to Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(m) Amendment to Restated Articles of Incorporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(n) Employee Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(o) Mueller Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(p) Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(q) Debt Refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(r) [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(s) Shortfall Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(t) Series A-2 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(u) Documentation at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.02 Conditions to the Company's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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(b) Purchasers' Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Litigation Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.02 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.03 Authorization; Validity of Agreement; Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.04 Consents and Approvals; No Violations; Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.05 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.06 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.07 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.08 Employee Benefit Plans; ERISA; Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.09 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 No Default; Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.14 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.15 Patents and Other Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.01 Financial and Business Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.02 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.03 Shareholder Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.04 Issuance of Litigation Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.05 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.06 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.07 Public Announcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.08 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.09 Hart-Scott-Rodino, Voting Rights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.10 Prohibition on Realization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.11 Expiration of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.01 Representations by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.02 Transfer of Units; Surrender of Preferred Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.03 No Transfer of Units to Directed Electronics, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII CERTAIN SECURITIES LAW MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.01 Representations by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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7.02 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Termination of Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.03 Additional Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII CALL RIGHT; PUT RIGHT; RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.01 Company's Right to Repurchase Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Repurchase During Year One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(b) Repurchase After Year Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Notice of Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(d) Cessation of Dividends on Preferred Shares Redeemed; Shares No Longer Outstanding . . . . . . . . . . . . . . . . . 32
(e) Status of Redeemed Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(f) Limitation on Company's Right to Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.02 Purchasers' Right to Put Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Obligation to Redeem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Payment of Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.03 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Company's Right to Acquire Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Non-Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(c) Termination or Suspension of Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.01 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.02 No Waiver: Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.03 Amendments; Waiver and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.05 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.06 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.07 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.08 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.09 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.10 Prior Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.11 Governing Law; Consent to Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.12 Mutual Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.16 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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EXHIBITS
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Exhibit A Certificate of Designation
Exhibit B-1 Form of Attached Warrant
Exhibit B-2 Form of Shortfall Warrant
Exhibit B-3 Form of Litigation Warrant
Exhibit C-1 Form of Series A-1 Preferred Share Certificate
Exhibit D Opinion of Pepper, Hamilton & Scheetz LLP
Exhibit E Stock Option Plan
Exhibit F Mueller Agreement
Exhibit G Registration Rights Agreement
<CAPTION>
SCHEDULES
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Schedule 1.02 Investment Proportions
Schedule 3.01(f) Material Adverse Effect
Schedule 4.01 Subsidiaries
Schedule 4.02(a) Capitalization
Schedule 4.02(b) Capitalization of Subsidiaries
Schedule 4.04(a) Governmental Consents and Approvals
Schedule 4.04(b) Licenses
Schedule 4.06 Liabilities
Schedule 4.07 Certain Changes
Schedule 4.08 ERISA
Schedule 4.09 Litigation
Schedule 4.11 Taxes
Schedule 4.14 Transactions with Affiliates
Schedule 4.15 Intellectual Property
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Index of Defined Terms
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1997 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Additional Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Attached Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Basic Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Certificate of Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Charter Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Current Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
D&O Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
DEI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
DOJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Employee Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Environmental Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
FTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Fully Diluted Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
GECC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Indemnified Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Interim Dividend Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Inventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Key Man Life Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Litigation Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Litigation Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Materials of Environmental Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
MBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
multiemployer pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
New Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Non-Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Offer Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
parachute payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Permitted Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Preferred Share Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Preferred Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Preferred Share Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Put Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Realization Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Restriction Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Seller Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Series A Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Series A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Series A-1 Preferred Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Series A-1 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Series A-2 Preferred Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Series A-2 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Shortfall Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
single employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Trading Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Triggering Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
welfare plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<PAGE> 9
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (the "Agreement") is made as of October 27, 1997
among CODE ALARM INC., a Michigan corporation (the "Company"), PEGASUS
PARTNERS, L.P., a Delaware limited partnership, and PEGASUS RELATED PARTNERS,
L.P., a Delaware limited partnership (together with their respective successors
and assigns, each a "Purchaser" and together, the "Purchasers").
ARTICLE I
AUTHORIZATION, PURCHASE AND SALE OF UNITS
1.01 Authorization of the Preferred Shares, the Units and the Warrants.
Pursuant to its Restated Articles of Incorporation, as amended, the Company has
established a series of preferred stock designated as "Series A Preferred
Stock", which will be issuable in two sub-series, "Series A-1 Preferred Stock"
and "Series A-2 Preferred Stock", and authorized the issuance of up to 200,000
shares of Series A-1 Preferred Stock (each such share, a "Series A-1 Preferred
Share" and together with the Series A-2 Preferred Shares (as defined in Section
3.01(t)), the "Preferred Shares") in accordance with the terms of the
Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Rights of Series A Preferred Stock, attached
as Exhibit A hereto (the "Certificate of Designation"). The Company has
authorized the issuance and sale to the Purchasers of 55,000 units (the
"Units"), each Unit consisting of one Series A-1 Preferred Share and one
warrant (collectively, with other such warrants, the "Attached Warrants") to
purchase 72.2525247 shares of the Company's common stock, no par value (the
"Common Stock"), which may be aggregated with other Attached Warrants. A
portion of each Attached Warrant entitling the holder to purchase 6.1033% of
the Common Stock for which the entire Attached Warrant is exercisable (an
"Interim Dividend Warrant") has been allocated to provide for future accrued
and unpaid dividends on the Preferred Shares. The Company has also authorized
the issuance and sale to Pegasus Partners, L.P. and Pegasus Related Partners,
L.P. of one or more warrants to purchase an aggregate of 1,000,000 shares of
Common Stock (the "Shortfall Warrants" and together with the Attached Warrants
and the Litigation Warrants (as defined in Section 5.04), the "Warrants"). The
terms of the Attached Warrants are set forth in the form of Warrant attached as
Exhibit B-1 hereto. The terms of the Shortfall Warrants are set forth in the
form of Warrant attached as Exhibit B-2 hereto. The terms of the Litigation
Warrants are set forth in the form of Warrant attached as Exhibit B-3 hereto.
The shares of Common Stock issuable upon exercise of the Warrants are referred
to as the "Warrant Shares." The Preferred Shares, the Warrants and the Warrant
Shares are sometimes referred to herein as the "Securities." This Agreement,
the Certificate of Designation and the Registration Rights Agreement (as
hereinafter defined), including the schedules and exhibits attached hereto and
thereto, are referred to herein as the "Basic Documents."
<PAGE> 10
1.02 Purchase and Sale of Units.
(a) The Closing. The Company agrees to issue and sell to the
Purchasers, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchasers agree to
purchase, 55,000 Units for an aggregate purchase price of $6,999,850.00, or
$127.27 per Unit (the "Purchase Price"), in the proportions set forth on
Schedule 1.02. Such purchase and sale shall take place at a closing (the
"Closing") to be held on October 27, 1997 (the "Closing Date") at 10:00 a.m.
Eastern Time, at the offices of Sidley & Austin in New York, NY. At the
Closing, the Company will issue to each Purchaser a certificate or certificates
representing the number of Preferred Shares purchased by such Purchaser and a
certificate or certificates representing the number of Warrants purchased by
such Purchaser. At the Closing, each Purchaser will deliver to the Company, by
wire transfer of immediately available funds to an account designated by the
Company by written notice to the Purchasers, the aggregate Purchase Price for
the Preferred Shares and Warrants to be purchased by such Purchaser.
(b) Use of Proceeds. The Company agrees to use the proceeds from the
sale of the Units to refinance a portion of the current bank financing with NBD
Bank and for working capital purposes.
ARTICLE II
PREFERRED SHARE CERTIFICATES; CERTAIN TERMS OF THE PREFERRED SHARES
2.01 Form of Preferred Shares. The certificates representing the Series
A-1 Preferred Shares shall be substantially in the form of Exhibit C- 1 hereto
and the certificates representing the Series A-2 Preferred Shares shall be in
substantially similar form thereto (collectively, the "Preferred Share
Certificates"), and may have such letters, numbers or other marks of
identification and such legends printed, lithographed or engraved upon them as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement or the Certificate of Designation.
2.02 Replacement of Preferred Share Certificates. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Share Certificate, and, if requested in the case
of any such loss, theft or destruction, upon delivery of an indemnity bond or
other agreement or security reasonably satisfactory to the Company, or, in the
case of any such mutilation, upon surrender and cancellation of any such
Preferred Share Certificate, the Company will issue a new Preferred Share
Certificate, of like tenor and amount, in lieu of such lost, stolen, destroyed
or mutilated Preferred Share Certificate; provided, however, if any Preferred
Share Certificate of which any Purchaser, its nominee, or any of its officers or
principals is the registered holder is lost, stolen or destroyed, the affidavit
of such principal or officer of such holder setting forth the circumstances with
respect to such loss, theft or destruction, together with an agreement to
indemnify the Company with respect thereto,
2
<PAGE> 11
shall be accepted as satisfactory evidence thereof, and no bond or other
security shall be required as a condition to the execution and delivery by the
Company of a new Preferred Share Certificate in replacement of such lost,
stolen or destroyed Preferred Share Certificate.
2.03 Registration; Transfer; Registration of Transfer and Exchange of
Preferred Shares. The Preferred Shares shall be issued in registered form
only. The Company, or a transfer agent appointed by the Company (the Company
or such designated agent, in such capacity, the "Preferred Share Agent"), shall
number and list each Preferred Share Certificate, as it is issued, in a
register (the "Preferred Share Register") which the Company or such agent shall
maintain at the principal executive offices of the Company or at such office
specified in a notice to the registered holders (the "Holders") of the
Preferred Shares pursuant to Section 9.04 of this Agreement (the "Office").
At the option of any Holder of Preferred Shares, any Preferred Share
Certificate may be exchanged at the Office for a new Preferred Share Certificate
(or new Preferred Share Certificates, in the same or different denominations),
upon payment of the charges (if any) hereinafter provided. Whenever any
Preferred Share Certificates are so surrendered for exchange the Company shall
execute, and, if applicable, the Preferred Share Agent shall countersign and
deliver, the Preferred Share Certificates that the Holder making the exchange is
entitled to receive.
Subject to compliance with the restrictions set forth in this Agreement
(including, without limitation, Section 7.02 hereof), the Preferred Share
Certificates shall be transferable only on the Preferred Share Register, upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and remain with the Company or the Preferred Share Agent. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced, and may be
required to be deposited and to remain with the Preferred Share Agent in its
discretion. Upon any registration of transfer, the Company shall execute and,
if applicable, the Preferred Share Agent shall countersign and deliver, a new
Preferred Share Certificate(s) to the Persons entitled thereto. As used in this
Agreement, "Person" means any natural person, corporation, partnership, joint
venture, limited liability company, firm, association, joint-stock company,
trust, unincorporated organization, government or governmental agency or
political subdivision or any other entity, whether acting in an individual,
fiduciary or other capacity.
All Preferred Share Certificates issued upon any registration of
transfer or exchange of Preferred Share Certificates shall be the valid
obligations of the Company, evidencing the same obligations, and entitled to the
same benefits under this Agreement, as the Preferred Share Certificates
surrendered for such registration of transfer or exchange.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Preferred Share Certificates. The Company may require
payment of a sum
3
<PAGE> 12
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Preferred Share
Certificates.
Any Preferred Share Certificate when duly endorsed in blank shall be
deemed negotiable, and when a Preferred Share Certificate shall have been so
endorsed, the Holder thereof may be treated by the Company, the Preferred Share
Agent and all other Persons dealing therewith as the absolute owner thereof for
any purpose and as the Person entitled to exercise the rights represented
thereby, or the transfer thereof on the Preferred Share Register, any notice to
the contrary notwithstanding, but until such transfer on the Preferred Share
Register, the Company and the Preferred Share Agent may treat the registered
Holder thereof as the owner for all purposes.
2.04 PPN Application. The Company acknowledges that filing an
application with Standard & Poor's Corporation CUSIP Service Bureau is necessary
for the assignment of a Private Placement Number with respect to each of the
Preferred Shares and the Company consents to the filing with such Bureau of all
documents and materials required to be submitted with such application.
2.05 Taxes. The Company will pay all taxes (including interest and
penalties), other than taxes imposed on the income of the Purchasers, which may
be payable in respect of the execution and delivery of this Agreement or of the
issuance and delivery (but not the transfer) of any of the Securities.
ARTICLE III
CONDITIONS TO CLOSING
3.01 Conditions to Purchasers' Obligations. The obligation of the
Purchasers to purchase and pay for the Units at the Closing is subject to the
fulfillment by the Company or waiver by the Purchasers of each of the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article IV hereof and in the Basic
Documents shall be true and correct in all material respects on the Closing
Date.
(b) Performance. The Company shall have performed and complied in all
material respects with all covenants and agreements contained herein and
received any and all consents, approvals or waivers necessary in order to
complete the transactions required to be performed or complied with by it prior
to or at the Closing.
(c) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the
4
<PAGE> 13
Purchasers, including, without limitation, the filing of the duly adopted
Certificate of Designation with the Department of Consumer & Industry Services
of the State of Michigan. The Purchasers shall have received all such
counterpart originals or certified or other copies of such documents as they
may reasonably request.
(d) Legal Opinion. The Purchasers shall have received an originally
executed copy of an opinion of Pepper Hamilton & Scheetz LLP, special counsel
for the Company, dated as of the Closing Date and substantially in the form
attached as Exhibit D hereto.
(e) Necessary Consents. Except for shareholder approval of the Charter
Amendment, on or before the Closing Date, the Company shall have obtained any
required governmental authorizations with respect to the Basic Documents and
the Warrants and shall have obtained all material consents to the transactions
contemplated under the Basic Documents and the Warrants, of any Person required
under any contractual obligation or any other obligations (including any
obligations imposed by law) of the Company or any of its Subsidiaries. As used
in this Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or
other organization is directly or indirectly owned or controlled by such party
or by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(f) No Material Adverse Effect. Except as disclosed in Schedule 3.01(f),
since December 31, 1996, no Material Adverse Effect shall have occurred. As
used in this Agreement, any reference to "Material Adverse Effect" means any
event, change or effect that is materially adverse to the consolidated
financial condition, businesses, results of operations, cash flows or prospects
of the Company and its Subsidiaries, taken as a whole, or that materially
impairs the ability of the Company to perform or the Purchasers to enforce the
obligations of the Company under the Basic Documents or the Warrants.
(g) Payment of Fees and Expenses. Without limiting the provisions of
Section 9.05 hereof, the Company shall have paid on or before the Closing, the
reasonable fees, charges and disbursements of the Purchasers, including the
fees and expenses of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel to
the Purchasers.
(h) No Injunctions, Restraining Order or Adverse Litigation. No order,
judgment or decree of any Governmental Entity (as hereinafter defined) shall
purport to enjoin or restrain the Purchasers from acquiring Units or Shortfall
Warrants on the Closing Date. As of the Closing Date, there shall not be
pending or, to the knowledge of Company, threatened, any action, suit,
proceeding, governmental investigation or arbitration against or affecting the
Company or any of its Subsidiaries or any property of the Company or any of its
Subsidiaries that has not been disclosed by the Company in writing pursuant to
Section 4.09, and there shall have occurred no development not so disclosed in
any such action, suit, proceeding,
5
<PAGE> 14
governmental investigation or arbitration so disclosed, that, in either event,
could reasonably be expected to have a Material Adverse Effect; and no
injunction or other restraining order shall have been issued and no hearing to
cause an injunction or other restraining order to be issued shall be pending or
noticed with respect to any action, suit or proceeding seeking to enjoin or
otherwise prevent the consummation of, or to recover any damages or obtain
relief as a result of, the transactions contemplated by this Agreement, the
other Basic Documents or the Warrants.
(i) Employment Agreements. The Company shall have entered into an
employment agreement with Mr. Craig Camalo and shall have amended its
employment agreement with Mr. Rand Mueller, each in form and substance
satisfactory to the Purchasers. The foregoing employment agreements and the
Company's employment agreements with each of Messrs. Peter Stouffer and Michael
Schroder shall be in full force and effect, and the Purchasers shall have
received evidence satisfactory to them thereof.
(j) Insurance. The Company shall have secured a directors' and officers'
liability insurance policy (the "D&O Policy") with an insurance carrier
approved by and on terms reasonably satisfactory to the Purchasers, covering
each of the Company's existing and future officers and directors, with coverage
of not less than $5,000,000. The Purchasers shall have received evidence
satisfactory to them of the D&O Policy.
(k) Exemption from Chapter 7A of Michigan Business Corporation Act. Prior
to the execution of this Agreement, the Company's Board of Directors shall have
adopted an irrevocable resolution pursuant to Section 782 of the Michigan
Business Corporation Act (the "MBCA"), exempting from the requirements of
Section 780 of the MBCA all business combinations (as such term is defined in
Section 776(5) of the MBCA) involving transactions with Pegasus Partners, L.P.
and Pegasus Related Partners, L.P. and their affiliates (as such term is
defined in Section 776(1) of the MBCA), including, without limitation, the
transactions contemplated by this Agreement and the other Basic Documents and
the Warrants. Prior to or at the Closing, the Company shall have delivered to
the Purchasers a complete and correct copy of such resolution certified by the
Secretary or an Assistant Secretary of the Company.
(l) Amendment to Bylaws. Prior to the execution of this Agreement, the
Company's Board of Directors shall have adopted a resolution amending the
Company's Bylaws to (i) increase the number of directors comprising the
Company's Board of Directors to nine and (ii) provide that the provisions of
Chapter 7B of the MBCA do not apply to control share acquisitions (as defined
therein) of shares of the Company. Prior to or at the Closing, the Company
shall have delivered to the Purchasers a complete and correct copy of such
resolution certified by the Secretary or an Assistant Secretary of the Company.
(m) Amendment to Restated Articles of Incorporation. Prior to the execution
of this Agreement, the Company's Board of Directors shall have adopted a
resolution approving an amendment to the Company's Restated Articles of
Incorporation to increase the number of authorized shares of Common Stock from
5,000,000 shares to 20,000,000 shares (the "Charter Amendment"), directing that
the Charter Amendment be presented to the holders of
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<PAGE> 15
Common Stock at the next meeting of shareholders of the Company in accordance
with applicable Michigan law and recommending that the holders of Common Stock
approve the Charter Amendment. Prior to or at the Closing, the Company shall
have delivered to the Purchasers a complete and correct copy of such resolution
certified by the Secretary or an Assistant Secretary of the Company, as well as
copies of executed agreements by holders of at least 28% of the outstanding
Common Stock, pursuant to which such holders agree to vote all of their shares
of Common Stock in favor of approving the Charter Amendment.
(n) Employee Stock Option Plan. The Company's Board of Directors shall have
adopted a resolution (i) approving the implementation of an employee Stock
Option Plan, which plan shall be substantially in the form attached as Exhibit
E hereto (the "1997 Stock Option Plan"), (ii) allocating the options issuable
under the 1997 Stock Option Plan in a manner acceptable to the Purchasers,
(iii) directing that the 1997 Stock Option Plan be presented to the holders of
Common Stock for a vote at the next meeting of shareholders of the Company in
accordance with applicable Michigan law and (iv) recommending that the holders
of Common Stock approve the 1997 Stock Option Plan. Prior to or at the
Closing, the Company shall have delivered to the Purchasers a complete and
correct copy of such resolution certified by the Secretary or an Assistant
Secretary of the Company.
(o) Mueller Agreement. The Robyn L. Mueller Trust, the Kenneth M. Mueller
Charitable Remainder Unitrust and Mr. Rand Mueller (collectively, the
"Stockholders") shall have entered into an agreement with the Company and the
Purchasers, substantially in the form attached as Exhibit F hereto, pursuant to
which the Stockholders have agreed to certain restrictions on the
transferability of the Common Stock beneficially owned by them.
(p) Due Diligence Review. The Purchasers shall be reasonably satisfied with
their due diligence review of the Company's assets, liabilities, business,
contracts, financial statements, information, cash flow and prospects.
(q) Debt Refinancing. The Company shall have completed a refinancing of its
bank indebtedness on terms satisfactory to the Purchasers, or all conditions
precedent to such completion, other than the consummation of the purchase of
Units pursuant to this Agreement, shall have been satisfied.
(r) [Intentionally Omitted].
(s) Shortfall Warrants. The Company shall have issued to Pegasus Partners,
L.P. and Pegasus Related Partners, L.P. Shortfall Warrants to purchase 277,727
and 722,273 shares of Common Stock, respectively, in exchange for financial
accommodations being provided by the Purchasers to General Electric Capital
Corporation ("GECC") in connection with its refinancing of the Company's
indebtedness to NBD Bank.
(t) Series A-2 Preferred Stock. The Company shall have established a
sub-series of preferred stock designated as "Series A-2 Preferred Stock" and
shall have
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<PAGE> 16
authorized the issuance of up to 200,000 shares of such preferred stock (each
such share, a "Series A-2 Preferred Share") in accordance with the terms of the
Certificate of Designation. The Series A-2 Preferred Shares shall be issued in
replacement of the Series A-1 Preferred Shares, upon the transfer thereof by
Pegasus Partners, L.P., Pegasus Related Partners, L.P. or any of their
affiliates to a party other than an affiliate of Pegasus Partners, L.P. or
Pegasus Related Partners, L.P.
(u) Documentation at Closing. The Purchasers shall have received prior to
or at the Closing all of the following, each in form and substance satisfactory
to the Purchasers:
(i) A Registration Rights Agreement executed by the Company, substantially
in the form attached as Exhibit G hereto (the "Registration Rights Agreement");
(ii) The Certificate of Designation, adopted by the Board of Directors of
the Company, as attested by the Secretary or an Assistant Secretary of the
Company and filed with the Department of Consumer & Industry Services of the
State of Michigan;
(iii) A certified copy of the Company's Restated Articles of
Incorporation, as amended and the Company's Bylaws; a certified copy of the
resolutions of the Board of Directors evidencing approval of the Basic
Documents, the Units, the Preferred Shares, the Warrants and other matters
contemplated hereby; and certified copies of all documents evidencing other
necessary corporate, shareholder or other action and governmental approvals, if
any, with respect to the execution, delivery and performance of the Basic
Documents, the Units, the Preferred Shares and the Warrants;
(iv) A certificate of the Secretary or an Assistant Secretary of the
Company which shall certify the names of the officers authorized to sign this
Agreement and the other Basic Documents and issue the Units, the Shortfall
Warrants and the Litigation Warrants on behalf of the Company, together with
the true signatures of such officers. The Purchasers may rely conclusively on
such certificates until they shall receive a further certificate of the
Secretary or an Assistant Secretary of the Company canceling or amending the
prior certificate and submitting the signatures of the officers named in such
further certificate;
(v) A certificate from a duly authorized officer of the Company stating
that (a) the representations and warranties contained in Article IV hereof and
the other Basic Documents and the Warrants or otherwise made by the Company in
writing in connection with the transactions contemplated hereby are true and
correct in all material respects on the date of the Closing; (b) the Company
has performed and complied with all covenants and agreements contained herein
in all material respects and has received any and all consents, approvals or
waivers necessary in order to complete the transactions required to be
performed or complied with by it prior to or on the date of the Closing; (c) no
event shall have occurred and be continuing as of the Closing, or would result
from the consummation of the purchase of the Units
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<PAGE> 17
or the other transactions contemplated by the Basic Documents or Warrants, that
would constitute a "Triggering Event" under the Certificate of Designation or a
breach or violation of any Basic Document or Warrant; and (d) the Company has
delivered to the Purchasers all documents and satisfied all conditions referred
to in Sections 3.01(e) and (h) hereof except to the extent the Purchasers have
waived such conditions;
(vi) Fully executed copies of the Company's employment agreements with
each of Messrs. Rand Mueller, Craig Camalo, Michael Schroder and Peter
Stouffer.
(vii) Other evidence reasonably requested by the Purchasers of the
satisfaction of the conditions set forth in this Article III.
3.02 Conditions to the Company's Obligations. The obligation of
the Company to issue and deliver the Units on the Closing Date is subject to
the performance by the Purchasers of their agreements theretofore to be
performed hereunder and to the fulfillment, prior thereto or concurrently
therewith, of the following further conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Purchasers contained in this Agreement shall be true and
correct in all material respects on the Closing Date, except as otherwise
affected by the transactions contemplated hereby.
(b) Purchasers' Certificates. The Company shall have received a certificate
from each Purchaser, dated the Closing Date, signed by a duly authorized
representative of such Purchaser, certifying that the conditions specified in
the foregoing Section 3.02(a) hereof have been fulfilled.
(c) Injunction. There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein not be
consummated as herein provided.
(d) Litigation Guarantee. Pegasus Partners, L.P. and Pegasus Related
Partners, L.P. shall have executed and delivered a guarantee to GECC pursuant
to the requirements of the Litigation L/C Agreement among GECC as Agent and
Term Lender, the other Term Lenders identified therein and the Company, which
guarantee shall be in form and substance satisfactory to the Company.
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<PAGE> 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchasers to enter into this Agreement and purchase
the Units, the Company represents, warrants and covenants to the Purchasers as
follows:
4.01 Organization. (a) Each of the Company and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to have such governmental approvals could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or prevent the Company
from consummating any of the transactions contemplated hereby.
(b) The Company has heretofore made available to the Purchasers a complete
and correct copy of its Restated Articles of Incorporation, as amended as of
the date hereof, and its By-Laws and the organizational documents of each of
its Subsidiaries, as currently in effect. Each such document is in full force
and effect and no other organizational documents are applicable to or binding
upon the Company or any Subsidiary.
(c) Schedule 4.01 identifies all Subsidiaries of the Company.
4.02 Capitalization. (a) The authorized capital stock of the Company
consists of 5,000,000 shares of Common Stock and 500,000 shares of preferred
stock, no par value. Schedule 4.02(a) sets forth the (i) the number of issued
and outstanding shares of Common Stock as of the date hereof; (ii) a
description of all unexpired options to purchase Common Stock ("Company
Options"), including number of shares, exercise price, date of vesting and
exercise date as well as a statement describing outstanding Company options;
and (iii) all other shares of Common Stock issuable to any person pursuant to
any existing options, warrants, calls, preemptive (or similar) rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character. As of the date hereof and immediately prior to the Closing, no
shares of preferred stock are issued and outstanding or held in the treasury of
the Company, except one share of Series B Preferred Stock issued to Craig
Camalo, and no shares of Common Stock are held in the treasury of the Company.
The Company has taken all necessary corporate, shareholder and other action
(except as contemplated by Section 5.03) to authorize and reserve and to permit
it to issue shares of Common Stock which may be issued pursuant to Company
Options and the transactions contemplated hereby. There are no bonds,
debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights)
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("Voting Debt") of the Company or any of its Subsidiaries issued and
outstanding. Except as set forth in Schedule 4.02(a) and except for the
Preferred Shares and the Warrants, as of the date hereof, (i) there are no
shares of capital stock of the Company authorized, issued or outstanding, (ii)
there are no existing options, warrants, calls, preemptive (or similar) rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of its Subsidiaries, obligating the Company or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares
of capital stock or Voting Debt of, or other equity interest in, the Company or
any of its Subsidiaries or securities convertible into or exchangeable for such
shares or equity interest or obligations of the Company or any of its
Subsidiaries, and (iii) except for the Registration Rights Agreement, there are
no outstanding contractual obligations of the Company or any of its
Subsidiaries to register under the Securities Act of 1933, as amended (the
"Securities Act") or to repurchase, redeem or otherwise acquire any shares or
Common Stock, or capital stock of the Company or any Subsidiary or affiliate of
the Company.
(b) Except as set forth on Schedule 4.02(b), all of the outstanding shares
of capital stock of each of the Company's Subsidiaries are beneficially owned
by the Company, directly or indirectly, free and clear of all security
interests, liens, claims, pledges, agreements, limitations on voting rights,
charges or other encumbrances of any nature whatsoever.
(c) There are no voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of its Subsidiaries. None of
the Company or its Subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement,
except as provided in the Certificate of Designation or the Warrants.
(d) As of the Closing, the Preferred Shares constituting part of Units sold
at the Closing, the Attached Warrants constituting part of Units sold at the
Closing and the Shortfall Warrants will be validly issued, fully paid and
non-assessable and not subject to preemptive (or similar) rights. The rights,
privileges and preferences of the Preferred Shares will be as set forth in the
Certificate of Designation. If issued in accordance with the terms of Section
5.04, the Litigation Warrants will be validly issued, fully paid and
non-assessable and not subject to pre-emptive (or similar) rights. If issued
in accordance with the terms of the Certificate of Designation, the Preferred
Shares and the Attached Warrants constituting part of Additional Units will be
validly issued, fully paid and non-assessable and not subject to pre-emptive
(or similar) rights.
(e) The Company has authorized and reserved 2,267,421 shares of Common Stock
for issuance upon exercise of the Attached Warrants and the Shortfall Warrants,
including any Attached Warrants issued to the Purchasers as part of Units in
payment of dividends on Preferred Shares ("Additional Units"). The Company has
authorized and reserved 145,000 Series A-1 Preferred Shares for issuance as
part of Additional Units.
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<PAGE> 20
4.03 Authorization; Validity of Agreement; Company Action. The Company has
full corporate power and authority to execute and deliver each Basic Document
and the Warrants, to issue the Units, the Shortfall Warrants and the Litigation
Warrants and to consummate the transactions contemplated hereby and thereby,
except if more than 2,267,421 shares of Common Stock are required to be issued
upon exercise of Warrants, additional shares must be authorized. The
Certificate of Designation has been duly approved by the Company and filed with
the Department of Consumer & Industry Services of the State of Michigan. The
execution, delivery and performance by the Company of each Basic Document and
the Warrants and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of the Company
and, other than shareholder approval of the Charter Amendment, no other
corporate or shareholder action on the part of the Company is necessary to
authorize the execution, delivery or performance by the Company of any Basic
Document or Warrant, the issuance of any Units, Shortfall Warrants or
Litigation Warrants or the consummation by it of the transactions contemplated
hereby and thereby, except if more than 2,267,421 shares of Common Stock are
required to be issued upon exercise of Warrants, additional shares must be
authorized and if more than 200,000 shares of Series A-1 Preferred Stock or
Series A-2 Preferred are required to be issued by reason of the payment of
dividends in-kind on such sub-series, additional shares of such sub-series must
be authorized. This Agreement, the Registration Rights Agreement, the Attached
Warrants and the Shortfall Warrants have been duly executed and delivered by
the Company and (assuming due and valid authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto) this Agreement, the
other Basic Documents, the Attached Warrants and the Shortfall Warrants are
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. If issued in
accordance with the terms of Section 5.04 hereof, the Litigation Warrants will
be valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except that (i) such enforcement may be subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
4.04 Consents and Approvals; No Violations; Licenses. (a) None of the
execution, delivery or performance of any Basic Document or Warrant by the
Company, the issuance of any Units, Shortfall Warrants or Litigation Warrants
or the consummation by the Company of the transactions contemplated hereby or
thereby, nor compliance by the Company with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provision of the
Restated Articles of Incorporation, as amended or the By-Laws or other
organizational documents of the Company or of any of its Subsidiaries, except
if more than 2,267,421 shares of Common Stock are required to be issued upon
exercise of Warrants,
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<PAGE> 21
additional shares must be authorized and if more than 200,000 shares of Series
A-1 Preferred Stock or Series A-2 Preferred are required to be issued by reason
of the payment of dividends in-kind on such sub-series, additional shares of
such sub-series must be authorized, (ii) require on the part of the Company any
filing with, or permit, authorization, consent or approval of, any court,
arbitral tribunal, administrative agency or other governmental or regulatory
authority or agency (a "Governmental Entity"), including, without limitation,
any consent or approval of any federal, state, local or foreign insurance
industry agency, commission or other governing body, except for in the case of
clause (ii) (A) filings, permits, authorizations, consents and approvals as may
be required under federal and state securities laws, and the laws of other
states in which the Company is qualified to do or is doing business, (B) those
contemplated by the Basic Documents and Warrants, (C) those set forth on
Schedule 4.04 (a), and (D) where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect or prevent the Company from consummating the transactions contemplated
hereby, (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of them or
any of their properties or assets may be bound (the "Material Agreements") or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties
or assets.
(b) Schedule 4.04(b) hereto accurately and completely lists all licenses,
permits, certificates, franchises, ordinances, registrations, or other rights,
applications, consents, approvals and authorizations (collectively, "the
Licenses") granted, issued or entered by the Federal Communications Commission
(the "FCC") or any foreign Governmental Entity performing functions similar to
those performed by the FCC, and held by the Company or one of its Subsidiaries.
Except as set forth in Schedule 4.04(b), the Company or one of its Subsidiaries
holds all Licenses filed with, granted or issued by, or entered by any
Governmental Entity, including, without limitation, the FCC, or any federal,
state, local or foreign regulatory authorities or any federal, state, local or
foreign public service commission, public utility commission or industry agency
or commission that are required for the conduct of the Company's and its
Subsidiaries' businesses as now being conducted, except for those the absence
of which could not, individually or in the aggregate reasonably be expected to
have a Material Adverse Effect. Except as set forth in Schedule 4.04(b), the
Licenses are valid, in full force and effect, and the terms of said Licenses
are not subject to any restrictions or conditions that materially limit or
would materially limit the operations of the business of the Company or any of
its Subsidiaries as presently conducted, other than restrictions or conditions
generally applicable to licenses of that type. The Licenses granted, issued or
entered by the FCC are subject to the Communications Act of 1934, as amended.
There are no proceedings pending or, to the best knowledge of the Company,
complaints or petitions by others, or threatened proceedings, before the FCC or
any other Governmental Entity relating to the business or operations of the
Company or any of its Subsidiaries or the Licenses, and there are no facts or
conditions that reasonably could be expected to constitute grounds for the FCC
or any other
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<PAGE> 22
Governmental Entity to revoke, terminate, suspend, deny, annul, or impose
conditions on any renewal of any the Licenses, that individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect or
prevent the Company from consummating the transactions contemplated hereby or
to impose any fines, forfeitures or other penalties on the Company or its
Subsidiaries that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
4.05 SEC Reports and Financial Statements. (a) The Company and its
Subsidiaries have filed with the Securities and Exchange Commission ("SEC") all
forms, reports, schedules, statements, and other documents required to be filed
by them with the SEC (as such documents have been amended since the time of
their filing, collectively, the "SEC Documents"), and have filed all exhibits
required to be filed with the SEC Documents. As of their respective dates or,
if amended, as of the date of the last such amendment, the SEC Documents,
including, without limitation, any financial statements or schedules included
therein, complied in all material respects with the applicable requirements of
the Securities Act and the Securities Exchange Act of 1934 (the "Exchange
Act"), and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. None of the Company's Subsidiaries is required to
file any forms, reports or other documents with the SEC pursuant to Section 12
or 15 of the Exchange Act. The financial statements of the Company included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (including the related notes thereto) and in the Company's Quarterly
Report on Form 10-Q for the six months ended June 30, 1997, copies of which
have been furnished to the Purchasers (together, the "Financial Statements"),
have been prepared from, and are in accordance with, the books and records of
the Company and its consolidated Subsidiaries, comply in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto and subject, in the case of unaudited interim financial statements, to
normal year-end adjustments), and fairly present the consolidated financial
position and the consolidated results of operations and cash flows of the
Company and its consolidated Subsidiaries as at the dates thereof or for the
periods presented therein. The Company and its Subsidiaries have maintained a
system of accounting established in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP.
(b) No representation or warranty of the Company contained in any Basic
Document or Warrant or in any other document, certificate or written statement
furnished to the Purchasers by or on behalf of the Company or any of its
Subsidiaries for use in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein when made not misleading in light of the circumstances in which the
same were made.
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4.06 No Undisclosed Liabilities. Except (i) as disclosed in the SEC Documents
that have been delivered to the Purchasers prior to the date hereof, (ii) as
set forth in Schedule 4.06, and (iii) for liabilities not in excess of $150,000
individually or $300,000 in the aggregate, each incurred in the ordinary course
of business and consistent with past practice, and liabilities incurred in
connection with the consummation of the transactions contemplated hereby (none
of which, individually or in the aggregate, could reasonably have a Material
Adverse Effect) since December 31, 1996, neither the Company nor any of its
Subsidiaries has incurred any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which would be required by GAAP to
be reflected on a consolidated balance sheet of the Company and its
Subsidiaries (including the notes thereto), or which individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
4.07 Absence of Certain Changes. Except as contemplated by this Agreement and
the other Basic Documents, or as disclosed in the SEC Documents that have been
delivered to the Purchasers prior to the date hereof or in Schedule 4.07, since
December 31, 1996, (i) the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary course of business and consistent
with past practice, (ii) there has not been any change in the business,
properties, assets, liabilities, financial condition, cash flows, operations,
licenses, franchises, results of operations or prospects of the Company or its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect, (iii) the Company has not (A) declared, set aside or paid any dividend
or other distribution payable in cash, stock or property with respect to its
capital stock; (B) directly or indirectly, split, combined or reclassified the
outstanding shares of Common Stock; or (C) adopted a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
Subsidiaries.
4.08 Employee Benefit Plans; ERISA; Labor. (a) Schedule 4.08 hereto sets
forth (i) a list of all employee benefit plans (including but not limited to
plans described in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), maintained by the Company, any of its
Subsidiaries or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), which together with the Company would be deemed a "single
employer" within the meaning of Section 4001 (b)(1) of ERISA ("Benefit Plans")
and (ii) all employment, consulting, retention, option and severance agreements
with employees and consultants of the Company and its Subsidiaries ("Employee
Agreements"). True and complete copies of all current Benefit Plans and
Employee Agreements have been made available to the Purchasers.
(b) With respect to each Benefit Plan: (i) if intended to qualify under
Section 401(a) or 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"), such plan has received a determination letter from the Internal
Revenue Service (the "IRS") stating that it so qualifies and that its trust is
exempt from taxation under Section 501(a) of the Code, no such determination
letter has been revoked and no such revocation has been threatened, and nothing
has occurred that could reasonably be expected to cause the relevant Benefit
Plan to lose such qualification or exemption; (ii) such plan has been
administered in all material respects in
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<PAGE> 24
accordance with its terms and applicable law, including state and federal
securities laws; (iii) no breaches of fiduciary duty by the Company, or, to the
Company's knowledge, by any other person have occurred that might reasonably be
expected to give rise to material liability on the part of the Company or any
ERISA Affiliate; (iv) no disputes are pending, or, to the knowledge of the
Company, threatened that might reasonably be expected to give rise to material
liability on the part of the Company or any ERISA Affiliate; (v) except as
disclosed on Schedule 4.08, no prohibited transaction (within the meaning of
Section 406 of ERISA) has occurred that might reasonably be expected to give
rise to material liability on the part of the Company or any ERISA Affiliate;
(vi) all contributions required to be made to such plan as of the date hereof
(taking into account any extensions for the making of such contributions) have
been made in full; (vii) to the Company's knowledge, no Benefit Plans are
presently under audit or examination (nor has notice been received of a
potential audit or examination) by the IRS, Department of Labor, or any
other governmental agency or entity, and no matters are pending with respect to
any Benefit Plan under the IRS's Voluntary Compliance Resolution program, its
Closing Agreement Program, or other similar programs; and (viii) all monies
withheld with respect to Benefit Plans have been transferred to the appropriate
plan in accordance with the terms of such plan.
(c) No Benefit Plan is a "multiemployer pension plan," as defined in Section
3(37) of ERISA, nor is any Benefit Plan a plan described in Section 4063(a) of
ERISA. No Benefit Plan is or has been subject to Title IV of ERISA.
(d) No liability under Title IV of ERISA has been incurred by the Company or
any ERISA Affiliate (whether direct, indirect, actual, or contingent, and
including, without limitation, withdrawal liability to a multiemployer plan),
and no condition exists that presents a material risk to the Company or any
ERISA Affiliate of incurring a material liability under such Title. No Benefit
Plan has incurred an accumulated funding deficiency, as defined in Section 302
of ERISA or Section 312 of the Code, whether or not waived.
(e) With respect to each Benefit Plan that is a "welfare plan" (as defined
in Section 3(1) of ERISA), no such plan provides medical or death benefits with
respect to current or former employees of the Company or any of its
Subsidiaries beyond their termination of employment (other than to the extent
required by applicable law). Except as set forth in Schedule 4.08, all group
health plans of the Company and the ERISA Affiliates have been operated in
material compliance with the requirements of Sections 4980B (and its
predecessor) and 5000 of the Code, and the Company and ERISA Affiliates have
provided, or will have provided prior to May 15, 1997, to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B, except to
the extent that failure to provide such notice or coverage is not reasonably
likely to result, individually or in the aggregate, in a Material Adverse
Effect.
(f) No Benefit Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to employees
of the Company or its Subsidiaries by its terms prohibits the amendment or
termination of any such Benefit Plan.
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(g) As of the date hereof, except for Employee Agreements or as described in
the SEC Documents that have been delivered to the Purchasers prior to the date
hereof, the Company and its Subsidiaries are not parties to any (i) agreement
with any director, executive officer or other key employee of the Company or
its Subsidiaries (A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
the Company or its Subsidiaries of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may
receive payments from the Company or its Subsidiaries that may be subject to
the tax imposed by Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Company or its Subsidiaries, including, without
limitation, any stock option plan, stock appreciation right plan, restricted
stock plan, stock purchase plan, severance benefit plan or employee benefit
plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(h) As of the date hereof, no collective bargaining agreement is binding and
in force against the Company or its Subsidiaries or is currently under
negotiation, and no current employees of the Company or its Subsidiaries are
represented by any labor union. As of the date hereof, to the Company's
knowledge, no labor representation effort exists with respect to the Company or
its Subsidiaries.
4.09 Litigation. Schedule 4.09 hereto sets forth each suit, action or
proceeding (including, without limitation, any proceeding or investigation by
any Governmental Entity) pending (as to which the Company has received notice),
or, to the knowledge of the Company, threatened against the Company, any of its
Subsidiaries, or their properties or assets on the date hereof, or to which the
Company or any of its Subsidiaries is a party. Except as set forth on Schedule
4.09 hereto, none of the foregoing, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect if resolved adversely
to the Company or its Subsidiaries. Except as set forth on Schedule 4.09
hereto, as of the date hereof, neither the Company nor any of its Subsidiaries,
nor any of their respective properties, is subject to any order, writ,
judgment, injunction, decree, determination or award having, or which would
have, a Material Adverse Effect, or which would prevent the Company from
consummating the transactions contemplated hereby.
4.10 No Default; Compliance with Applicable Laws. Neither the Company nor
any of its Subsidiaries is in default or violation in any material respect of
any term, condition or provision of (i) its respective Articles of
Incorporation or By-laws or other organizational documents, (ii) any Material
Agreement or (iii) any federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to the Company or any of its
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Subsidiaries or by which they or their respective assets may be bound (other
than matters addressed in Sections 4.04, 4.08, 4.11, and 4.12), excluding from
the foregoing clause (iii), defaults or violations which could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect, or prevent the Company from consummating the transactions contemplated
hereby.
4.11 Taxes. Except as set forth on Schedule 4.11:
(a) The Company and its Subsidiaries have (i) duly and timely filed (or
there has been filed on their behalf) with the appropriate governmental
authorities all Tax Returns (as hereinafter defined) required to be filed by
them on or prior to the date hereof, other than those Tax Returns for which
extensions for filing have been obtained in a timely manner, and such Tax
Returns are true, correct and complete in all material respects, and (ii) duly
paid in full all Taxes (as hereinafter defined) shown to be due on such Tax
Returns or have provided adequate reserves in their financial statements for
any Taxes that have not been paid. There are no liens on any of the assets of
the Company or any of its Subsidiaries that arose in connection with any
delinquency in paying any Tax.
(b) As of the date hereof, there are no ongoing federal, state, local or
foreign audits or examinations of any Tax Return of the Company or its
Subsidiaries.
(c) As of the date hereof, there are no outstanding requests, agreements,
consents or waivers to extend the statutory period of limitations applicable to
the assessment of any Taxes or deficiencies against the Company or any of its
Subsidiaries (excluding extensions for filings that have been timely obtained),
and no power of attorney granted by either the Company or any of its
Subsidiaries with respect to any Taxes is currently in force.
(d) Neither the Company nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes.
(e) "Taxes" shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise,
real or personal property, sales, withholding, social security, occupation,
use, service, service use, license, net worth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by the Internal Revenue Service or
any taxing authority (whether domestic or foreign including, without
limitation, any state, county, local or foreign government or any subdivision
or taxing agency thereof (including a United States possession)), whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest whether paid or received, fines, penalties
or additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean
any report, return, document, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction (foreign or
domestic) with respect to Taxes.
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4.12 Environmental Matters. (a) The Company and its Subsidiaries have
complied in all material respects with all applicable Environmental Laws (as
defined below). There is no pending or, to the knowledge of the Company,
threatened, civil or criminal litigation, written notice or violation, formal
administrative proceeding or investigation, inquiry or information request by
any Governmental Entity relating to any Environmental Law involving the Company
or any of its Subsidiaries or any of their properties. For purposes of this
Agreement, "Environmental Law" means any foreign, federal, state or local law,
statute, rule or regulation or the common law relating to the environment or
occupational health and safety, including, without limitation, any statute,
regulation or order pertaining to (i) treatment, storage, disposal, generation
or transportation of industrial, toxic or hazardous substances or solid or
hazardous waste; (ii) air and water pollution; (iii) groundwater and soil
contamination; (iv) the release into the environment of industrial, toxic or
hazardous substances, or solid or hazardous waste, including, without
limitation, emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wildlife, marine
sanctuaries and wetlands, including, without limitation, all endangered and
threatened species; (vi) storage tanks, vessels and containers; (vii)
underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or oil or petroleum products or solid or hazardous waste. As used
above, the terms "release" and "environment" shall have the meaning set forth
in the federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental Concern
(as defined below) into the environment by the Company or any of its
Subsidiaries which could reasonably be expected to result in liability to the
Company in excess of $50,000, or, to the knowledge of the Company, by any other
party at any parcel of real property or any facility formerly or currently
owned, operated or controlled by the Company or any of its Subsidiaries. For
purposes of this Agreement, "Materials of Environmental Concern" means any
chemicals, pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA), solid wastes and hazardous wastes (as such terms are
defined under the federal Resource Conservation and Recovery Act), toxic
materials, oil or petroleum and petroleum products, or any other material
subject to regulation under any Environmental Law.
4.13 Insurance. There is in full force and effect one or more policies of
insurance issued by insurers of recognized responsibility, insuring the Company
and its Subsidiaries and their properties and businesses against such losses
and risks, and in such amounts, as are customary in the case of corporations of
established reputation engaged in the same or similar businesses and similarly
situated. None of the Company or any of its Subsidiaries has been refused any
insurance coverage sought or applied for, and the Company and its Subsidiaries
have no reason to believe that they will be unable to renew their existing
insurance coverage as and when the same shall expire upon terms at least as
favorable as those
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presently in effect, other than possible increases in premiums that do not
result from any act or omission of the Company or any of its Subsidiaries.
4.14 Transactions with Affiliates. Except as set forth in the SEC Documents
that have been delivered to the Purchasers prior to the date hereof or on
Schedule 4.14, since December 31, 1996, neither the Company nor any of its
Subsidiaries has entered into any transaction with any current director or
officer of the Company or any Subsidiary or any transaction which would be
subject to disclosure under the Exchange Act pursuant to the requirements of
Item 404 of Regulation S-K.
4.15 Patents and Other Intangible Assets. (a) Except as set forth on
Schedule 4.15, the Company and its Subsidiaries (i) own or have the right to
use, free and clear of any lien, pledge, mortgage, security interest,
encumbrance or charge of any kind (collectively, "Encumbrances"), and any other
claim or restriction, all patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect to the foregoing, used in or
necessary for the conduct of their businesses as now conducted or proposed to
be conducted (all of which are set forth on Schedule 4.15), (ii) are not
infringing upon or otherwise acting adversely to the right or claimed right of
any Person under or with respect to any patent, trademark, service mark, trade
name, copyright or license with respect thereto, and (iii) are not obligated or
under any liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright or other intangible asset, with
respect to the use thereof or in connection with the conduct of their
businesses or otherwise, except in each case where it could not reasonably be
expected to have a Material Adverse Effect.
(b) The Company and/or one or more of its Subsidiaries owns and has the
unrestricted right to use all material product rights, manufacturing rights,
trade secrets, including know-how, negative know-how, formulas, patterns,
compilations, programs, devices, methods, techniques, processes, inventions,
designs, computer programs and technical data and all information that derives
independent economic value, actual or potential, from not being generally known
or known by competitors and which the Company and its Subsidiaries have taken
reasonable steps to maintain in secret (all of the foregoing of which are
collectively referred to herein as "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products
and services sold or proposed to be sold by the Company or any of its
Subsidiaries, free and clear of any right, Encumbrance or claim of others,
including without limitation former employers of its employees; provided,
however, that the possibility exists that other Persons, completely
independently of the Company and its Subsidiaries or their employees or agents,
could have developed trade secrets or items of technical information similar or
identical to those of the Company and its Subsidiaries. The Company and its
Subsidiaries are not aware of any such development of similar or identical
trade secrets or technical information by others.
(c) Since their organization, the Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all
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intellectual property and all Inventions. As used herein, "Inventions" means
all inventions, developments and discoveries which during the period of an
employee's or other Person's service to the Company and/or any of its
Subsidiaries, he or she makes or conceives of, either solely or jointly with
others, that relate to any subject matter with which his or her work for the
Company and/or any of its Subsidiaries may be concerned, or relate to or are
connected with the businesses, products, services or projects of the Company
and its Subsidiaries, or relate to the actual or demonstrably anticipated
research or development of the Company and its Subsidiaries or involve the use
of the Company's and its Subsidiaries' time, materials, facilities or trade
secret information.
(d) Except as set forth on Schedule 4.15, none of the Company or any of its
Subsidiaries has sold, transferred, assigned, licensed or subjected to any
Encumbrance, any intellectual property, trade secret, know-how, invention,
design, process, computer program or technical data, or any interest therein,
necessary or useful for the development, manufacture, use, operation or sale of
any product or service presently under development or manufactured, sold or
rendered by the Company or any of its Subsidiaries.
(e) No director, officer, employee, agent or stockholder of the Company or
any of its Subsidiaries owns or has any right in the intellectual property of
the Company and its Subsidiaries, or any patents, trademarks, service marks,
trade names, copyrights, licenses or rights with respect to the foregoing, or
any inventions, developments or discoveries used in or necessary for the
conduct of the Company's and its Subsidiaries' businesses as now conducted or
as proposed to be conducted.
(f) Except as set forth on Schedule 4.15, none of the Company or any of its
Subsidiaries has received any communication alleging or stating that the
Company or any of its Subsidiaries or any employee or agent has violated or
infringed, or by conducting business as proposed, would violate or infringe,
any patent, trademark, service mark, trade name, copyright, trade secret,
proprietary right, process or other intellectual property of any other Person.
4.16 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission from the Company in connection
with the issuance and sale of securities pursuant to this Agreement and the
Company hereby indemnifies each Purchaser against, and agrees that it will hold
each Purchaser harmless from, any claim, demand or liability for any such
broker's or finder's fees alleged to have been incurred in connection therewith
and any expenses (including reasonable fees, expenses and disbursements of
counsel) arising in connection with any such claim, demand or liability.
ARTICLE V
COVENANTS OF THE COMPANY
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5.01 Financial and Business Information. The Company will maintain, and cause
each of its Subsidiaries to maintain, a system of accounting established in
accordance with sound business practices to permit preparation of financial
statements in conformity with GAAP. The Company during the term of this
Agreement will, and will cause its Subsidiaries to, deliver to the Purchasers
(provided that the Company shall not deliver to any Purchaser any such
information to the extent that such Purchaser has requested in writing to the
Company that such information not be delivered to such Purchaser):
(a) As soon as practicable and in any event within 90 days after the close
of each fiscal year of the Company, beginning with the current fiscal year, a
consolidated balance sheet of the Company and its Subsidiaries as of the close
of such fiscal year and consolidated statements of operations, shareholders'
equity and cash flows for the Company and its Subsidiaries for the fiscal year
then added, certified by the chief executive officer or chief financial officer
of the Company to be true and accurate in all material respects (it being
understood by the parties hereto that the delivery to the Purchasers of the
Company's annual report on Form 10-K will satisfy the requirements of this
Section 5.01(a));
(b) As soon as practicable and in any event within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, the consolidated
and consolidating balance sheet of Company and its Subsidiaries as at the end
of such fiscal quarter and the related consolidated and consolidating
statements of operations, shareholders' equity and cash flows of Company and
its Subsidiaries for such fiscal quarter and for the period from the beginning
of the current fiscal year to the end of such fiscal quarter, all in reasonable
detail and certified by the chief financial officer of Company that they fairly
present the financial condition of Company and its Subsidiaries as at the dates
indicated and the results of its operations and its cash flows for the periods
indicated, subject to changes resulting from audit and normal year-end
adjustments (it being understood by the parties hereto that the delivery to the
Purchasers of the Company's quarterly report on Form 10-Q will satisfy the
requirements of this Section 5.01(b));
(c) Prompt notice of any event having a Material Adverse Effect;
(d) Promptly upon their becoming available, copies of (a) all financial
statements, reports, notices and proxy statements sent or made available
generally by Company to its security holders, (b) all regular and periodic
reports, if any, filed by Company or any of its Subsidiaries with any
securities exchange or with the SEC or any governmental or private regulatory
authority, and (c) all press releases and other statements made available
generally by Company or any of its Subsidiaries to the public concerning
material developments in the business of Company or any of its Subsidiaries;
(e) Promptly upon any officer of Company or any of its Subsidiaries
obtaining knowledge of any condition or event that constitutes a Triggering
Event (as defined in the Certificate of Designation) or a violation or default
of any material term of any Basic Document or Warrant or an event of default or
potential event of default under any indebtedness of Company or any of its
Subsidiaries, or becoming aware that any person has given any notice
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or taken any other action with respect to a claimed event of default or
potential event of default, notice of any such event; and
(f) Within a reasonable time, such other information about the property,
financial condition and operations of the Company and its Subsidiaries as the
Purchasers may from time to time reasonably request.
5.02 Notice of Certain Events. Unless any Purchaser shall otherwise request
in writing, the Company during the term of this Agreement will, and will cause
its Subsidiaries to, promptly give notice in writing to such Purchaser of any
litigation or proceeding before any court or administrative body involving the
Company or any Subsidiary which, if determined adversely to the Company or such
Subsidiary, would be reasonably likely to have a Material Adverse Effect.
5.03 Shareholder Approvals. The Company will take all action reasonably
necessary or appropriate to solicit and obtain proxies and votes in favor of
the Charter Amendment and the 1997 Stock Option Plan from the holders of the
requisite percentage of the Common Stock at the Company's 1998 annual meeting
of shareholders (which shall in no event be held later than May 31, 1998), or
if sooner, at the next meeting of the Company's shareholders. Notwithstanding
the foregoing, upon the occurrence hereafter of any event (other than the
issuance of Litigation Warrants) which results in there being an insufficient
number of shares of Common Stock available for all outstanding Warrants
(including those issued as part of Additional Units) to be exercised for shares
of Common Stock in accordance with the terms thereof, as soon as practicable
following the occurrence of such event, the Company will call a special meeting
of the shareholders of the Company in order to obtain shareholder approval of
the Charter Amendment, and the Company will take all action reasonably
necessary or appropriate to solicit and obtain proxies and votes in favor of
the Charter Amendment from the holders of the requisite percentage of Common
Stock. As soon as is practicable after the approval of the Charter Amendment,
the Company will reserve the number of shares of Common Stock required for
issuance upon exercise in full of all of the Warrants.
5.04 Issuance of Litigation Warrants. In the event that Pegasus Partners,
L.P. and Pegasus Related Partners, L.P. provide the Company with financing
(including, without limitation, by way of an effective guarantee of the
Company's obligations) for a judgment, appeal bond or settlement in connection
with the litigation pending with the United States District Court for the
Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive
Technology Corporation, case number 87-CV-74022-DT, as contemplated in the
guarantee dated as of October 24, 1997 given by Pegasus Partners, L.P. and
Pegasus Related Partners, L.P. to GECC (the "Litigation Guarantee"), the
Company shall issue to Pegasus Partners, L.P. and Pegasus Related Partners,
L.P., in proportions consistent with their relative investments in the Company,
warrants (the "Litigation Warrants") to purchase such number of outstanding
shares of Common Stock which, at the time of issuance will increase the
aggregate ownership interest of Pegasus Partners, L.P. and Pegasus Related
Partners, L.P. in the Company, on a fully-diluted basis (taking into account
all issuances and adjustments to other outstanding warrants as a consequence of
the
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issuance of the Litigation Warrants), by 2% for each $1,000,000 of financing
provided for an aggregate exercise price of $164,731 for each 1% interest
(i.e., if Pegasus Partners, L.P. and Pegasus Related Partners, L.P. provide
$5,000,000 of financing, the Litigation Warrants will give Pegasus Partners,
L.P. and Pegasus Related Partners, L.P. the right to purchase such additional
shares of Common Stock as will permit Pegasus Partners, L.P. and Pegasus
Related Partners, L.P. to own in the aggregate an additional 10% of the Common
Stock of the Company on a fully- diluted basis for an aggregate exercise price
of $1,647,310). In the event the Litigation Warrants are issued in accordance
with the terms of this Section 5.04, the Company will have authorized and
reserved a sufficient number of shares of Common Stock for issuance upon
exercise of all of the Litigation Warrants, subject to shareholder approval of
the Charter Amendment in accordance with Section 5.03.
5.05 Insurance. The Company shall use reasonable best efforts to, as promptly
as practicable, secure a key man life insurance policy (the "Key Man Life
Policy") with an insurance carrier approved by and on terms reasonably
satisfactory to the Purchasers, covering Mr. Rand Mueller, in an amount of not
less than $5,000,000, which policy shall name the Company as beneficiary
thereunder. The Company shall use reasonable best efforts to, as promptly as
practicable, increase the amount of coverage under the D&O Policy to, an amount
not less than $10,000,000. The Company shall at all times maintain the Key Man
Life Policy and the D&O Policy in accordance with the terms (including, without
limitation, the minimum amounts) set forth in Section 3.01(j) and in the
foregoing sentences. The Company shall promptly deliver to the Purchasers
copies of any notices, communications or other correspondence received from the
applicable insurance companies in connection with the Key Man Life Policy and
the D&O Policy and shall notify the Purchasers in writing in the event it
becomes aware of any potential modification or cancellation of, or inability to
renew the Key Man Life Policy or the D&O Policy.
5.06 Preemptive Rights. (a) In the event (and on each occasion) that, after
the date hereof, the Company shall decide to undertake an issuance of
additional shares of Common Stock or any rights, warrants or options to
purchase Common Stock or any securities convertible into Common Stock ("New
Securities") which would not result in an adjustment pursuant to Section 4 of
the Attached Warrants, other than a Permitted Issuance (as defined below), the
Company shall give each Purchaser written notice (an "Offer Notice") of the
Company's decision, describing the type and amount of New Securities to be
issued, the price per share at which the New Securities are to be issued, and
the general terms upon which the Company has decided to issue the New
Securities. Each Purchaser shall have thirty (30) days from the date on which
the Company shall give the written Offer Notice to agree to purchase such New
Securities for the price per share and upon the general terms specified in the
Offer Notice, and in compliance with paragraph (c) of this Section 5.06, by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased by such Purchaser. If, in connection with such a
proposed issuance of New Securities, such Purchaser shall for any reason fail
or refuse to give such written notice to the Company within such period of
thirty (30) days, such Purchaser shall, for all purposes of this Section 5.06,
be deemed to have refused (in that particular instance only) to purchase any of
such New Securities and to have waived (in that
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particular instance only) all rights of such Purchaser under this Section 5.06
to purchase any of such New Securities.
"Permitted Issuance" shall mean (i) the issuance of shares of Common Stock
pursuant to an underwritten public offering, (ii) the issuance of shares of
Common Stock upon exercise of the Warrants, (iii) the issuance of up to 280,000
shares of Common Stock upon the exercise of options issued to management
employees of the Company or its Subsidiaries pursuant to the Company's 1987
Stock Option Plan, (iv) provided that the Charter Amendment has (1) been
approved and adopted by the Company's stockholders, (2) been filed with the
Department of Consumer & Industry Services of the State of Michigan and (3)
become effective, the issuance of up to 1,317,178 shares of Common Stock or
options to acquire such shares to management employees of the Company or its
Subsidiaries pursuant to the Company's 1997 Stock Option Plan, (v) the issuance
to GECC on October 24, 1997 of warrants to purchase up to 131,718 shares of
Common Stock (subject to adjustment as provided therein) and the issuance of
Common Stock upon the exercise thereof, (vi) the issuance of the Securities and
(vii) the issuance of New Securities, the proceeds of which are intended to be
and are used for the redemption of all (but not less than all) of the Preferred
Shares and the repurchase of one-half of the Attached Warrants.
(b) In the event that any Purchaser shall fail or refuse to exercise in full
its preemptive rights within said thirty (30) day period, the Company shall
have forty-five (45) days thereafter to sell the quantity of New Securities
which such Purchaser did not agree to purchase pursuant to paragraph (c) of
this Section 5.06, at a price per share and upon general terms no more
favorable to the purchasers thereof than specified in the Company's Offer
Notice to the Purchasers. In the event the Company has not sold the New
Securities within said period of forty-five (45) days, the Company will not
thereafter issue or sell any New Securities without first offering such
securities to the Purchasers in the manner provided by the foregoing provisions
of this Section 5.06.
(c) Each Purchaser shall be entitled to purchase a number of shares of New
Securities equal to the product obtained by multiplying the total number of New
Securities proposed to be issued by a fraction, the numerator of which is the
sum of (i) the number of shares of Common Stock for which the Attached Warrants
held by such Purchaser may be exercised and (ii) the number of shares of Common
Stock held by such Purchaser pursuant to the exercise of Attached Warrants and
the denominator of which is the total number of Fully Diluted Outstanding (as
defined below) shares of Common Stock immediately prior to the issuance of the
New Securities.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock outstanding at such date and all shares
of Common Stock issuable in respect of options or warrants to purchase, or
securities convertible into, shares of Common Stock outstanding on such date,
whether or not such options, warrants or other securities are presently
convertible or exercisable.
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(d) Notwithstanding the foregoing, preemptive rights may not be assigned to
any transferee if the exercise of such right by the transferee would, in the
reasonable judgment of the Board of Directors of the Company after consultation
with counsel to the Company, make an exemption from the registration
requirements of the Securities Act, or applicable state securities laws, with
respect to the offer and sale of the New Securities, unavailable.
(e) The Company will not, at any time after the effective date of this
Agreement, enter into any agreement or contract (whether written or oral) which
is inconsistent in any respect with the preemptive rights granted by the
Company to the Purchasers pursuant to this Section 5.06.
5.07 Public Announcement. Neither the Company, on the one hand, nor the
Purchasers, on the other hand, shall issue any press release or make any public
announcement regarding the transactions contemplated hereby without prior
written consent of the other party or parties, except where a public
announcement is required by law. In the event such an announcement is so
required, the party or parties making such an announcement shall give the other
party or parties reasonable advance notice of the fact that such announcement
is to be made, shall permit it or them to review the language of such
announcement prior to its release and shall consult with the other party or
parties and use its or their best efforts to agree with the other party or
parties on a mutually satisfactory text.
5.08 Stock Option Plan. Any grant of options by the Company pursuant to the
1997 Stock Option Plan shall be to Persons and in amounts satisfactory to the
Purchasers.
5.09 Hart-Scott-Rodino, Voting Rights, Etc. (a) Upon the request of any
Purchaser, the Company shall, as promptly as practicable, file with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "DOJ") such notifications and other information required to be
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder (and, if requested by any Purchaser,
request early termination of any applicable waiting period), to permit the
acquisition by such Purchaser of any direct or indirect interest in the
Company, including, but not limited to, through the exercise of Warrants or the
exercise by such Purchaser of any rights under the Securities. The Company
shall make available to such Purchaser such information in its possession as
may be necessary for the completion of the notifications and other information
to be filed by or on behalf of such Purchaser (or its ultimate parent entity).
The Company shall respond as promptly as practicable to any inquiries received
from the FTC and the DOJ for additional information or documentation in
connection with any filings therewith, and shall respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other governmental authority in connection with antitrust matters.
(b) The Company will promptly take all such actions as may from time to time
be required by applicable law in connection with the exercise by the Purchasers
of voting
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rights under the Certificate of Designation, whether by written consent or at a
meeting, including, without limitation, the preparation, filing and
distribution of information statements under Section 14(c) of the Exchange Act,
and the regulations promulgated thereunder, and the calling of, and causing to
be held as soon as reasonably practicable a special meeting of shareholders for
purposes specified by the Purchasers and permitted by law.
5.10 Prohibition on Realization Events. During the period beginning on
the Closing Date and continuing until the earlier of (i) the date which is six
months and one day following the most recent issuance to Pegasus Partners, L.P.
and Pegasus Related Partners, L.P. of the Litigation Warrants in accordance with
Section 5.04, provided that on or before such date, Pegasus Partners, L.P. and
Pegasus Related Partners, L.P. are unconditionally released in full from any
unused portion of the Litigation Guarantee or (ii) such time as Pegasus
Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally released
in full from the Litigation Guarantee, provided that no Litigation Warrants have
been issued prior to such release, the Company shall not authorize or effect, in
a single transaction or through a series of related transactions, a liquidation,
winding up or dissolution of the Company or adoption of any plan for the same,
any reorganization of the capital of the Company, reclassification of the
capital stock of the Company, consolidation or merger with or into another
corporation or other entity (where the Company is not the surviving corporation
or where there is a change in or distribution with respect to the Common Stock),
or sale, transfer or other disposal of all or substantially all of the property,
assets or business of the Company (each, a "Realization Event").
5.11 Expiration of Covenants. The Company's obligations under Sections
5.01, 5.02, 5.03, 5.05, 5.06, 5.08 and 5.09 shall terminate at such time as the
Purchasers no longer hold any Preferred Shares, Warrants or Warrant Shares.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
6.01 Representations by Purchasers. Each Purchaser represents and
warrants to the Company that:
(a) It has full power and authority to execute and deliver this Agreement
and the other Basic Documents to which it is a party and to perform its
obligations hereunder and thereunder.
(b) It has taken all action necessary for the authorization, execution,
delivery, and performance of this Agreement and the other Basic Documents to
which it is a party, and its obligations hereunder and thereunder, and, upon
execution and delivery by the Company, this Agreement and other Basic Documents
to which it is a party shall constitute the valid and binding obligation of
such Purchaser, enforceable against it in accordance with their respective
terms, except that (i) such enforcement may be subject to applicable
bankruptcy,
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insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(c) There are no claims for brokerage commissions or finder's fees or
similar compensation in connection with the issuance and sale of Units pursuant
to this Agreement based on any arrangement made by or on behalf of such
Purchaser and such Purchaser agrees to indemnify and hold the Company harmless
against any costs or damages incurred as a result of any such claim.
6.02 Transfer of Units; Surrender of Preferred Share Certificates. Unless and
until the Company shall have exercised its right to repurchase Units pursuant
to Section 8.01(a), no Purchaser shall transfer Preferred Shares or Attached
Warrants, except as part of Units. Upon a transfer of Units by Pegasus
Partners, L.P. or Pegasus Related Partners, L.P. or any of their affiliates to
a party other than an affiliate of Pegasus Partners, L.P. or Pegasus Related
Partners, L.P., the transferor shall, as promptly as practicable, surrender its
Preferred Share Certificates representing the Series A-1 Preferred Shares being
transferred as part of such Units for cancellation and reissuance as Series A-2
Preferred Shares.
6.03 No Transfer of Units to Directed Electronics, Inc. No Purchaser shall
sell or otherwise transfer any Units or Warrants to Directed Electronics, Inc.,
a California corporation ("DEI"), any affiliate of DEI, Mr. Darrell Issa, the
president of DEI, any entity which, to the knowledge of such Purchaser, is
controlled by Mr. Issa, or any person who, to the knowledge of such Purchaser,
is a member of the immediate family (as such term is defined in Rule 16a-1
promulgated under the Exchange Act) of Mr. Issa.
ARTICLE VII
CERTAIN SECURITIES LAW MATTERS
7.01 Representations by Purchasers. Each Purchaser represents and warrants to
the Company that:
(a) Such Purchaser is an "Accredited Investor" within the meaning of Rule
501 under the Securities Act.
(b) The Units and the Shortfall Warrants are being acquired for such
Purchaser's own account for the purpose of investment and not with a present
view to or for sale in connection with any distribution thereof; provided, that
the disposition of such Purchaser's property shall at all times be and remain
within its control.
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(c) Such Purchaser understands that (i) none of the Securities have been
registered under the Securities Act, (ii) the Securities must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or an exemption from registration is available under applicable
securities laws then in effect, and (iii) the Securities will bear a legend to
such effect and the Company will make a notation on its transfer books to such
effect.
(d) Such Purchaser understands that no public market now exists for the
Preferred Shares or the Warrants issued by the Company.
7.02 Restrictions on Transfer. The Securities (collectively, the "Restricted
Securities") shall be transferable only if sold pursuant to a registration
statement under the Securities Act (as hereinafter defined), or pursuant to an
exemption from the registration requirements of the Securities Act and
applicable state securities laws.
(a) Restrictive Legend. Each certificate representing the Restricted
Securities shall bear a legend in substantially the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under the securities or blue
sky laws of any state, and may not be sold, or otherwise transferred, in the
absence of such registration or an exemption therefrom under such Act and
under any such applicable state laws."
Each certificate representing such Restricted Securities shall bear the
restrictive legend set forth above, in each case unless the restrictions on
transfer provided for in this Section 7.02 shall have ceased and terminated as
to such Restricted Securities.
(b) Termination of Restriction. The restrictions imposed by this Section
7.02 upon the transferability of the Restricted Securities shall cease and
terminate as to any particular Restricted Securities and any securities issued
in exchange therefor or upon transfer thereof when, in the opinion of counsel
reasonably acceptable to the Company, such restrictions are no longer required
in order to assure compliance with the Securities Act, or when such Restricted
Securities have been registered under the Securities Act. Whenever any of such
restrictions shall cease and terminate as to any Restricted Securities, the
holder thereof shall be entitled to receive from the Company, without expense,
new certificates not bearing the legend set forth in Section 7.02(a).
7.03 Additional Legend. (a) Unless and until the Company shall have
exercised its right to repurchase Units pursuant to Section 8.01(a), each
certificate representing Preferred Shares and each Attached Warrant shall bear a
legend in substantially the following form:
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"The securities represented hereby may not be transferred except as part of
Units containing shares of Series A Preferred Stock and warrants to purchase
Common Stock of Code Alarm, Inc. and are subject to repurchase by Code Alarm,
Inc. in accordance with the terms of a Unit Purchase Agreement dated as of
October 27, 1997 among Code Alarm, Inc., Pegasus Partners, L.P. and Pegasus
Related Partners, L.P."
(b) In the event the Company shall have repurchased Units pursuant to
Section 8.01(a), any holder of Attached Warrants shall be entitled to receive
from the Company, without expense, new Attached Warrants representing the
Attached Warrants not repurchased and not bearing the legend set forth in
Section 7.03(a).
ARTICLE VIII
CALL RIGHT; PUT RIGHT; RIGHT OF FIRST REFUSAL
8.01 Company's Right to Repurchase Units.
(a) Repurchase During Year One. At any time prior to October 19, 1998, but
not thereafter, provided that the Charter Amendment has (1) been approved and
adopted by the Company's stockholders, (2) been filed with the Department of
Consumer and Industry Services of the State of Michigan and (3) become
effective, and subject to Section 8.01(f), the Company, at its sole option, may
redeem all, but not less than all, of the outstanding Preferred Shares and,
concurrently therewith, repurchase all of the outstanding Interim Dividend
Warrants, one-half of the outstanding Attached Warrants which are not Interim
Dividend Warrants and a number of shares of Common Stock equivalent to one-half
of the number of shares of Common Stock for which Attached Warrants have
theretofore been exercised, for an aggregate redemption price consisting of
cash in an amount equal to one hundred seventeen and one-half percent (117.5%)
of the aggregate stated value of such Preferred Shares less any cash dividends
previously paid thereon.
(b) Repurchase After Year Two. At any time after the second anniversary of
the Closing Date, provided that the Company has not theretofore exercised its
rights pursuant to Section 8.01(a), and subject to Section 8.01(f), the
Company, at its sole option, may repurchase all, but not less than all, of the
outstanding Units and the Common Stock for which Attached Warrants have
theretofore been exercised (other than shares of Common Stock which have been
registered and sold under an effective registration statement pursuant to the
Securities Act, or sold pursuant to Rule 144 promulgated thereunder
("Non-Repurchasable Stock")), for an aggregate repurchase price equal to the
greater of (i) an amount determined by multiplying (x) the sum of (1) the
number of shares of Common Stock for which the Attached Warrants are then
exercisable and (2) the number of shares for which the Attached Warrants have
theretofore been exercised (other than shares of Non-Repurchasable Stock) by
(y) the Current
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Market Price per share of Common Stock determined as of the date of repurchase
and (ii) an amount sufficient to yield each Unit (other than Units which have
been transformed into Non-Repurchasable Stock) a 35% annual rate of return from
the date of its original issuance through the date of repurchase, after giving
effect to any cash dividends actually paid to the holder or any prior holder of
such Unit.
For purposes hereof, "Current Market Price" shall mean, in respect of any
share of Common Stock on any date herein specified, the average of the daily
market prices for the 20 consecutive Trading Days (as hereinafter defined)
immediately preceding such date. The daily market price for each such Trading
Day shall be (i) the last sale price on such day on the principal stock
exchange on which such Common Stock is then listed or admitted to trading, (ii)
if no sale takes place on such day on any such exchange, the last reported sale
price as officially quoted on any such exchange, (iii) if the Common Stock is
not then listed or admitted to trading on any stock exchange but is traded on
the Nasdaq Stock Market, the last reported sale price as officially quoted on
the Nasdaq Stock Market, (iv) if the Common Stock is not then traded on the
Nasdaq Stock Market, the last reported sale price on the over-the-counter
market, as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding to its functions of reporting
prices), or if such sale price is not available on such date, the average of
the closing bid and asked prices on such date as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices), or (v) if there is no such organization
or agency, as furnished by any member of the National Association of Securities
Dealers, Inc., or any successor corporation thereto (the "NASD") selected
mutually by the holders of a majority of the Units and the Company or, if they
cannot agree upon such selection, by a member selected by two such members of
the NASD, one of which shall be selected by such holders and one of which shall
be selected by the Company.
For purposes hereof, "Trading Day" shall mean (i) any day on which stock is
traded on the principal stock exchange on which the Common Stock is listed or
admitted to trading, (ii) if the Common Stock is not then listed or admitted to
trading on any stock exchange but is traded on the Nasdaq Stock Market, any day
on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common
Stock is not then traded on the Nasdaq Stock Market, any day on which stock is
traded in the over-the counter market, as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices).
(c) Notice of Repurchase. Notice of repurchase pursuant to Section 8.01(a)
or (b) shall be given by first class mail, postage prepaid, mailed not less
than 30 nor more than 60 days prior to the repurchase date to such holder's
address as the same appears on the books of the Company. Each such notice
shall state: (i) the repurchase date; (ii) the number of Units and shares of
Common Stock to be repurchased; (iii) the formula for determination of the
repurchase price; (iv) the place or places where certificates for Preferred
Shares and Attached Warrants comprising such Units, and/or for such shares of
Common Stock are to be surrendered
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for payment of the repurchase price; and (v) that dividends on the Preferred
Shares to be redeemed as part of the repurchase of Units will cease to accrue
on the repurchase date.
(d) Cessation of Dividends on Preferred Shares Redeemed; Shares No Longer
Outstanding. Notice having been mailed as stated in subsection (c) above, from
and after the close of business on the repurchase date (unless default shall be
made by the Company in providing money for the payment of the repurchase price
of the Units and shares called for repurchase), dividends on the Preferred
Shares redeemed as part of the repurchase of Units shall cease to accrue, and
the Units , Preferred Shares, Attached Warrants and shares of Common Stock
repurchased shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Company (except the right to receive
from the Company the repurchase price) shall cease. Upon surrender in
accordance with said notice of the certificates for any Preferred Shares and
Attached Warrants comprising Units, and/or shares of Common Stock so
repurchased (properly endorsed or assigned for transfer, if the Board of
Directors of the Company shall so require and the notice shall so state), such
Units, Preferred Shares, Attached Warrants and/or shares shall be repurchased
by the Company at the repurchase price aforesaid.
(e) Status of Redeemed Preferred Shares. Upon repurchase of Units, any
Preferred Shares which have been redeemed in connection therewith shall be
retired and thereafter have the status of authorized but unissued shares of
preferred stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors or a
duly authorized committee thereof.
(f) Limitation on Company's Right to Repurchase. Notwithstanding anything
to the contrary contained herein, the Company shall not be entitled to
repurchase Units and/or shares of Common Stock until the earlier of (i) the
date which is six months and one day following the most recent issuance to
Pegasus Partners, L.P. and Pegasus Related Partners, L.P. of the Litigation
Warrants in accordance with Section 5.04, provided that on or before such date,
Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are unconditionally
released in full from any unused portion of the Litigation Guarantee or (ii)
such time as Pegasus Partners, L.P. and Pegasus Related Partners, L.P. are
unconditionally released in full from the Litigation Guarantee, provided that
no Litigation Warrants have been issued prior to such release.
8.02 Purchasers' Right to Put Units.
(a) Obligation to Redeem. (i) At any time after the date which is three
years and six months after the Closing Date, any holder of Units, at its
election, may, by notice to the Company (the "Put Notice"), demand repurchase
of all, but not less than all, of such holder's Units. Subject to the
provisions of Section 8.02(b), the Company shall, on the date (not less than 30
days after the date of the Put Notice) designated in such Put Notice,
repurchase from the holder all (or such lesser portion permitted to be
repurchased in accordance with Section 8.02(a)(iii)), of such holder's Units
for an amount determined by multiplying (x) the number of shares of Common
Stock for which the Attached Warrants which are part of such Units are
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then exercisable by (y) the Current Market Price per share of Common Stock
determined as of the date of the Put Notice.
(ii) Notwithstanding the provisions of Section 8.02(a)(i), if, at any time
during the period between the date on which a holder of Units shall have
delivered a Put Notice and the date of repurchase by the Company pursuant
thereto, a Realization Event shall occur and the consideration received or
receivable by stockholders in connection with such Realization Event shall
consist solely of cash, then such holder shall (whether or not such holder
shall have previously surrendered its Units for repurchase by the Company
pursuant to this Section 8.02) be entitled to receive, on the date of such
repurchase, the higher of (x) the amount payable to such holder as determined
pursuant to Section 8.02(a)(i) and (y) an amount equal to the amount of cash
such holder would have received upon the occurrence of such Realization Event
had such holder's Attached Warrants been exercised for Common Stock immediately
prior thereto.
(iii) The Company shall not be obligated under Section 8.02(a)(i) to
repurchase Units if the Company is prohibited from doing so under any agreement
or instrument evidencing the Company's or any of its subsidiaries' indebtedness
for borrowed money, and such prohibition has not been waived, or if and to the
extent such a repurchase (x) would cause an event of default to exist by reason
of such repurchase, which event of default has not been waived, with respect to
any such agreement or instrument or would violate any provision of any such
agreement or instrument, or (y) would be in violation of applicable law
("Restrictions"), in any such case as determined by an opinion of counsel to
the Company, reasonably acceptable to the holder; provided, however, that the
Company shall use its reasonable best efforts to have any such Restriction
either waived or terminated (including, without limitation, by obtaining
refinancing for any such indebtedness on reasonable terms). In the event that,
following receipt of a Put Notice, the Company will not repurchase Units
requested to be repurchased in accordance with Section 8.02(a)(i) because of
the existence of any Restriction, the Company shall, within twenty (20) days
after receipt of the Put Notice, so notify the holder in writing (the
"Restriction Notice"), setting forth the number of Units which will not be
repurchased and the Restrictions which apply, and deliver to the holder a copy
of the opinion referred to in the prior sentence. In addition, in such event,
the Company shall, upon the request of the holder, use its best efforts to
register the shares of Common Stock for which the Attached Warrants which will
not be repurchased may be exercised, in accordance with the terms of the
Registration Rights Agreement. In addition, if, in such event, the Company
will be redeeming a number of Series A-1 Preferred Shares as part of the
repurchase of Units which will result in the holders of Series A-1 Preferred
Shares losing their voting and other rights pursuant to Sections 4(a) and (b)
of the Certificate of Designation, the holder may, by written notice to the
Company within five (5) days after receipt of the Restriction Notice, require
that the Company purchase such lesser number of Units (and thereby redeem such
lesser number of Series A-1 Preferred Shares) which will result in such holders
retaining such rights.
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(b) Payment of Repurchase Price. The repurchase price for any repurchase
pursuant to this Section 8.02 shall be determined pursuant to Section 8.02(a)
and shall be payable in cash.
On the date of any repurchase of Units pursuant to this Section 8.02, the
holder thereof shall surrender for repurchase a certificate for the number of
Preferred Shares and a warrant for the number of Attached Warrants comprising
the Units being repurchased, without any representation or warranty (other than
that the holder has good and marketable title thereto, free and clear of liens,
encumbrances and restrictions of any kind), together with an instrument of
transfer reasonably acceptable to the Company, against payment therefor of the
repurchase price by, at the option of the holder, (i) wire transfer to an
account in a bank located in the United States designated by the holder for
such purpose or (ii) a certified or official bank check payable to the order of
the holder. If less than all of the holder's Preferred Shares or Attached
Warrants represented by a single certificate or warrant are being redeemed or
repurchased, the Company shall cancel such certificate or warrant, as the case
may be, and issue in the name of, and deliver to, the holder a new certificate
or warrant, as the case may be, for the portion not being redeemed or
repurchased.
8.03 Right of First Refusal.
(a) Company's Right to Acquire Units. So long as the Company has not
exercised its rights pursuant to Section 8.01(a), if any holder of Units shall
desire to transfer for value all or a portion of such Units to a third party
that is not an affiliate or an associate (as such term is defined in Rule 405
promulgated under the Securities Act) of such holder, then such holder (the
"Seller Holder") shall give notice to the Company of its intent to sell,
setting forth the identity of such third party, the sale price (including the
type of consideration), the proposed closing date of such sale (which shall not
be prior to the date which is 10 days following the date of such notice) and
the terms and conditions upon which the third party is willing to purchase the
Units being offered for sale, and offer to sell such Units to the Company on
such terms and conditions, including price. The Company shall then have 10
days (the "Notice Period") within which to give the notice to the Selling
Holder that it or its designee wishes to acquire the Units offered for sale on
such terms and conditions. Such notice from the Company shall state a closing
date not later than the closing date specified in the notice from the Selling
Holder or 10 days after the date of the Company's notice, whichever is later.
If the Company shall not give notice within the Notice Period that it or its
designee wishes to acquire the Units, the Selling Holder may sell such Units to
such third party or to any other third party, at any time during the period of
90 days following the end of the Notice Period, on terms and conditions no less
favorable to the Selling Holder than those set forth in the original notice.
(b) Non-Cash Consideration. In the event all or a portion of the purchase
price to be paid by the third party for the Units consists of consideration
other than cash ("Non-Cash Consideration"), the Company shall, at its option,
be entitled to pay to the Selling Holder, in lieu of the Non-Cash
Consideration, the fair market value of such Non-Cash Consideration, as agreed
upon between the Selling Holder and the Company. If the Selling
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<PAGE> 43
Holder and the Company are unable to agree on such fair market value within 10
days following delivery by the Selling Holder of the initial notice to the
Company, they shall jointly select an investment banking firm of nationally
recognized standing, and such investment banking firm shall, within 20 days
after selection thereof, determine the fair market value of the Non-Cash
Consideration. The fees and expenses of such investment banking firm shall be
borne equally by the Selling Holder and the Company. In the event the parties
are unable to agree on an investment banking firm within 15 days following
delivery by the Selling Holder of the initial notice to the Company, each of
them shall, within 5 business days thereafter, select an investment banking
firm of nationally recognized standing and the two investment banking firms
shall select a third investment banking firm of nationally recognized standing,
which firm shall, within 20 days after the selection thereof, determine such
fair market value. The fees and expenses of each party's own investment
banking firm shall be borne by such party and the fees and expenses of the
third investment banking firm shall be borne equally by the parties. In the
event a determination of fair market value is required to be made in connection
with any offer under this Section 8.03 and such determination is not made prior
to the expiration of the Notice Period, the Notice Period shall be extended
until the date which is two days following the date on which such fair market
value determination is made.
(c) Termination or Suspension of Right of First Refusal. If the Company or
its designee fails to fulfill its obligation to purchase the Units on the same
terms and conditions, subject to the provisions of Section 8.03(b), as those
contained in the original offer after the Corporation gives notice that such
purchase will be made, then, in addition to any available remedies, the Selling
Holder may sell all or any portion of the Units offered for sale at any time
thereafter, at any price and upon any terms, without regard to the provisions
of this Section 8.03. Upon the occurrence and during the continuance of any
Triggering Event (as defined in the Certificate of Designation), in addition to
any available remedies, the Selling Holder may sell all or any portion of the
Selling Holder's Units, at any price and upon any terms, without regard to the
provisions of this Section 8.03.
ARTICLE IX
MISCELLANEOUS
9.01 Indemnification. In addition to the payment of expenses pursuant to
Section 9.05, whether or not the transactions contemplated hereby shall be
consummated, the Company agrees to defend, indemnify, pay and hold harmless,
the Purchasers, and the officers, directors, employees, agents and affiliates
of the Purchasers (collectively, the "Indemnitees") from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party
or a potential party thereto), whether direct, indirect or consequential and
whether based on any federal, state or foreign laws, statutes, rules or
regulations (including, without
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limitation, securities and commercial laws, statutes, rules or regulations), on
common law or equitable cause or on contract or otherwise, that may be imposed
on, incurred by, or asserted against any such Indemnitee, in any manner
relating to or arising out of this Agreement, the other Basic Documents, the
Warrants or the transactions contemplated hereby or thereby (including, without
limitation, the Purchasers' agreement to purchase the Units or the use or
intended use of the proceeds of such purchase) or the statements contained in
any commitment letter delivered by the Purchasers to the Company with respect
thereto (collectively called the "Indemnified Liabilities"); provided that the
Company shall not have any obligation to any Indemnitee hereunder with respect
to any Indemnified Liabilities to the extent such Indemnified Liabilities arise
from the gross negligence or willful misconduct of that Indemnitee as
determined by a final judgment of a court or competent jurisdiction. To the
extent that the undertaking to defend, indemnify, pay and hold harmless set
forth in the preceding sentence may be unenforceable because it is violative of
any law or public policy, the Company shall contribute the maximum portion that
it is permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them.
9.02 No Waiver: Cumulative Remedies. No failure or delay on the part of the
Purchasers, or any other holder of any Security in exercising any right, power
or remedy hereunder or thereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder or thereunder. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
9.03 Amendments; Waiver and Consents. This Agreement may be amended or
modified, and the obligations of the Company and the rights of the holders of
Securities under this Agreement may be waived only by the written consent of
holders of a majority of the Securities, determined on the basis of shares of
Common Stock "held", including Warrant Shares for which Warrants held are
exercisable. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
9.04 Notices. All notices, demands, requests, or other communications which
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows:
(a) If to the Company:
Code Alarm Inc.
950 East Whitcomb
Madison Heights, Michigan 48071
Attention: Rand Mueller and Craig Camalo
Facsimile: (248) 585-4799
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with a copy to:
Pepper, Hamilton & Scheetz LLP
100 Renaissance Center
Detroit, Michigan 48243
Attention: Dennis S. Kayes
Facsimile: (313) 259-7926
(b) If to either Purchaser:
99 River Road
Cos Cob, Connecticut 06807
Attention: Richard M. Cion
Facsimile: (203) 869-6940
with a copy to:
Kaye, Scholer, Fierman, Hays
& Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Nancy E. Fuchs, Esq.
Facsimile: (212) 836-8689
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication shall be deemed to have
been duly given five business days after being deposited in the mail, postage
prepaid, if mailed; when delivered by hand, if personally delivered; or upon
receipt, if sent by facsimile (followed by a confirmation copy sent by either
overnight or two (2) day courier).
9.05 Expenses. Whether or not the transactions contemplated hereby shall be
consummated, the Company agrees to pay promptly (a) the fees, expenses and
disbursements of counsel to the Purchasers in connection with the negotiation,
preparation, execution and administration of the Basic Documents or the
Warrants, which fees and expenses shall not exceed $300,000, and any consents,
amendments, waivers or other modifications hereto or thereto and any other
documents or matters requested by the Company; (b) all other actual costs and
expenses incurred by the Purchasers in connection with the investigation and
completion of the transactions contemplated hereby and by the other Basic
Documents and the Warrants; and (c) all costs and expenses, including
reasonable attorneys' fees and costs of settlement, incurred by the Purchasers
in enforcing any obligations of or in collecting any payments due from the
Company hereunder or under the other Basic Documents or the Warrants by reason
of any breach or default by the Company or in connection with any refinancing
or restructuring of the
37
<PAGE> 46
arrangements provided under the Basic Documents or the Warrants in the nature
of a "work-out" or pursuant to any insolvency or bankruptcy proceedings.
9.06 Specific Performance. The Company acknowledges that the subject matter
of this Agreement is unique and that no adequate remedy of law would be
available for breach of this Agreement. Accordingly, the Company agrees that
the Purchasers will be entitled to an appropriate decree of specific
performance, injunctive relief or other equitable remedies to enforce this
Agreement (without any bond or other security being required), and the Company
waives the defense in any action or proceeding brought to enforce this
Agreement that there exists an adequate remedy at law.
9.07 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchasers.
9.08 Survival of Representations and Warranties. All representations and
warranties made in this Agreement or any other Basic Document or Warrant shall
survive the execution and delivery hereof and thereof and the issuance of the
Units, the Shortfall Warrants and the Litigation Warrants. Notwithstanding
anything in this Agreement or implied by law to the contrary, the agreements of
the Company set forth in Sections 2.05, 4.16, 9.01 and 9.05 and of the
Purchasers set forth in Section 6.01(c) shall survive the payment or redemption
of any Securities.
9.09 Severability. In case any provision in or obligation under this
Agreement or the Securities shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
9.10 Prior Agreements. This Agreement, together with the exhibits and
schedules hereto, constitutes the entire agreement between the parties and
supersedes any prior understandings or agreements concerning the subject matter
hereof.
9.11 Governing Law; Consent to Jurisdiction and Venue. In all respects,
including all matters of construction, validity and performance, this Agreement
and the obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the laws of the State of Michigan applicable to
contracts made and performed in such state, without regard to the principles
thereof regarding conflict of laws, and any applicable laws of the United
States of America. EACH OF THE COMPANY AND EACH PURCHASER CONSENTS TO PERSONAL
JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT
TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF
NEW YORK, STATE OF NEW YORK. Service of process on the Company or any
Purchaser in any action arising out of or relating to this Agreement shall be
effective if mailed to such party in accordance with the procedures and
requirements set forth in Section 9.04. Nothing herein shall preclude any
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<PAGE> 47
Purchaser or the Company from bringing suit or taking other legal action in any
other jurisdiction.
9.12 Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS AGREEMENT.
9.13 Headings. Article, Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute
a part of this Agreement for any other purpose.
9.14 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by
signing any such counterpart.
9.15 Further Assurances. From and after the date of this Agreement, upon the
request of any Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Preferred Shares, the Warrants, the
Registration Rights Agreement and the other agreements and instruments
contemplated hereby.
9.16 Allocation of Purchase Price. Under both generally accepted accounting
principles and the regulations promulgated under the Code, the purchase of
Preferred Shares and Attached Warrants as part of Units for an aggregate
Purchase Price may require an allocation of the Purchase Price between the
Preferred Shares and the Attached Warrants. Accordingly, the Company and the
Purchasers agree that the aggregate value of the Preferred Shares and the
Attached Warrants shall be allocated in a manner reasonably requested by
Purchasers (which values shall be used by the Company and the Purchasers for
all purposes, including the preparation of tax returns and the preparation of
financial statements of the Company and its Subsidiaries).
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<PAGE> 48
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date first above written.
CODE ALARM INC.
By: /s/ Rand Mueller
------------------------------------
Name: Rand Mueller
Title: President
PEGASUS PARTNERS, L.P.
By: Pegasus Investors, L.P.,
its general partner
By: Pegasus Investors GP, Inc.,
its general partner
By: /s/ Richard Cion
-------------------------------
Name: Richard Cion
Title: Vice President
PEGASUS RELATED PARTNERS, L.P.
By: Pegasus Investors, L.P.,
its general partner
By: Pegasus Investors GP, Inc.,
its general partner
By: /s/ Richard Cion
-------------------------------
Name: Richard Cion
Title: Vice President
<PAGE> 1
EXHIBIT 2
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF SERIES A
PREFERRED STOCK
OF
CODE ALARM INC.
Code Alarm Inc. (the "Corporation"), a corporation organized
and existing under the Michigan Business Corporation Act, hereby certifies
that, pursuant to the provisions of Section 302 of the Michigan Business
Corporation Act, its Board of Directors, at a meeting duly held on October 21,
1997, adopted the following resolution:
WHEREAS, the Board of Directors of the Corporation is
authorized by the Restated Articles of Incorporation to issue up to 500,000
shares of preferred stock in one or more series and, in connection with the
creation of any series, to fix by the resolutions providing for the issuance of
shares the powers, designations, preferences and relative, participating,
optional or other rights of the series and the qualifications, limitations or
restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to such authority, to authorize and fix the terms and
provisions of one series, consisting of two sub-series, of preferred stock and
the number of shares constituting such series and sub-series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby
authorized a series of preferred stock on the terms and with the provisions
herein set forth on Annex A attached to this resolution.
/s/ Rand Mueller
--------------------------
Name: Rand Mueller
Title: President
ATTEST:
/s/ Craig S. Camalo
- -------------------------
Name: Craig S. Camalo
Title: Secretary
<PAGE> 2
ANNEX A
SERIES A PREFERRED STOCK
The powers, designations, preferences and relative,
participating, optional or other rights of the Series A Preferred Stock of Code
Alarm Inc. (the "Corporation") are as follows:
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series
A Preferred Stock." The Series A Preferred Stock shall be issuable in two
sub-series, which shall be designated as "Series A-1 Preferred Stock" and
"Series A-2 Preferred Stock" and which shall be the same in all respects except
as otherwise specified below. The Series A Preferred Stock shall have no par
value per share. The number of authorized shares constituting this series
shall be 400,000 shares, 200,000 of which shall be Series A-1 Preferred Stock
and 200,000 of which shall be Series A-2 Preferred Stock. Shares of the Series
A Preferred Stock shall have a stated value of $127.27 per share (the "Stated
Value").
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of the Series A
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors of the Corporation (the "Board of Directors"), to the extent
permitted by the Michigan Business Corporation Act, cumulative dividends at the
rate, in the form, at the times and in the manner set forth in this Section 2.
Such dividends shall accrue on any given share from the day of issuance of such
share and shall accrue from day to day at the rate specified in Section 2(c)
below whether or not earned or declared.
(b) Form of Dividend. Except as provided in Section
10(c), any dividend payment made with respect to the Series A Preferred Stock
may be made, at the sole discretion of the Board of Directors, in cash out of
funds legally available for such purpose or by issuing the number of units
("Units") consisting of one share of Series A Preferred Stock (of the same
sub-series as those held by the holder entitled to the dividend) and one
warrant (together with other warrants in substantially the same form issued to
holders of Series A Preferred Stock, a form of which is available for
inspection at the Corporation, the "Attached Warrants") to purchase such number
of shares of the Corporation's common stock, no par value (the "Common Stock")
for which the other Attached Warrants held by such holder are exercisable at
such time, in the form attached as Exhibit B-1 to the Unit Purchase Agreement
dated as of the date of initial issuance of shares of Series A Preferred Stock
(the "Issuance Date"), among the Corporation, Pegasus Partners, L.P. and
Pegasus Related Partners, L.P., a copy of which is available for inspection at
the Corporation (the "Unit Purchase Agreement"), equal to the amount of the
dividend divided by the Stated Value. Any such dividend payment may be made,
in the sole discretion of the Board of Directors, partially in cash and
partially in Units determined in accordance with the preceding formula;
provided, that, in the event that any such dividend payment is made partially
<PAGE> 3
in cash and partially in Units, each holder of Series A Preferred Stock shall
receive a ratable amount of cash and Units that is proportionate to the amount
of Series A Preferred Stock held by such holder on which such dividend is paid.
All shares of Series A Preferred Stock and Attached Warrants comprising Units
issued as a dividend shall be fully paid and nonassessable.
(c) Dividend Rate. The dividend rate on the Series A
Preferred Stock shall be 10% per annum of the Stated Value per share plus all
accrued and unpaid dividends as of the most recent Dividend Payment Date (as
defined below) (after giving effect to payments made on such date); provided,
that, upon the occurrence and during the continuance of any Triggering Event
(as defined in Section 7 hereof), the dividend rate on the Series A Preferred
Stock shall be 13% per annum of the Stated Value per share plus all accrued and
unpaid dividends as of the most recent Dividend Payment Date (as defined below)
(after giving effect to payments made on such date) (such rate, as applicable,
the "Dividend Rate").
(d) Payment of Dividends. Dividends shall be payable
semi-annually in arrears, when and as declared by the Board of Directors, on
April 15 and October 15 of each year, commencing April 15, 1998 (each such
semiannual payment date, a "Dividend Payment Date"), except that if any such
date is a Saturday, Sunday or legal holiday then such dividend shall be payable
on the first immediately succeeding calendar day which is not a Saturday,
Sunday or legal holiday. Dividends shall accrue on each share of Series A
Preferred Stock from the date of issuance of such share and, after payment of
a dividend as required hereunder, from and after each such Dividend Payment
Date based on the number of days elapsed and a 365-day year. The dividend
payable on the first Dividend Payment Date with respect to any share of Series
A Preferred Stock shall be the pro rata portion of the Dividend Rate based upon
the number of days from and including the Issuance Date, up to and including
such first Dividend Payment Date and a 365-day year. Each dividend shall be
paid to the holders of record of shares of the Series A Preferred Stock as they
appear on the books of the Corporation on such record date, which record date
shall be not more than 45 days nor fewer than 10 days preceding the respective
Dividend Payment Date, as shall be fixed by the Board of Directors. Any
dividend payable on any Dividend Payment Date to any holder of record of shares
of Series A Preferred Stock shall be reduced by the amount of any dividend
payments made to such holder pursuant to Section 8(b) hereof during the
six-month period preceding such Dividend Payment Date.
(e) Dividend Preference. Dividends on the Series A
Preferred Stock shall be payable before any dividends or distributions or other
payments shall be paid or set aside for payment upon the common stock, no par
value, of the Corporation (the "Common Stock") or any other stock ranking on
liquidation or as to dividends or distributions junior to the Series A
Preferred Stock (any such stock, together with the Common Stock, being referred
to hereinafter as "Junior Stock"), other than a dividend, distribution or
payment paid solely in shares of Common Stock or other Junior Stock that is not
Redeemable Stock (as defined below). If at any time dividends on the
outstanding Series A Preferred Stock at the rate set forth herein shall not
have been paid or declared and set apart for payment with respect to all
preceding and current periods, the amount of the deficiency shall be fully paid
or declared and set apart for payment, before any dividend, distribution or
payment shall be declared or paid upon or set apart for the
2
<PAGE> 4
shares of any other class or series of Junior Stock or Parity Securities (as
defined below), other than a dividend, distribution or payment paid solely in
shares of Common Stock or other Junior Stock that is not Redeemable Stock. The
term "Redeemable Stock" shall mean any equity security that by its terms or
otherwise is required to be redeemed for cash at any time or is redeemable for
cash at the option of the holder thereof at any time.
If there shall be outstanding shares of any Parity Securities,
no full dividends shall be declared or paid or set apart for payment on any
such Parity Securities for any period unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum or
additional shares of Series A Preferred Stock as permitted hereunder
sufficient for the payment thereof set apart for such payment on the Series A
Preferred Stock for all dividend periods terminating on or prior to the date of
payment of such dividends; provided that in no event shall any dividends be
declared or paid in cash on Parity Securities unless dividends in cash of not
less than a ratable amount are declared and paid on Series A Preferred Stock.
The term "Parity Securities" shall mean any class or series of capital stock
which is entitled to share ratably with the Series A Preferred Stock in the
payment of dividends, including accumulations, if any, and, in the event that
the amounts payable thereon on liquidation are not paid in full, are entitled
to share ratably with the Series A Preferred Stock in any distribution of
assets; provided that Parity Securities shall not include any shares of Series
A Preferred Stock issued as dividends pursuant to this Section 2.
If dividends on the Series A Preferred Stock and on any other
series of Parity Securities are in arrears, in making any dividend payment on
account of such arrears, the Corporation shall make payments ratably (and
ratably as to cash, in-kind or other payments) upon all outstanding shares of
the Series A Preferred Stock and shares of such other Parity Securities in
proportion to the respective amounts of dividends in arrears on the Series A
Preferred Stock and on such other series of Parity Securities to the date of
such dividend payment.
Notwithstanding any other provision of this Section 2, the
Corporation may pay scheduled and accrued dividends on its Series B Preferred
Stock, pursuant to the terms of the Series B Certificate of Designation (as
hereinafter defined).
3. LIQUIDATION PREFERENCE.
In the event of any bankruptcy, liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, each holder of
Series A Preferred Stock at the time thereof shall be entitled to receive,
prior and in preference to any distribution of any of the assets or funds of
the Corporation to the holders of the Common Stock or other Junior Stock by
reason of their ownership of such stock, an amount per share of Series A
Preferred Stock equal to the greater of (x) the Stated Value plus any accrued
and unpaid dividends to the date of liquidation or (y) subject to the
applicability of Section 8(b), the amount per share determined in accordance
with such Section 8(b) plus $.01. If the assets and funds legally available
for distribution among the holders of Series A Preferred Stock shall be
insufficient to permit the payment to the holders of the full aforesaid
preferential amount, then the assets and funds shall be distributed ratably
among holders of Series A Preferred Stock in proportion to the number of shares
of Series A Preferred Stock owned by each holder. If the assets and funds of
the Corporation available for distribution to stockholders upon any bankruptcy,
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, shall be insufficient to permit the payment
to holders
3
<PAGE> 5
of the full aforesaid preferential amount and amounts payable to holders of
outstanding Parity Securities, the holders of Series A Preferred Stock and the
holders of such other Parity Securities shall share ratably (and ratably as to
cash, in-kind or other distributions) in any distribution of assets of the
Corporation in proportion to the full respective preferential amounts to which
they are entitled.
Notwithstanding any other provision of this Section 3, the
Corporation may redeem or repurchase shares of Series B Preferred Stock
pursuant to the terms of the Series B Certificate of Designation.
4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or
in the Corporation's Restated Articles of Incorporation, as it may be amended
or restated from time to time (the "Articles of Incorporation"), and any voting
rights provided by law, the holders of shares of Series A-1 Preferred Stock
shall have the following voting rights:
(a) Election of Directors.
(i) Subject to the terms hereof, the holders of
the Series A-1 Preferred Stock, voting as a single class in accordance with
Section 4(d), shall have the right, at any time on or after the day after the
Issuance Date, to elect two directors (in addition to the directors elected by
holders of Common Stock or any other capital stock of the Corporation).
(ii) Any director elected by the holders of
shares of Series A-1 Preferred Stock shall be referred to herein as a
"Series A-1 Preferred Director." Subject to Section 4(a)(v), the initial terms
of the two directors to be appointed pursuant to Section 4(a)(i) will commence
upon their election by the Series A-1 Preferred Stock and shall expire at the
2000 annual meeting of stockholders of the Corporation. Upon expiration of the
initial terms of such Series A-1 Preferred Directors, so long as the Series A-1
Preferred Stock is outstanding, the holders of the Series A-1 Preferred Stock
shall have the right, subject to Section 4(a)(v), to elect two Series A-1
Preferred Directors to replace such directors in the same manner described
above in Section 4(a)(i). Subject to Section 4(a)(v), a Series A-1 Preferred
Director so elected shall hold office for a term expiring at the annual meeting
of stockholders in the third year following the election of such director.
Notwithstanding the foregoing, but subject to Section 4(a)(v), a Series A-1
Preferred Director elected under Section 4(a)(i) shall serve until such Series
A-1 Preferred Director's successor is duly elected and qualified or until such
director's earlier removal as provided in Section 4(a)(iii) or death or
resignation and, in the event a vacancy
4
<PAGE> 6
occurs, a replacement Series A-1 Preferred Director shall be selected as
provided in Section 4(a)(i).
(iii) A Series A-1 Preferred Director may
be removed by, and shall not be removed except by, the vote of the holders of
record of a majority of the outstanding shares of Series A-1 Preferred Stock,
voting together as a single class.
(iv) The Corporation shall at all times
reserve and keep available a sufficient number of vacant seats on the Board of
Directors solely for the purpose of enabling the holders of the Series A-1
Preferred Stock to designate Series A-1 Preferred Directors as provided in this
Section 4(a).
(v) The right of the holders of Series
A-1 Preferred Stock to elect two directors pursuant to this Section 4(a) shall
terminate at such time as the initial holder of Series A-1 Preferred Stock and
its affiliates (as such term is defined in Section 776(1) of the Michigan
Business Corporation Act) no longer hold at least 25% of the initially issued
number of shares of Series A-1 Preferred Stock (without regard to in-kind
dividends paid thereon) and at such time the term of any Series A-1 Preferred
Director shall immediately terminate.
(b) Certain Corporate Actions.
So long as the initial holder of Series A-1 Preferred
Stock and its affiliates (as such term is defined in Section 776(1) of the
Michigan Business Corporation Act) collectively hold at least 25% of the
initially issued number of shares of Series A-1 Preferred Stock (without regard
to in-kind dividends paid thereon), the Corporation shall not, and shall not
permit any of its subsidiaries to, without first obtaining the affirmative vote
or written consent of the holders of a majority of the shares of Series A-1
Preferred Stock, voting as a single class in accordance with Section 4(d):
(A) amend, repeal, modify or supplement any
provision of the Restated Articles of Incorporation (including any certificate
of designation forming a part thereof), the Bylaws of the Corporation, as in
effect on the Issuance Date, or any successor articles of incorporation or
bylaws or this Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Rights of Series A Preferred Stock
(this "Certificate of Designation"), if such amendment, repeal, modification or
supplement in any way adversely affects the powers, designations, preferences
or other rights of the Series A Preferred Stock, including, without limitation,
to increase the size of the Board of Directors to more than nine (9) members
(except to the extent the holders of Series B Preferred Stock have rights to
elect directors in accordance with the terms of the Certificate of Designation,
Number, Powers, Preferences and Relative Participating, Optional and Other
Rights of Series B Preferred Stock, as in effect on the Issuance Date (the
"Series B Certificate of Designation");
(B) authorize or effect, in a single transaction
or through a series of related transactions, (1) a liquidation, winding up or
dissolution of the
5
<PAGE> 7
Corporation or adoption of any plan for the same; (2) any reorganization of the
capital of the Corporation or any of its subsidiaries, reclassification of the
capital stock of the Corporation or any of its subsidiaries, consolidation or
merger by the Corporation or any of its subsidiaries with or into another
corporation or other entity (other than a merger of any of the Corporation's
wholly-owned subsidiaries with or into the Corporation, where the Corporation
is the surviving corporation), or sale, transfer or other disposal of all or
substantially all of the property, assets or business of the Corporation or any
of its subsidiaries except to the Corporation (each, a "Realization Event"); or
(3) any direct or indirect purchase or other acquisition by the Corporation or
any of its subsidiaries of any capital stock (other than repurchase of the
Units, the Series A Preferred Stock, the Attached Warrants and Common Stock
issued upon exercise thereof, pursuant to the terms hereof and of the Unit
Purchase Agreement, repurchase of the Shortfall Warrants (as defined in the
Unit Purchase Agreement), the Litigation Warrants (as defined in the Unit
Purchase Agreement) and Common Stock issued upon exercise of the Shortfall
Warrants or the Litigation Warrants, pursuant to the terms of the Shortfall
Warrants or Litigation Warrants, as the case may be, and redemption of the
shares of Series B Preferred Stock of the Corporation, pursuant to the Series B
Certificate of Designation);
(C) declare or pay or set aside for payment any
dividend or distribution or other payment (other than a dividend or
distribution paid solely in shares of Common Stock or other Junior Stock that
is not Redeemable Stock or a scheduled and accrued dividend on the Series B
Preferred Stock pursuant to the terms of the Series B Certificate of
Designation) upon the Common Stock or upon any other Junior Stock, nor redeem,
purchase or otherwise acquire any Common Stock or other Junior Stock for any
consideration (or pay or make available any moneys, whether by means of a
sinking fund or otherwise, for the redemption of or other distribution or
payment with respect to any shares of any Common Stock or other Junior Stock),
except by conversion or exchange of Common Stock or other Junior Stock for such
stock that is not Redeemable Stock;
(D) authorize or permit the Corporation or any
subsidiary of the Corporation to issue any capital stock or any options,
warrants or other rights exchangeable or exercisable therefor, other than (i)
shares of Series A Preferred Stock and Attached Warrants on the Issuance Date
or in payment of dividends as provided in Section 2 above, (ii) pursuant to the
exercise of options issued under the Corporation's 1987 Stock Option Plan,
(iii) pursuant to the grant and exercise of options under the Corporation's
1997 Stock Option Plan (the "1997 Stock Option Plan"), as described in Section
3.01(n) of the Unit Purchase Agreement, provided that the Charter Amendment (as
defined in the Unit Purchase Agreement) has (1) been approved and adopted by
the Corporation's stockholders, (2) been filed with the Department of Consumer
and Industry Services of the State of Michigan and (3) become effective, (iv)
the issuance of shares of Series A-2 Preferred Stock in accordance with this
Certificate of Designation, (v) the issuance of Common Stock upon exercise of
Attached Warrants, (vi) the issuance to General Electric Capital Corporation on
the Issuance Date of warrants to purchase Common Stock and the issuance of
Common Stock upon the exercise of such warrants,
6
<PAGE> 8
(vii) the issuance to Craig Camalo on the Issuance Date of one share of Series
B Preferred Stock, (viii) the issuance of Shortfall Warrants and Litigation
Warrants and the issuance of Common Stock upon exercise of any Shortfall
Warrants or Litigation Warrants, (ix) the issuance of equity securities, the
proceeds of which are intended to be and are immediately used to redeem all of
the outstanding shares of Series A Preferred Stock and at least one-half of all
of the outstanding Attached Warrants, and (x) in payment of dividends or
distributions payable solely in shares of Common Stock or other Junior Stock
that is not Redeemable Stock, to the extent permitted in Section 4(b)(C);
(E) authorize or permit the purchase by the
Corporation or any subsidiary of assets or of equity or other interests in any
other entity in one or a series of transactions if:
(i) the Corporation's and its
subsidiaries' investments in such assets or equity exceed 10 percent of the
total assets of the Corporation and its subsidiaries consolidated as of the end
of the most recently completed fiscal year; or
(ii) the Corporation's and its
subsidiaries' income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting principles
as a result of the purchase of such assets or equity exceeds 10 percent of such
income of the Corporation and its subsidiaries consolidated for the most
recently completed fiscal year.
(F) incur, or allow any subsidiary to incur,
indebtedness for borrowed money (including, without limitation, any capitalized
lease obligations, accounts receivable financing or other asset-backed
financing), any guarantee or other similar contingent obligation or any lease
financing (whether a capitalized lease, operating lease, pursuant to a sale
leaseback arrangement or otherwise) other than (i) incurrence after the initial
issuance date of the Series A-1 Preferred Stock of additional indebtedness not
exceeding $1,000,000 in the aggregate at any one time outstanding (other than
any indebtedness owing to General Electric Capital Corporation and the other
lenders pursuant to the Credit Agreement dated as of the Issuance Date (as in
effect on such date) among the Corporation, Tessco Group, Inc., General
Electric Capital Corporation and the other credit parties and lenders signatory
thereto), (ii) the incurrence of indebtedness, the proceeds of which are
intended to be and are immediately used to redeem all of the outstanding shares
of Series A Preferred Stock and at least one-half of all of the outstanding
Attached Warrants, (iii) the guarantee by Tessco Group, Inc. of certain
obligations of the Corporation to Pegasus Partners, L.P. and Pegasus Related
Partners, L.P. pursuant to a guarantee dated as of the Issuance Date and (iv)
any indebtedness, guarantee or similar contingent obligation relating to the
Litigation Guarantee (as defined in the Unit Purchase Agreement);
(G) modify or enter into, or allow any subsidiary
to modify or enter into, any employment agreement, non-competition agreement,
bonus or stock
7
<PAGE> 9
issuance arrangements or other compensation (including, without limitation,
fringe benefit) arrangements with any officer or director of the Corporation or
any subsidiary or any person performing functions similar to that of an officer
or director;
(H) amend, supplement, restate, revise, waive or
otherwise modify (a) the Corporation's 1987 Stock Option Plan, as in effect on
the Issuance Date or (b) the 1997 Stock Option Plan or reallocate the options
issued under the 1997 Stock Option Plan;
(I) create or adopt any stock option plan, stock
appreciation rights plan, bonus plan or similar plan (other than the 1997 Stock
Option Plan) that is not in existence as of the Issuance Date;
(J) create an executive or other committee of the
Board of Directors of the Corporation or any subsidiary or adopt rules
governing the election of members of such committee;
(K) change in any material respect the nature of
the business of the Corporation and its subsidiaries taken as a whole;
(L) enter into any transaction, or any agreement
or understanding with any affiliate of the Corporation or any subsidiary
thereof, other than a wholly-owned subsidiary of the Corporation; or
(M) agree to do any of the foregoing.
(c) Additional Voting Rights. Upon the occurrence and
during the continuance of any Triggering Event (as defined in Section 7), the
holders of Series A-1 Preferred Stock shall have the additional voting rights
set forth in Section 8(d).
(d) Means of Voting. On all matters on which the holders
of Series A-1 Preferred Stock are entitled to vote pursuant to Section 4(a) and
4(b), each holder of Series A-1 Preferred Stock shall be entitled to one vote
for each share held by such holder. The rights of the holders of Series A-1
Preferred Stock under this Section 4 may be exercised (i) with respect to the
election of the Series A-1 Preferred Directors pursuant to Section 4(a), at a
meeting of the holders of the Series A-1 Preferred Stock or by written consents
executed by the holders entitled to vote therefor and delivered to the
Secretary or Assistant Secretary of the Corporation; (ii) at any meeting of
stockholders of the Corporation for the election of directors; (iii) at a
meeting of the holders of shares of such Series A-1 Preferred Stock, called for
the purpose by the Corporation or by the holders of record of 25% or more of
the Series A-1 Preferred Stock, pursuant to requests delivered in writing to
the Secretary or Assistant Secretary of the Corporation; (iv) by written
consent signed by the holders of the requisite percentage of the then
outstanding shares, delivered to the Secretary or Assistant Secretary of the
Corporation; or (v) with respect to the voting rights referred to in Section
4(c), at any meeting of the stockholders of
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<PAGE> 10
the Corporation or by written consent signed by the holders of the requisite
percentage of the then outstanding shares of Common Stock (and Series A-1
Preferred Stock), delivered to the Secretary or Assistant Secretary of the
Corporation. Except to the extent otherwise provided herein or to the extent
that holders of 75% of the Series A-1 Preferred Stock decide otherwise, any
meeting of the holders of Series A-1 Preferred Stock shall be conducted in
accordance with the provisions of the By-Laws of the Corporation applicable to
meetings of stockholders. In the event of a conflict or inconsistency between
the By-Laws of the Corporation and any term of this Certificate of Designation,
including, but not limited to this Section 4, the terms of this Certificate of
Designation shall prevail.
(e) Voting Rights of Series A-2 Preferred Stock. Holders
of shares of Series A-2 Preferred Stock shall not be entitled to any voting
rights, except as expressly set forth herein or as otherwise required by law.
5. OPTIONAL REDEMPTION.
(a) Redemption During Year One. At any time prior to
the first anniversary of the Issuance Date, provided that the Charter Amendment
has (1) been approved and adopted by the Corporation's stockholders, (2) been
filed with the Department of Consumer and Industry Services of the State of
Michigan and (3) become effective, and subject to Section 5(f), the
Corporation, at its sole option, may redeem all, but not less than all, of the
outstanding shares of Series A Preferred Stock and, concurrently therewith,
repurchase all of the outstanding Interim Dividend Warrants (as defined in the
Unit Purchase Agreement), one-half of the outstanding Attached Warrants which
are not Interim Dividend Warrants and a number of shares of Common Stock
equivalent to one-half of the number of shares of Common Stock for which
Attached Warrants have theretofore been exercised, for an aggregate redemption
price consisting of cash in an amount equal to one hundred seventeen and
one-half percent (117.5%) of the aggregate Stated Value of such shares of
Series A Preferred Stock less any cash dividends previously paid thereon.
(b) Redemption After Year Two. At any time after the
second anniversary of the Issuance Date, provided that the Corporation has not
theretofore exercised its rights pursuant to Section 5(a), and subject to
Section 5(f), the Corporation, at its sole option, may redeem all, but not less
than all, of the outstanding shares of Series A Preferred Stock and,
concurrently therewith, repurchase all of the outstanding Attached Warrants
which are part of Units and the Common Stock for which Attached Warrants have
theretofore been exercised (other than shares of Common Stock which have been
registered and sold under an effective registration statement pursuant to the
Securities Act, or sold pursuant to Rule 144 promulgated thereunder
("Non-Repurchasable Stock")), for an aggregate redemption price equal to the
greater of (i) an amount determined by multiplying (x) the sum of (1) the
number of shares of Common Stock for which the Attached Warrants are then
exercisable and (2) the number of shares for which the Attached Warrants have
theretofore been exercised (other than shares of Non-Repurchasable Stock) by
(y) the Current Market Price per share of Common Stock determined as of the
date of redemption and (ii) an amount sufficient to yield each Unit (other than
Units which have been transformed
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<PAGE> 11
into Non-Repurchasable Stock) a 35% annual rate of return from the date of its
original issuance through the date of redemption, after giving effect to any
cash dividends actually paid to the holder or any prior holder of such Unit.
For purposes hereof, "Current Market Price" shall mean, in
respect of any share of Common Stock on any date herein specified, the average
of the daily market prices for the 20 consecutive Trading Days (as hereinafter
defined) immediately preceding such date. The daily market price for each such
Trading Day shall be (i) the last sale price on such day on the principal stock
exchange on which such Common Stock is then listed or admitted to trading, (ii)
if no sale takes place on such day on any such exchange, the last reported sale
price as officially quoted on any such exchange, (iii) if the Common Stock is
not then listed or admitted to trading on any stock exchange but is traded on
the Nasdaq Stock Market, the last reported sale price as officially quoted on
the Nasdaq Stock Market, (iv) if the Common Stock is not then traded on the
Nasdaq Stock Market, the last reported sale price on the over-the-counter
market, as reported by the National Quotation Bureau Incorporated (or any
similar organization or agency succeeding to its functions of reporting
prices), or if such sale price is not available on such date, the average of
the closing bid and asked prices on such date as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices), or (v) if there is no such organization
or agency, as furnished by any member of the National Association of Securities
Dealers, Inc., or any successor corporation thereto (the "NASD") selected
mutually by the holders of a majority of the Units and the Corporation or, if
they cannot agree upon such selection, by a member selected by two such members
of the NASD, one of which shall be selected by such holders and one of which
shall be selected by the Corporation.
For purposes hereof, "Trading Day" shall mean (i) any day on
which stock is traded on the principal stock exchange on which the Common Stock
is listed or admitted to trading, (ii) if the Common Stock is not then listed
or admitted to trading on any stock exchange but is traded on the Nasdaq Stock
Market, any day on which stock is traded on the Nasdaq Stock Market, or (iii)
if the Common Stock is not then traded on the Nasdaq Stock Market, any day on
which stock is traded in the over-the counter market, as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding to its functions of reporting prices).
(c) Notice of Redemption. Notice of redemption pursuant
to Section 5(a) or (b) shall be given by first class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the redemption date to
such holder's address as the same appears on the books of the Corporation.
Each such notice shall state: (i) the redemption date; (ii) the number of
shares of Series A Preferred Stock to be redeemed and the number of Attached
Warrants and shares of Common Stock to be repurchased; (iii) the formula for
determination of the redemption price; (iv) the place or places where
certificates for such shares of Series A Preferred Stock and Attached Warrants,
and/or for such shares of Common Stock are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares of Series A Preferred
Stock to be redeemed will cease to accrue on the redemption date.
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<PAGE> 12
(d) Cessation of Dividends on Shares of Series A
Preferred Stock Redeemed; Shares No Longer Outstanding. Notice having been
mailed as stated in subsection (c) above, from and after the close of business
on the redemption date (unless default shall be made by the Corporation in
providing money for the payment of the redemption price), dividends on the
shares of Series A Preferred Stock redeemed shall cease to accrue, and the
shares of Series A Preferred Stock redeemed and the Attached Warrants and
shares of Common Stock repurchased shall no longer be deemed to be outstanding,
and all rights of the holders thereof as stockholders of the Corporation
(except the right to receive from the Corporation the redemption price) shall
cease. Upon surrender in accordance with said notice of the certificates for
any shares of Series A Preferred Stock and Attached Warrants comprising Units,
and/or shares of Common Stock so redeemed or repurchased (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such Attached Warrants and/or shares
shall be redeemed or repurchased by the Corporation at the redemption price
aforesaid.
(e) Status of Redeemed Shares of Series A Preferred
Stock. Any shares of Series A Preferred Stock which have been redeemed shall
be retired and thereafter have the status of authorized but unissued shares of
preferred stock, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors or a
duly authorized committee thereof.
(f) Limitation on Corporation's Right to Redeem.
Notwithstanding anything to the contrary contained herein, the Corporation
shall not be entitled to redeem shares of Series A Preferred Stock or
repurchase Attached Warrants and/or shares of Common Stock until the earlier of
(i) the date which is six months and one day following the most recent issuance
to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. of the Litigation
Warrants in accordance with Section 5.04 of the Unit Purchase Agreement,
provided that on or before such date, Pegasus Partners, L.P. and Pegasus
Related Partners, L.P. are unconditionally released in full from any unused
portion of the Litigation Guarantee or (ii) such time as Pegasus Partners, L.P.
and Pegasus Related Partners, L.P. are unconditionally released in full from
the Litigation Guarantee (as defined in the Unit Purchase Agreement), provided
that no Litigation Warrants have been issued prior to such release.
6. MANDATORY REDEMPTION.
(a) Obligation to Redeem. (i) At any time after the
date which is three years and six months after the Issuance Date, any holder of
shares of Series A Preferred Stock, at its election, may, by notice to the
Corporation (the "Put Notice"), demand redemption of all, but not less than
all, of such holder's shares of Series A Preferred Stock and repurchase of all,
but not less than all, of such holder's Attached Warrants. Subject to the
provisions of Section 6(b), the Corporation shall, on the date (not less than
30 days after the date of the Put Notice) designated in such Put Notice, redeem
or repurchase from the holder all (or such lesser portion permitted to be
repurchased in accordance with Section 6(a)(iii)) of such holder's shares of
Series A Preferred Stock and Attached Warrants for an amount determined by
multiplying (x) the number of shares
11
<PAGE> 13
of Common Stock for which such Attached Warrants are then exercisable by (y)
the Current Market Price per share of Common Stock determined as of the date of
the Put Notice.
(ii) Notwithstanding the provisions of
Section 6(a)(i), if, at any time during the period between the date on which a
holder of shares of Series A Preferred Stock shall have delivered a Put Notice
and the date of redemption by the Corporation pursuant thereto, a Realization
Event shall occur and the consideration received or receivable by stockholders
in connection with such Realization Event shall consist solely of cash, then
such holder shall (whether or not such holder shall have previously surrendered
its shares of Series A Preferred Stock for redemption by the Corporation
pursuant to this Section 6) be entitled to receive, on the date of such
redemption, the higher of (x) the amount payable to such holder as determined
pursuant to Section 6(a)(i) and (y) an amount equal to the amount of cash such
holder would have received upon the occurrence of such Realization Event had
such holder's Attached Warrants been exercised for Common Stock immediately
prior thereto.
(iii) The Corporation shall not be
obligated under Section 6(a)(i) to redeem shares of Series A Preferred Stock
and repurchase Attached Warrants if the Corporation is prohibited from doing so
under any agreement or instrument evidencing the Corporation's or any of its
subsidiaries' indebtedness for borrowed money, and such prohibition has not
been waived, or if and to the extent such a redemption and repurchase (x) would
cause an event of default to exist by reason of such redemption and repurchase,
which event of default has not been waived, with respect to any such agreement
or instrument or would violate any provision of any such agreement or
instrument, or (y) would be in violation of applicable law ("Restrictions"), in
any such case as determined by an opinion of counsel to the Corporation,
reasonably acceptable to the holder; provided, however, that the Corporation
shall use its reasonable best efforts to have any such Restriction either
waived or terminated (including, without limitation, by obtaining refinancing
for any such indebtedness on reasonable terms). In the event that, following
receipt of a Put Notice, the Corporation will not redeem shares of Series A
Preferred Stock and repurchase Attached Warrants requested to be so redeemed
and repurchased in accordance with Section 6(a)(i) because of the existence of
any Restriction, the Corporation shall, within twenty (20) days after receipt
of the Put Notice, so notify the holder in writing (the "Restriction Notice"),
setting forth the number of shares of Series A Preferred Stock and Attached
Warrants which will not be so redeemed and repurchased and the Restrictions
which apply, and deliver to the holder a copy of the opinion referred to in the
prior sentence. In addition, in such event, the Corporation shall, upon the
request of the holder, use its best efforts to register the shares of Common
Stock for which the Attached Warrants which will not be repurchased may be
exercised, in accordance with the terms of the Registration Rights Agreement
(as hereinafter defined). In addition, if, in such event, the Corporation will
be redeeming a number of shares of Series A-1 Preferred Stock which will result
in the holders of Series A-1 Preferred Stock losing their voting and other
rights pursuant to Section 4 hereof, the holder may, by written notice to the
Corporation within five (5) days after receipt of the Restriction Notice,
require that the Corporation redeem only such lesser number of shares of Series
A-1 Preferred Stock (and repurchase only those Attached Warrants which are part
of Units containing such shares of Series A-1 Preferred Stock) which will
result in such holders retaining such rights.
12
<PAGE> 14
(b) Payment of Redemption Price. The redemption price
for any redemption pursuant to this Section 6 shall be determined pursuant to
Section 6(a) and shall be payable in cash.
On the date of any redemption of shares of Series A Preferred
Stock and repurchase of Attached Warrants pursuant to this Section 6, the
holder thereof shall surrender for redemption or repurchase certificate(s) for
the number of shares of Series A Preferred Stock being redeemed and warrant(s)
for the number of Attached Warrants being repurchased, without any
representation or warranty (other than that the holder has good and marketable
title thereto, free and clear of liens, encumbrances and restrictions of any
kind), together with an instrument of transfer reasonably acceptable to the
Corporation, against payment therefor of the redemption price by, at the option
of the holder, (i) wire transfer to an account in a bank located in the United
States designated by the holder for such purpose or (ii) a certified or
official bank check payable to the order of the holder. If less than all of
the holder's shares of Series A Preferred Stock or Attached Warrants
represented by a single certificate or warrant are being redeemed or
repurchased, the Corporation shall cancel such certificate or warrant, as the
case may be, and issue in the name of, and deliver to, the holder a new
certificate or warrant, as the case may be, for the portion not being redeemed
or repurchased.
7. TRIGGERING EVENTS.
Any of the following actions or events shall constitute a
"Triggering Event" for purposes hereof:
(a) Failure to Redeem. The Corporation shall (i) fail to
redeem the Series A Preferred Stock in accordance with Section 6 or, if a
Restriction exists and a holder requests registration of shares of Common stock
issuable upon exercise of such holder's Attached Warrants, fail to cause such a
registration statement covering such shares to become effective in accordance
with the terms of the Registration Rights Agreement, dated as of the Issuance
Date, as amended, among the Corporation, Pegasus Partners, L.P., Pegasus
Related Partners, L.P. and General Electric Capital Corporation, a copy of
which is available for inspection at the Corporation (the "Registration Rights
Agreement"), or (ii) fail, on more than one occasion, to redeem any Series A
Preferred Stock called for redemption in accordance with Section 5.
(b) Failure to Pay Dividends. The Corporation shall fail
to pay any dividend on any Series A Preferred Stock on any Dividend Payment
Date in accordance with Section 2 for any reason, including but not limited to,
that such payment is prohibited by applicable law or the Board of Directors
elect not to pay such dividend, or shall otherwise violate any term of Section
2 and such failure shall not be cured within a period of 30 days after such
Dividend Payment Date or violation (which cure shall be effected in a manner
ensuring the holders the same yield as if such violation had not occurred).
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<PAGE> 15
(c) Failure of Voting Rights. The Corporation shall
enter into any transaction or take any action required to be approved by
holders of Series A Preferred Stock without obtaining the requisite approval of
the holders of the Series A Preferred Stock.
(d) Failure of Charter Amendment Effectiveness. The
Charter Amendment shall not have (1) been approved and adopted by the
Corporation's stockholders, (2) been filed with the Department of Consumer and
Industry Services of the State of Michigan and (3) become effective, by May 31,
1998, and thereafter, for so long as such amendment shall not have been
approved and adopted by such stockholders, been filed with such department and
become effective.
(e) Failure to Issue Common Stock. The Corporation shall
fail for any reason to issue Common Stock required to be issued by the
Corporation upon the due exercise of Attached Warrants or shall fail for any
reason to comply with Section 7 thereof.
(f) Registration Rights Agreement. The Corporation shall
fail in any material respect to comply with the Registration Rights Agreement,
other than as described in Section 7(a), and such failure shall continue for a
period of 30 days after notice from any such holder.
(g) Unit Purchase Agreement. The Corporation shall fail
to comply with Sections 4.16 (Brokers), 5.03 (Shareholder Approvals), 5.04
(Issuance of Litigation Warrants), 5.05 (Insurance), 5.06 (Preemptive Rights),
9.01 (Indemnification) or 9.05 (Expenses) of the Unit Purchase Agreement and
such failure shall continue for a period of 30 days after notice from the
Purchasers (as defined in the Unit Purchase Agreement) or the representations
made under Sections 4.01 (Organization) (first sentence only), 4.02
(Capitalization), 4.03 (Authorization, etc.) or 4.04(a) (Consents and
Approvals) of the Unit Purchase Agreement shall prove to have been incorrect
or misleading in any material respect when made pursuant thereto or any other
material representation made under the Unit Purchase Agreement shall prove to
have been incorrect or misleading in any substantial material respect when
made.
8. REMEDIES.
(a) Upon the occurrence and during the continuance of any
Triggering Event, the Dividend Rate on all outstanding Series A Preferred Stock
shall be increased as provided in Section 2 without any action on the part of
any holder of the Series A Preferred Stock or the Corporation.
(b) In the event that a Triggering Event described in
Section 7(d) or 7(e) shall occur and be continuing, each holder of Series A
Preferred Stock shall be entitled to receive all cash and other dividends,
distributions and other payments which would be paid or payable to a holder of
a number of shares of Common Stock for which the Attached Warrants held by such
holder are exercisable at such time (without regard to the number of shares of
Common Stock which are authorized or reserved for issuance at such time).
14
<PAGE> 16
(c) In the event that a Triggering Event described in
Section 7(d) shall occur, and be continuing, all dividends on the Series A
Preferred Stock shall be paid in cash and not Units, to the extent but only to
the extent, that such cash payments are permitted under any applicable
indenture or credit agreement to which the Corporation is a party and by law.
(d) Upon the occurrence and during the continuance of any
Triggering Event (other than a Triggering Event described in Section 7(g)
arising as a result of the Corporation's failure to comply with Section 4.16,
5.05, 9.01 or 9.05 of the Unit Purchase Agreement), the holders of Series A
Preferred Stock shall have the right to vote on all matters requiring action of
the stockholders of the Corporation, voting together as a single class with the
holders of Common Stock. Each holder of Series A Preferred Stock shall be
entitled to a number of votes equivalent to three votes multiplied by the
number of shares of Common Stock which such holder would have received upon
exercise of such holder's Attached Warrants on the voting record date (assuming
for purposes of the calculation that such Attached Warrants were exercised on
such date and a sufficient number of shares of Common Stock were available for
issuance upon such exercise).
(e) Upon the occurrence of any Triggering Event, the
provisions contained in Section 9 of this Certificate of Designation and in
Section 8.03 of the Unit Purchase Agreement shall terminate and be of no
further force and effect.
(f) The Corporation stipulates that the remedies at law
of each holder of Series A Preferred Stock in the event of any Triggering Event
or threatened Triggering Event or otherwise or other failure in the performance
of or compliance with any of the terms hereof are not and will not be adequate
and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise without requiring any holder to post a bond or other
security except to the extent required by applicable law.
(g) Any holder of Series A Preferred Stock shall be
entitled to recover from the Corporation the reasonable attorneys' fees and
expenses incurred by such holder in connection with any Triggering Event or
enforcement by such holder of any obligation of the Corporation hereunder.
(h) No failure or delay on the part of any holder of
Series A Preferred Stock in exercising any right, power or remedy hereunder or
under applicable law or otherwise shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder or thereunder. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law or otherwise.
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9. RIGHT OF FIRST REFUSAL
Certain transfers of the Series A Preferred Stock shall be
subject to a right of first refusal in accordance with the terms of Section
8.03 of the Unit Purchase Agreement.
10. TRANSFER OF SHARES OF SERIES A-1 PREFERRED STOCK.
Shares of Series A-1 Preferred Stock may only be transferred
together with the same number of Attached Warrants. Upon transfer by the
initial holder or any of its affiliates (as such term is defined in Section
776(1) of the Michigan Business Corporation Act) of any shares of Series A-1
Preferred Stock (other than a transfer to any affiliate of the initial holder),
such shares of Series A-1 Preferred Stock shall automatically be converted into
shares of Series A-2 Preferred Stock, on a one-for-one basis.
16
<PAGE> 1
EXHIBIT 3
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED
EXCEPT AS PART OF UNITS WITH SHARES OF SERIES A PREFERRED STOCK OF CODE ALARM,
INC. AND ARE SUBJECT TO REPURCHASE BY CODE ALARM, INC. IN ACCORDANCE WITH THE
TERMS OF A UNIT PURCHASE AGREEMENT DATED AS OF OCTOBER 27, 1997 AMONG CODE
ALARM, INC., PEGASUS PARTNERS, L.P. AND PEGASUS RELATED PARTNERS, L.P.
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
Issuance Date: October 27, 1997
Issued To: [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.]
No. of Shares of Common Stock: _________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
----
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4. Continued Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2. Division and Combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4. Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1. Stock Dividends, Subdivisions and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2. Certain Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. Issuance of Additional Shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4. Issuance of Warrants or Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5. Issuance of Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6. Superseding Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7. Other Provisions Applicable to Adjustments Under This Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger, Consolidation or Disposition of Assets . . . . . . 16
4.9. Other Action Affecting Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10. Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5. NOTICES TO WARRANTHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . 18
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
9.1. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2. Notice of Proposed Transfers; Requests for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.3. No Transfer to Directed Electronics, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.4. Termination of Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10. SUPPLYING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
13.1. Obligation to Repurchase Warrant and Warrant Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.2. Payment of Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13.3. Obligation to Repurchase When Preferred Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
15. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16. DIVIDENDS ON UNDERLYING COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.1. Nonwaiver and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.2. Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
17.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.8. Governing Law; Consent to Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.9. Mutual Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED
EXCEPT AS PART OF UNITS WITH SHARES OF SERIES A PREFERRED STOCK OF CODE ALARM,
INC. AND ARE SUBJECT TO REPURCHASE BY CODE ALARM, INC. IN ACCORDANCE WITH THE
TERMS OF A UNIT PURCHASE AGREEMENT DATED AS OF OCTOBER 27, 1997 AMONG CODE
ALARM, INC., PEGASUS PARTNERS, L.P. AND PEGASUS RELATED PARTNERS, L.P.
Warrant Number: ___________ Date of Issuance: ________
No. of Shares of Common Stock: ________
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
THIS IS TO CERTIFY THAT [Pegasus Partners, L.P.] [Pegasus Related Partners,
L.P.] or its registered assigns, is entitled, at any time during the Exercise
Period (as hereinafter defined), to purchase from Code Alarm Inc., a Michigan
corporation (the "Company"), _______________________ (______) shares of Common
Stock (as hereinafter defined and subject to adjustment as provided herein), in
whole or in part, including fractional parts, at a purchase price of $1.8759559
per share (subject to adjustment as set forth herein), all on the terms and
conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings set
forth below:
<PAGE> 5
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock,
whether now authorized or not.
"Affiliate" of any Person shall mean a Person that directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with, such Person.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Closing Date" shall mean October 27, 1997.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates) the
Common Stock, no par value, of the Company as constituted on the Closing Date,
and any capital stock into which such Common Stock may thereafter be changed,
and shall also include (i) capital stock of the Company of any other class
(regardless of how denominated) issued to the holders of shares of Common Stock
upon any reclassification thereof which is also not preferred as to dividends
or assets over any other class of stock of the Company and which is not subject
to redemption and (ii) shares of common stock of any successor or acquiring
corporation (as defined in Section 4.8) received by or distributed to the
holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a
specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common Stock on
any date herein specified, the average of the daily market prices for the 20
consecutive Trading Days immediately preceding such date. The daily market
price for each such Trading Day shall be (i) the last sale price on such day on
the principal stock exchange on which such Common Stock is then listed or
admitted to trading, (ii) if no sale takes place on such day on any such
exchange, the last reported sale price as officially quoted on any such
exchange, (iii) if the Common Stock is not then listed or admitted to trading
on any stock exchange but is traded on the Nasdaq Stock Market, the last
reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if
the Common Stock is not then traded on the Nasdaq Stock Market, the last
reported sale price on the over-the-counter market, as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices), or if such sale price is not available
on such date, the average of the closing bid and
2
<PAGE> 6
asked prices on such date as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices), or (v) if there is no such organization or agency, as
furnished by any member of the NASD selected mutually by the Majority Holders
and the Company or, if they cannot agree upon such selection, by a member
selected by two such members of the NASD, one of which shall be selected by the
Majority Holders and one of which shall be selected by the Company.
"Current Warrant Price" shall mean, in respect of a share of Common Stock at
any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date. On the Closing Date, the
Current Warrant Price is $1.8759559 per share of Common Stock, and is subject
to adjustment pursuant to Section 4.
"DEI" shall mean Directed Electronics, Inc., a California corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean an infinite period beginning on the Closing
Date; provided, however, that if the Company shall have exercised its rights to
redeem the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase
Agreement, the Exercise Period shall end at 5:00 P.M., Michigan time, on the
seventh anniversary of the Closing Date.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant outstanding on such date
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date, whether or not such options,
warrants or other securities are presently convertible or exercisable.
"Holder" shall mean, as the context requires, the Person in whose name this
Warrant or one of the other Warrants is registered on the books of the Company
maintained for such purpose and/or the Person holding any Warrant Stock.
"Independent Counsel" shall mean counsel to the Holder reasonably acceptable
to the Company.
"Majority Holders" shall mean, at any given time, holders of Warrants and
Other Warrants then outstanding who would hold a majority of the Common Stock
purchasable upon exercise of all Warrants and Other Warrants in the event all
Warrants and Other Warrants were so exercised at such time.
3
<PAGE> 7
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"New Securities" shall mean any Additional Shares of Common Stock, and any
rights or options to purchase any Additional Shares of Common Stock, and any
Convertible Securities.
"Other Property" shall have the meaning set forth in Section 4.8.
"Other Warrants" shall mean warrants issued to Pegasus Partners, L.P. or
Pegasus Related Partners, L.P. pursuant to Section 3.01(s) or 5.04 of the Unit
Purchase Agreement, and all warrants issued upon transfer, division or
combination of, or in substitution or exchange for, any thereof.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any Subsidiary, and shall include all shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Payment Shares" shall have the meaning set forth in Section 2.1.
"Permitted Issuances" shall mean (i) the issuance of shares of Common Stock
pursuant to an underwritten public offering, (ii) the issuance of Other
Warrants, (iii) the issuance of shares of Common Stock upon exercise of the
Warrants or the Other Warrants, (iv) the issuance of up to 280,000 shares of
Common Stock upon the exercise of options issued to management employees of the
Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan,
(v) provided that the Charter Amendment (as defined in the Unit Purchase
Agreement) has (1) been approved and adopted by the Company's stockholders, (2)
been filed with the Department of Consumer and Industry Services of the State
of Michigan and (3) become effective, the issuance of up to 1,317,178 shares of
Common Stock or options to acquire such shares to management employees of the
Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan,
(vi) the issuance of Preferred Shares and (vii) the issuance to General
Electric Capital Corporation on October 24, 1997 of warrants to purchase up to
131,718 shares of Common Stock (subject to adjustment as provided therein) and
the issuance of Common Stock upon the exercise thereof.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Preferred Shares" shall mean shares of Series A Preferred Stock of the
Company.
4
<PAGE> 8
"Registration Rights Agreement" shall mean the Registration Rights Agreement
dated as of the Closing Date among the Company, Pegasus Partners, L.P., Pegasus
Related Partners, L.P. and General Electric Capital Corporation.
"Reorganization" shall have the meaning set forth in Section 4.8.
"Repurchase Price" shall have the meaning set forth in Section 13.2.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Restrictions" shall have the meaning set forth in Section 13.1(c).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subsidiary" shall mean any corporation of which an aggregate of more than
50% of the outstanding stock having ordinary voting power to elect a majority
of the board of directors of such corporation (irrespective of whether, at the
time, stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by the Company
and/or one or more Subsidiaries of the Company.
"Trading Day" shall mean (i) any day on which stock is traded on the
principal stock exchange on which the Common Stock is listed or admitted to
trading, (ii) if the Common Stock is not then listed or admitted to trading on
any stock exchange but is traded on the Nasdaq Stock Market, any day on which
stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not
then traded on the Nasdaq Stock Market, any day on which stock is traded in the
over-the counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute a sale thereof within
the meaning of the Securities Act.
"Unit Purchase Agreement" shall mean the Unit Purchase Agreement dated as of
the Closing Date, by and among the Company, Pegasus Partners, L.P. and Pegasus
Related Partners, L.P.
"Units" shall mean units consisting of one Preferred Share and one warrant to
purchase 72.2525247 shares of Common Stock, as adjusted from time to time.
5
<PAGE> 9
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
Holders of the Warrants upon the exercise thereof.
"Warrants" shall mean the warrants, dated October 27, 1997 issued by the
Company to Pegasus Partners, L.P. and Pegasus Related Partners, L.P. as part of
Units and all warrants issued as part of Units issued as dividends on the
Preferred Shares, and all warrants issued upon transfer, division or combination
of, or in substitution or exchange for, any thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time during the Exercise Period, the
Holder may exercise this Warrant, on any Business Day, for all or any part of
the number of shares of Common Stock purchasable hereunder provided, however,
that the Company shall only be required to issue shares to the extent such
shares are required to be available for issuance pursuant to Section 7; and
provided, further, however, that for all purposes hereunder other than its
direct exercise for shares of Common Stock (including but not limited to for
purposes of Section 4.8 and 16), this Warrant shall be deemed to be exercisable
for the full amount of shares of Common Stock represented by this Warrant,
without regard to the number of shares of Common Stock available or set aside
for issuance upon such exercise..
In order to exercise this Warrant, in whole or in part, the Holder shall
deliver to the Company at its office at 950 East Whitcomb, Madison Heights,
Michigan 48071, or at the office or agency designated by the Company pursuant
to Section 12, (i) a written notice of the Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Warrant Price in the manner provided below, and
(iii) this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by the Holder or its duly appointed agent or attorney. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the Holder
shall request in the notice and shall be registered in the name of the Holder
or, subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder or any other
Person so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date the notice,
together with payment of the Warrant Price by the certificates representing
6
<PAGE> 10
Preferred Shares (together with instruments of transfer reasonably acceptable
to the Company) or the cash or check or checks, as applicable, and this
Warrant, are received by the Company as described above and all taxes required
to be paid by the Holder, if any, pursuant to Section 2.2 prior to the issuance
of such shares have been paid. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, subject to the following paragraph,
deliver to the Holder a new Warrant evidencing the rights of the Holder to
purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder. Notwithstanding any provision
herein to the contrary, the Company shall not be required to register shares in
the name of any Person who acquired this Warrant (or part hereof) or any
Warrant Stock otherwise than in accordance with this Warrant.
So long as the Company has not exercised its rights to redeem the
Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement,
payment of the Warrant Price shall be made by delivery of Preferred Shares with
an aggregate stated value, plus accrued and unpaid dividends thereon, equal to
the Warrant Price. So long as the Company has not exercised its rights to redeem
the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement,
if, following exercise of any portion of this Warrant, the Holder no longer
holds any Preferred Shares, then the remainder of this Warrant shall be
cancelled and no new Warrant shall be issued in place thereof.
At any time after the Company has exercised its rights to redeem the
Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement,
payment of the Warrant Price shall be made at the option of the Holder by (i)
cash, (ii) wire transfer to an account in a bank located in the United States
designated for such purpose by the Company, (iii) certified or official bank
check, or (iv) any combination of the foregoing; provided, however, that the
Holder shall have the right, at its election, in lieu of delivering the Warrant
Price in cash, to instruct the Company in the form of Subscription Notice to
retain, in payment of the Warrant Price, a number of shares of Common Stock (the
"Payment Shares") equal to the quotient of the aggregate Warrant Price of the
shares as to which this Warrant is then being exercised divided by the Current
Market Price.
2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon the Holder, in which case such
taxes or charges shall be paid by the Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of the
Holder, and in such case the Company shall not be
7
<PAGE> 11
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to the same fraction of the Current
Market Price per share of Common Stock on the date of exercise.
2.4. Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as the Holder under Sections 6, 10,
13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The
Company will, at the time of each exercise of this Warrant, in whole or in part,
upon the request of the holder of the shares of Common Stock issued upon such
exercise hereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford to such holder all such rights;
provided, however, that if such holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
such holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. So long as the Company has not exercised its rights to
redeem the Preferred Shares pursuant to Section 8.01(a) of the Unit Purchase
Agreement, this Warrant may only be transferred together with Preferred Shares
issued as part of Units containing all or a portion of this Warrant. Subject to
compliance with the foregoing sentence and with Section 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by the Holder or its agent or attorney and if
such transfer is not to be made pursuant to Section 13, funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall, subject to the
first sentence of this Section 3.1 and to Section 9, execute and deliver a new
Warrant or Warrants in the name(s) of the assignee or assignees and in the
denomination(s) specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned in compliance with the first sentence of this Section 3.1 and with
Section 9, may be exercised by a new Holder for the purchase of shares of Common
Stock without having a new Warrant issued. If requested by the Company, a new
8
<PAGE> 12
Holder shall acknowledge in writing, in form reasonably satisfactory to the
Company, such Holder's continuing obligation under Section 9.
3.2. Division and Combination. Subject to Section 9, this Warrant may
be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give the Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. Stock Dividends, Subdivisions and Combinations.If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock, by a reverse stock split or otherwise,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder of
the same number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would
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<PAGE> 13
own or be entitled to receive after the happening of such event, and (ii) the
Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock); or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock);
and the Holder of this Warrant has not received a payment on behalf of such
dividend or distribution pursuant to Section 16 hereof, then (i) the number of
shares of Common Stock for which this Warrant is exercisable shall be adjusted
to equal the product obtained by multiplying the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock, minus the amount allocable to one share of Common Stock of (x) any such
cash so distributable and (y) the fair value (as determined in good faith by
the Board of Directors of the Company and, if requested by the Holder,
supported by an opinion from an investment banking firm of recognized national
standing reasonably acceptable to the Majority Holders) of any and all such
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights so distributable, and (ii)
the Current Warrant Price shall be adjusted to equal (A) the Current Warrant
Price multiplied by the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such adjustment.
A reclassification of the Common Stock (other than a change in par value, or
from par value to no par value or from no par value to par value) into shares
of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares
of such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such
change shall be deemed a subdivision or
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combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) In the event
the Company shall issue or sell any Additional Shares of Common Stock, other
than Permitted Issuances, for a consideration per Additional Share of Common
Stock less than the greater of the Current Warrant Price and the Current Market
Price, then the Current Warrant Price shall be reduced to the lower of the
prices calculated as follows:
(1) by dividing (A) an amount equal to the sum of (x) the number of
Fully Diluted Outstanding shares of Common Stock immediately prior to such issue
or sale multiplied by the then existing Current Warrant Price plus (y) the
aggregate consideration, if any, received by the Company upon such issue or
sale, by (B) the total number of Fully Diluted Outstanding shares of Common
Stock outstanding immediately after such issue or sale; and
(2) by multiplying the then existing Current Warrant Price by a fraction
the numerator of which shall be the sum of (x) the number of Fully Diluted
Outstanding shares of Common Stock immediately prior to such issue or sale
multiplied by the Current Market Price per share of Common Stock immediately
prior to such issue or sale plus (y) the consideration received by the Company
upon such issue or sale, and the denominator of which shall be the total number
of Fully Diluted Outstanding shares of Common Stock immediately after such issue
or sale multiplied by the Current Market Price per share of Common Stock
immediately prior to such issue or sale.
For purposes of this subsection (a), the date as of which the Current
Market Price per share of Common Stock shall be computed shall be the earlier of
the date upon which the Company shall (i) enter into a firm contract for the
issuance of such shares or (ii) issue such shares.
Upon any adjustment of the Current Warrant Price as provided in this
Section 4.3(a), the Holder shall thereafter be entitled to purchase, at the
Current Warrant Price resulting from such adjustment, the number of shares of
Common Stock (calculated to the nearest 1/100th of a share) obtained by
multiplying the Current Warrant Price in effect immediately prior to such
adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and dividing the product thereof by the
Current Warrant Price resulting from such adjustment.
(b) The provisions of this Section 4.3 shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided under
Section 4.1 or 4.2. No adjustment shall be made under this Section 4.3 upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
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<PAGE> 15
issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5.
4.4. Issuance of Warrants or Other Rights. Except with respect to
Permitted Issuances and distributions on behalf of which a payment is made to
the Holder of this Warrant pursuant to Section 16 hereof, if at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants (other than the Warrants) or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such warrants or other rights or upon
conversion or exchange of such Convertible Securities shall be less than the
greater of the Current Warrant Price and the Current Market Price in effect
immediately prior to the time of such distribution, issue or sale, then the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share for such Additional
Shares of Common Stock shall be deemed to be the lowest price per share at which
such Additional Shares of Common Stock are issuable to such holders, and (iii)
the Company shall have received all of the consideration, if any, payable for
such warrants or other rights as of the date of the actual issuance thereof. No
further adjustments of the number of shares of Common Stock for which this
Warrant is exercisable or of the Current Warrant Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issue of such
Common Stock upon such conversion or exchange of such Convertible Securities.
4.5. Issuance of Convertible Securities. Except with respect to
Permitted Issuances and distributions on behalf of which a payment is made to
the Holder of this Warrant pursuant to Section 16 hereof, if at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the greater of the Current Warrant Price and the
Current Market Price in effect immediately prior to the time of such issue or
sale, then the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding, (ii) the price
per share of such Additional Shares of Common Stock shall be deemed to be the
lowest possible price in any range of prices at which such Additional Shares of
Common Stock
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<PAGE> 16
are available to such holders, and (iii) the Company shall have received all of
the consideration payable therefor, if any, as of the date of actual issuance
of such Convertible Securities. No further adjustment of the number of shares
of Common Stock for which this Warrant is exercisable or of the Current Warrant
Price shall be made under this Section 4.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 4.4. No further adjustments of the number of shares of
Common Stock for which this Warrant is exercisable or of the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities and, if any issue or sale of such
Convertible Securities is made upon exercise of any warrant or other right to
subscribe for or to purchase or any warrant or other right to purchase any such
Convertible Securities for which adjustments thereof have been or are to be
made pursuant to other provisions of this Section 4, no further adjustments
shall be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any adjustment of
the number of shares of Common Stock for which this Warrant is exercisable shall
have been made pursuant to Section 4.4 or Section 4.5 as the result of any
issuance of warrants, rights or Convertible Securities, and either
(a) such warrants or rights, or the right of conversion or exchange in such
other Convertible Securities, shall expire, and all or a portion of such
warrants or rights, or the right of conversion or exchange with respect to
all or a portion of such other Convertible Securities, as the case may be,
shall not have been exercised, or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or such other Convertible
Securities, shall be increased or decreased by virtue of provisions therein
contained,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the then outstanding
Warrants, but not on any then outstanding Warrant Stock, on the basis of
(c) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor, and
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<PAGE> 17
(d) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase or decrease of the consideration
per share for which shares of Common Stock or other property are issuable
under such warrants or rights or other Convertible Securities.
4.7. Other Provisions Applicable to Adjustments Under This Section. The
following provisions shall be applicable to the making of adjustments provided
for in this Section 4:
(a) Computation of Consideration. To the extent that any Additional Shares
of Common Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the
cash received by the Company therefor, or, if such Additional Shares of
Common Stock or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares of Common
Stock or Convertible Securities are sold to underwriters or dealers for
public offering without a subscription offering, the public offering price
(in any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends, but not subtracting any compensation,
discounts or expenses paid or incurred by the Company for and in the
underwriting of, or otherwise in connection with, the issuance thereof). To
the extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors of the Company. In case any Additional Shares of Common Stock or
any Convertible Securities or any warrants or other rights to subscribe for
or purchase such Additional Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger in which the Company issues any
securities, the amount of consideration therefor shall be deemed to be the
fair value, as determined in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to be attributable to
such Additional Shares of Common Stock, Convertible Securities, warrants or
other rights, as the case may be. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received by the
Company for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or other
rights. The consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration, if any, received by the Company for issuing warrants or
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<PAGE> 18
other rights to subscribe for or purchase such Convertible Securities, plus
the consideration paid or payable to the Company in respect of the subscription
for or purchase of such Convertible Securities, plus the additional
consideration, if any, payable to the Company upon the exercise of the right of
conversion or exchange in such Convertible Securities. In case of the issuance
at any time of any Additional Shares of Common Stock or Convertible Securities
in payment or satisfaction of any dividends upon any class of stock other than
Common Stock, the Company shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal to the
amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number
of shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of the Common Stock, as provided for in Section 4.1) up
to, but not beyond the date of exercise if such adjustment either by itself or
with other adjustments not previously made adds or subtracts less than 1% of
the shares of Common Stock for which this Warrant is exercisable immediately
prior to the making of such adjustment. Any adjustment representing a change
of less than such minimum amount (except as aforesaid) which is postponed shall
be carried forward and made upon the earlier of (i) the date upon which such
adjustment, together with other adjustments required by this Section 4 and not
previously made, would result in a minimum adjustment, and (ii) the date of
exercise. For the purpose of any adjustment, any specified event shall be
deemed to have occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share
(d) When Adjustment Not Required. If the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes distributable
pursuant to this Section 4 by reason of the taking of any record of the
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<PAGE> 19
holders of Common Stock, but prior to the occurrence of the event for which
such record is taken, the Holder exercises this Warrant, any Additional Shares
of Common Stock issuable and other property distributable upon exercise by
reason of such adjustment shall be held in escrow for the Holder by the
Company to be issued to the Holder upon and to the extent that the event
actually takes place, upon payment of the then Current Warrant Price.
Notwithstanding any other provision to the contrary herein, if the event for
which such record was taken fails to occur or is rescinded, then such escrowed
shares shall be cancelled by the Company and escrowed property returned.
(f) Challenge to Good Faith Determination. Whenever the Board of Directors
of the Company shall be required to make a determination in good faith of the
fair value of any item under this Section 4, such determination may be
challenged in good faith by the Majority Holders, and any dispute shall be
resolved by an investment banking firm of recognized national standing
selected by the Company and acceptable to the Majority Holders.
4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger,
Consolidation or Disposition of Assets. In case the Company shall reorganize
its capital, reclassify its capital stock, liquidate its assets, dissolve,
consolidate or merge with or into another corporation (where the Company is not
the surviving corporation or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
corporation or other entity (hereinafter, a "Reorganization") and, pursuant to
the terms of such Reorganization, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then the Holder shall have the
right following the effectiveness of such Reorganization to receive, upon
exercise of such Warrant, or, in the case of a liquidation of assets or a
dissolution to receive, upon such liquidation or dissolution, without taking
any further action, the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such Reorganization by a
holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event (without regard to the number of
shares of Common Stock available or set aside for issuance upon such exercise).
In case of any such Reorganization, the successor or acquiring corporation (if
other than the Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such appropriate modifications as are satisfactory to the
Holder in order to provide for adjustments of shares of the Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.8 "common stock of the successor
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or acquiring corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other class of stock
of such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.8 shall similarly
apply to successive Reorganizations.
4.9. Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
other than any action described in this Section 4 for which a specific
adjustment is provided, then, unless such action will not have a materially
adverse effect upon the rights of the Holder, the number of shares of Common
Stock or other stock for which this Warrant is exercisable and/or the purchase
price thereof shall be adjusted in such manner as may be equitable in the
circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO WARRANTHOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock or the class or type of stock or other property for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of this Warrant, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Company determined the fair value of any evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights referred to in Section 4.2 or 4.7(a)), specifying the number of
shares of Common Stock for which this Warrant is exercisable and (if such
adjustment was made pursuant to Section 4.8 or 4.9) describing the number and
kind of any other shares of stock or Other Property for which this Warrant is
exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to the Holder in accordance with
Section 17.2. The Company shall keep at its office or agency designated
pursuant to Section 12 copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by the
Holder or any prospective purchaser of a Warrant designated by the Holder.
5.2. Notice of Certain Corporate Action. The Holder shall be entitled
to the same rights to receive notice of corporate action as any holder of Common
Stock.
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6. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Holder against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Current Warrant Price
immediately prior to such increase in par value, (b) take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock, free and clear of any
liens, claims, encumbrances and restrictions (other than as provided herein)
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of the Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to the Holder, the continuing validity of this Warrant and the obligations of
the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL
OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, subject to the limitation set forth in
the last sentence of this paragraph, the Company shall at all times reserve and
keep available for issue upon the exercise of warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to permit
the exercise in full of all outstanding Warrants and Other Warrants, the Company
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including, without
limitation, taking appropriate board action, recommending such an increase to
the holders of Common Stock, holding shareholders meetings, soliciting votes and
proxies in favor of such increase to obtain the requisite shareholder approval
and upon such approval, the Company shall reserve and keep available such
additional shares solely for the purpose of permitting the exercise of Warrants
or Other Warrants. Prior to the earlier of (i) May 31, 1998 or (ii) the
approval by the shareholders of the Company of an increase in the number of
authorized shares of Common Stock as contemplated in the Unit Purchase
Agreement, the Company shall be in compliance with this Section 7 to the extent
that it reserves and keeps available out of its authorized but unissued shares
of Common stock, solely for the purpose of
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permitting the exercise of Warrants and Shortfall Warrants (as defined in the
Unit Purchase Agreement), 2,267,421 shares of Common Stock.
All shares of Common Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment therefor in accordance with the terms of
such Warrant, shall be duly and validly issued, fully paid and nonassessable and
free and clear of any liens, claims and restrictions (other than as provided
herein). Except as provided in this Warrant, no stockholder of the Company has
or shall have any preemptive rights to subscribe for such shares of Common
Stock.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock or the type of consideration for which this
Warrant is exercisable or in the Current Warrant Price, the Company shall obtain
all such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of Warrants require registration or qualification with any governmental
authority under any federal or state law (otherwise than as provided in Section
9) before such shares may be so issued, the Company will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered.
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9. The Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 9.
9.1. Restrictive Legends. (a) Except as otherwise provided in this
Section 9, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
legends in substantially the following form:
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<PAGE> 23
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities or blue sky
laws of any state and are subject to the conditions specified in a certain
Warrant dated October 27, 1997, originally issued by Code Alarm Inc. The
shares represented by this certificate may not be sold, or otherwise
transferred, in the absence of such registration or an exemption therefrom
under such Act and under any such applicable state laws, or in violation of
the provisions of the Warrant. A copy of the form of said Warrant is on file
with the Secretary of Code Alarm Inc. The holder of this certificate, by
acceptance of this certificate, agrees to be bound by the provisions of such
Warrant."
"The shares represented by this certificate are subject to the terms and
conditions of a Registration Rights Agreement, dated as of October 27, 1997."
(b) Except as otherwise provided in this Section 9, each Warrant shall be
stamped or otherwise imprinted with legends in substantially the following
form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or under the
securities or blue sky laws of any state and may not be sold, or otherwise
transferred, in the absence of such registration or an exemption therefrom
under such Act and under any such applicable state laws, or in violation of
the provisions of this Warrant."
"This Warrant and the securities represented hereby are subject to the
terms and conditions of a Registration Rights Agreement, dated as of October
27, 1997."
(c) (i) Unless and until the Company shall have exercised its right to
repurchase Units pursuant to Section 8.01(a) of the Unit Purchase Agreement,
each Warrant shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"This Warrant and the securities represented hereby may not be transferred
except as part of Units with shares of Series A Preferred Stock of Code
Alarm, Inc. and are subject to repurchase by Code Alarm, Inc. in accordance
with the terms of a Unit Purchase Agreement dated as of October 27, 1997
among Code Alarm, Inc., Pegasus Partners, L.P. and Pegasus Related Partners,
L.P."
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(ii) In the event the Company shall have repurchased Units pursuant to
Section 8.01(a) of the Unit Purchase Agreement, the Holder hereof shall be
entitled to receive from the Company, at the expense of the Company, a new
Warrant bearing the following legend in place of the third restrictive legend
set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN
SECTION 9.1(c) HEREOF TERMINATED ON ____________, 199_, AND ARE OF NO
FURTHER FORCE AND EFFECT."
9.2. Notice of Proposed Transfers; Requests for Registration. Prior to
any Transfer or attempted Transfer of any Warrants or any shares of Restricted
Common Stock, the Holder of such Warrants or Restricted Common Stock shall
deliver to the Company either a written opinion reasonably acceptable to the
Company of Independent Counsel addressed to the Company or a no-action letter
from the Commission to the effect that the proposed Transfer of such Warrants or
such Restricted Common Stock may be effected without registration under the
Securities Act and applicable state securities or blue sky laws. After delivery
of the written opinion or the no-action letter to the Company, such Holder
shall thereupon be entitled to Transfer such Warrants or such Restricted Common
Stock. Each certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer shall bear the restrictive legend set forth in
Section 9.1(a), and each Warrant issued upon such Transfer shall bear the
restrictive legend set forth in Section 9.1(b), unless in the written opinion
of Independent Counsel addressed to the Company such legend is not required in
order to ensure compliance with the Securities Act.
9.3. No Transfer to Directed Electronics, Inc. The Holder shall not
sell or otherwise transfer any Warrants to DEI, any affiliate of DEI, Mr.
Darrell Issa, the president of DEI, any entity which, to the knowledge of the
Holder, is controlled by Mr. Issa, or any person who, to the knowledge of the
Holder, is a member of the immediate family (as such term is defined in Rule
16a-1 promulgated under the Exchange Act) of Mr. Issa.
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1(a) and (b) shall terminate as to any
particular Warrant or share of Warrant Stock or Restricted Common Stock (or
Common Stock issuable upon the exercise of the Warrants) (i) when and so long as
such security shall have been effectively registered under the Securities Act
and disposed of pursuant thereto, or (ii) when the Company shall have delivered
to the Holder or Holders of Warrants, Warrant Stock or Restricted Common Stock
the written opinion of Independent Counsel stating that such legend is not
required in order to ensure compliance with the Securities Act. Whenever the
restrictions imposed by Section 9.1(b), 9.2 and 9.3 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company, at the expense of the
21
<PAGE> 25
Company, a new Warrant bearing the following legend in place of the first
restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTIONS 9.1(b), 9.2 AND 9.3 HEREOF TERMINATED ON
____________, 199_, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or
combination of, or in substitution for, any Warrant or Warrants entitled to bear
such legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of
Restricted Common Stock, as hereinabove provided, the Holder thereof shall be
entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive legend
set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and each
Holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such Holder or reasonably necessary for such Holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written indemnity agreement of Pegasus Partners, L.P. or
Pegasus Related Partners, L.P. shall be sufficient indemnity) and in case of
mutilation upon surrender and cancellation hereof, the Company will execute and
deliver in lieu hereof a new Warrant of like tenor to the Holder; provided, in
the case of mutilation, no indemnity shall be required if this warrant in
identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK
22
<PAGE> 26
13.1. Obligation to Repurchase Warrant and Warrant Stock. (a) In the
event the Company has exercised its rights to redeem all of the Preferred Shares
pursuant to Section 8.01(a) of the Unit Purchase Agreement, at any time and from
time to time, at the election of the Holder, after the date which is three years
and six months after the Closing Date, the Holder may, by notice to the Company
(the "Put Notice"), demand repurchase of this Warrant, in whole or in part,
and/or all or part of the Holder's shares of Warrant Stock which are Restricted
Common Stock. Subject to the provisions of Section 13.2, the Company shall, on
the date (not less than 30 days after the date of the Put Notice) designated in
such Put Notice, repurchase from the Holder all or the portion of this Warrant
and/or the number of shares of such Holder's Warrant Stock designated in the Put
Notice for an amount determined by multiplying (x) the number of shares of
Warrant Stock and/or the Common Stock subject to this Warrant or portion thereof
being repurchased by (y) the Current Market Price per share of Common Stock
determined as of the date of the repurchase demand and, in the event of
repurchase of all or a portion of this Warrant, deducting from the product
thereby obtained the Current Warrant Price times the number of shares of Common
Stock subject to this Warrant (or portion thereof) being repurchased.
(b) Notwithstanding the provisions of Section 13.1(a), if, at any time
during the period between the date on which the Holder shall have delivered a
Put Notice and the date of repurchase by the Company pursuant thereto, a
Reorganization shall occur and the consideration received or receivable by
stockholders in connection with such Reorganization shall consist solely of
cash, then the Holder shall (whether or not the Holder shall have previously
surrendered its Warrant and/or Warrant Stock for repurchase by the Company
pursuant to this Section 13) be entitled to receive, on the date of such
repurchase, the higher of (i) the amount payable to the Holder as determined
pursuant to Section 13.1(a) and (ii) an amount equal to the amount of cash the
Holder would have received upon the occurrence of such Reorganization had the
Holder's Warrant (or the portion thereof being repurchased) been fully exercised
immediately prior thereto less, in the event of a repurchase of all or a portion
of this Warrant, the purchase price payable at such time for the purchase of the
shares of Common Stock then subject to the Holder's Warrant (or the portion
thereof being repurchased).
(c) The Company shall not be obligated under this Section 13.1 to
repurchase any Warrant or portion thereof and/or issued Warrant Stock if the
Company is in default under any agreement or instrument evidencing the Company's
or any of its Subsidiaries' indebtedness for borrowed money, and such default
has not been waived, or if and to the extent such a repurchase (i) would cause
an event of default to exist by reason of such repurchase, which event of
default has not been waived, with respect to any such agreement or would violate
any provision of any such agreement or instrument, or (ii) would be in violation
of applicable law ("Restrictions"), in any such case as determined by an opinion
of counsel to the Company reasonably acceptable to the Holder; provided,
however, that the Company shall use its reasonable best efforts to have any such
Restriction either waived or terminated (including, without limitation, by
obtaining refinancing for any such indebtedness). In the event that, following
receipt of a Put Notice, the Company will not repurchase all or any portion of
such Warrant and/or Warrant Stock because of the existence of any Restriction,
the Company shall,
23
<PAGE> 27
within twenty (20) days of receipt of the Put Notice, so notify the Holder in
writing, setting forth the portion of the Warrant and/or Warrant Stock which
will not be repurchased and the Restrictions which apply, and deliver to the
Holder a copy of the opinion referred to in the prior sentence. In addition,
in such event, the Company shall thereafter, upon the request of the Holder,
use its best efforts to register the Warrant Stock and/or the Common Stock
subject to this Warrant, in accordance with the terms of the Registration
Rights Agreement.
13.2. Payment of Repurchase Price. The purchase price for any
repurchase pursuant to Section 13.1 (the "Repurchase Price") shall be determined
pursuant to Section 13.1 and shall be payable in cash.
On the date of any repurchase of Warrants and/or Warrant Stock pursuant
to this Section 13, the Holder shall assign to the Company its Warrant or
portion thereof being repurchased and a certificate for the number of shares of
Warrant Stock being repurchased, as the case may be, without any representation
or warranty (other than that the Holder has good and marketable title thereto,
free and clear of liens, encumbrances and restrictions of any kind), by the
surrender of the Holder's Warrant and certificate for Warrant Stock together
with, in the case of Warrant Stock, instruments of transfer reasonably
acceptable to the Company, at the principal office of the Company referred to in
Section 2.1 against payment therefor of the Repurchase Price by, at the option
of the Holder, (i) wire transfer to an account in a bank located in the United
States designated by the Holder for such purpose or (ii) a certified or official
bank check payable to the order of the Holder. If less than all of the Holder's
Warrant is being repurchased, the Company shall, pursuant to Section 3, cancel
such Warrant and issue in the name of, and deliver to, the Holder a new Warrant
for the portion not being repurchased. If less than all of the shares
represented by a certificate for Warrant Stock are being repurchased, the
Company shall cancel such certificate and issue in the name of, and deliver to,
the Holder a new certificate for the number of shares of Warrant Stock not being
repurchased.
13.3. Obligation to Repurchase When Preferred Shares Outstanding. So
long as the Company has not exercised its rights to redeem all of the Preferred
Shares pursuant to Section 8.01(a) of the Unit Purchase Agreement, the rights of
the Holder to demand repurchase of this Warrant shall be governed by Section
8.02 of the Unit Purchase Agreement.
14. REGISTRATION RIGHTS
This Warrant is entitled to the benefits of the registration rights
provisions contained in the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 12 and shall
furnish copies thereof to the Holder upon request.
24
<PAGE> 28
15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the Holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
16. DIVIDENDS ON UNDERLYING COMMON STOCK
In the event that, at any time before the Charter Amendment (as defined
in the Unit Purchase Agreement) shall have (a) been approved and adopted by the
Company's stockholders, (b) been filed with the Department of Consumer and
Industry Services of the State of Michigan and (c) become effective, or at any
time after the Company shall have failed for any reason to issue Common Stock to
the Holder upon exercise of this Warrant or shall have failed to comply with
Section 7 hereof, the Company shall pay a dividend or make any other
distribution with respect to its Common Stock whether in the form of cash,
evidences of indebtedness, securities or other property (other than a Common
Stock dividend subject to the provisions of Section 4.1 or a dividend of
warrants or rights to purchase Common Stock subject to the provisions of Section
4.2), then the Company shall pay to the Holder of this Warrant on the date of
payment of such dividend or other distribution, an amount in cash equal to the
number of shares of Common Stock issuable upon exercise of this Warrant in full
on the record date for such dividend or other distribution (without regard to
the number of shares of Common Stock available or set aside for issuance upon
such exercise) multiplied by the sum of (i) the amount of cash and (ii) the
fair value of any evidences of indebtedness, securities or other property
distributed with respect to each share of Common Stock. The "fair value" of any
such evidences of indebtedness, securities or other property shall mean the fair
market value thereof, as determined by the Board of Directors in good faith,
which good faith determination may be challenged by the Holder in accordance
with Section 4.7(f).
17. MISCELLANEOUS
17.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
17.2. Notice Generally. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any
25
<PAGE> 29
other party pursuant to this Warrant shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows:
(a) If to the Company:
Code Alarm Inc.
950 East Whitcomb
Madison Heights, Michigan 48071
Attention: Rand Mueller and Craig Camalo
Facsimile: (248) 585-4799
with a copy to:
Pepper Hamilton & Scheetz LLP
100 Renaissance Center
Detroit, Michigan 48243
Attention: Dennis S. Kayes, Esq.
Facsimile: (313) 259-7926
(b) If to the Holder, at its last known address appearing on the
books of the Company maintained for such purpose.
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication shall be deemed to have
been duly given five business days after being deposited in the mail, postage
prepaid, if mailed; when delivered by hand, if personally delivered; or upon
receipt, if sent by facsimile (followed by a confirmation copy sent by either
overnight or two (2) day courier).
17.3. Indemnification. The Company agrees to indemnify and hold
harmless the Holder, its officers, directors, employees, agents, and attorneys
from and against any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses and
disbursements of any kind which may be imposed upon, incurred by or asserted
against the Holder relating to or arising out of any litigation to which the
Holder is made a party in its capacity as a stockholder or warrantholder of the
Company; provided, however, that the Company will not be liable hereunder to the
extent that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a judgment by a court to have resulted from (i) the Holder's gross
negligence or willful misconduct, (ii) actions or omissions taken or not taken
by the Holder in any capacity other than as a stockholder or warrantholder of
the Company or (iii) actions or omissions taken or not taken by the Holder
solely as a stockholder or warrantholder of the Company and for which
stockholders or warrantholders may be held liable under Michigan law.
26
<PAGE> 30
17.4. Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, (i) this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of the Holder, and (ii) the provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant, and
shall be enforceable by any such Holder.
17.5. Amendment. The Warrants may be modified or amended or the
provisions thereof waived with the written consent of the Company and the
Holder.
17.6. Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
17.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
17.8. Governing Law; Consent to Jurisdiction and Venue. In all
respects, including all matters of construction, validity and performance, this
Agreement and the obligations arising hereunder shall be governed by, and
construed and enforced in accordance with, the laws of the State of Michigan
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws, and any applicable laws of the
United States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL
JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT
TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW
YORK, STATE OF NEW YORK. Service of process on the Company or the Holder in any
action arising out of or relating to this Agreement shall be effective if mailed
to such party in accordance with the procedures and requirements set forth in
Section 17.2. Nothing herein shall preclude the Holder or the Company from
bringing suit or taking other legal action in any other jurisdiction.
17.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS WARRANT.
27
<PAGE> 31
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its duly authorized officer and its corporate seal to be
impressed hereon and attested by its Secretary or Assistant Secretary.
Dated: October __, 1997
CODE ALARM INC.
By:_______________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
<PAGE> 32
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _______ shares of Common Stock of
CODE ALARM INC. and herewith makes payment therefor, all at the price and on
the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to __________________ whose address is
___________________________ and, if such shares of Common Stock shall not
include all of the shares of Common Stock issuable as provided in this Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Common Stock issuable hereunder be delivered to the undersigned.
_____________________________ (Name of Registered Owner)
_____________________________ (Signature of Registered Owner)
_____________________________ (Street Address)
_____________________________ (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE> 33
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under this Warrant, with respect to the number
of shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ______________
attorney-in-fact to register such transfer on the books of Code Alarm Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated: ____________________________
Name: ____________________________
Signature: ________________________
Witness: __________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE> 1
EXHIBIT 4
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997.
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
Issuance Date: October 27, 1997
Issued To: [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.]
No. of Shares of Common Stock: _________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
1. DEFINITIONS............................................................. 1
2. EXERCISE OF WARRANT..................................................... 6
2.1. Manner of Exercise................................................ 6
2.2. Payment of Taxes.................................................. 7
2.3. Fractional Shares................................................. 7
2.4. Continued Validity................................................ 8
3. TRANSFER, DIVISION AND COMBINATION...................................... 8
3.1. Transfer.......................................................... 8
3.2. Division and Combination.......................................... 8
3.3. Expenses.......................................................... 9
3.4. Maintenance of Books.............................................. 9
4. ADJUSTMENTS............................................................. 9
4.1. Stock Dividends, Subdivisions and Combinations.................... 9
4.2. Certain Other Distributions....................................... 9
4.3. Issuance of Additional Shares of Common Stock..................... 10
4.4. Issuance of Warrants or Other Rights.............................. 11
4.5. Issuance of Convertible Securities................................ 12
4.6. Superseding Adjustment............................................ 13
4.7. Other Provisions Applicable to Adjustments Under This Section..... 13
4.8. Reorganization, Reclassification, Liquidation, Dissolution,
Merger, Consolidation or Disposition of Assets.................... 16
4.9. Other Action Affecting Common Stock............................... 16
4.10. Certain Limitations............................................... 17
5. NOTICES TO WARRANTHOLDERS............................................... 17
5.1. Notice of Adjustments............................................. 17
5.2. Notice of Certain Corporate Action................................ 17
6. NO IMPAIRMENT........................................................... 17
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY.................................................. 18
8. TAKING OF A RECORD; STOCK AND WARRANT
TRANSFER BOOKS.......................................................... 19
9. RESTRICTIONS ON TRANSFERABILITY......................................... 19
</TABLE>
<PAGE> 3
<TABLE>
Page
----
<S> <C> <C>
9.1. Restrictive Legends............................................... 19
9.2. Notice of Proposed Transfers; Requests for Registration........... 20
9.3. No Transfer to Directed Electronics, Inc.......................... 20
9.4. Termination of Restrictions....................................... 21
10. SUPPLYING INFORMATION................................................... 21
11. LOSS OR MUTILATION...................................................... 21
12. OFFICE OF THE COMPANY................................................... 22
13. REPURCHASE BY THE COMPANY OF WARRANT AND
WARRANT STOCK........................................................... 22
13.1. Obligation to Repurchase Warrant and Warrant Stock................ 22
13.2. Payment of Repurchase Price....................................... 23
13.3. Right to Repurchase Portion of Warrant and Warrant Stock.......... 23
14. REGISTRATION RIGHTS.................................................... 25
15. LIMITATION OF LIABILITY................................................ 25
16. DIVIDENDS ON UNDERLYING COMMON STOCK................................... 25
17. MISCELLANEOUS.......................................................... 26
17.1. Nonwaiver and Expenses........................................... 26
17.2. Notice Generally................................................. 26
17.3. Indemnification.................................................. 27
17.4. Successors and Assigns........................................... 27
17.5. Amendment........................................................ 27
17.6. Severability..................................................... 27
17.7. Headings......................................................... 27
17.8. Governing Law; Consent to Jury Trial............................. 27
17.9. Mutual Waiver of Jury Trial............................................ 28
</TABLE>
<PAGE> 4
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 27, 1997.
Warrant Number: ___________ Date of Issuance: ________
No. of Shares of Common Stock: ________
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
THIS IS TO CERTIFY THAT [Pegasus Partners, L.P.] [Pegasus Related
Partners, L.P.] or its registered assigns, is entitled, at any time during the
Exercise Period (as hereinafter defined), to purchase from Code Alarm Inc., a
Michigan corporation (the "Company"), _______________________ (______) shares
of Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
of $1.8759559 per share (subject to adjustment as set forth herein), all on the
terms and conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective meanings
set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock, whether
now authorized or not.
"Affiliate" of any Person shall mean a Person that directly or indirectly,
through one or more intermediaries, controls or is controlled by or is under
common control with, such Person.
<PAGE> 5
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall mean October 27, 1997.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, no par value, of the Company as constituted on the Closing
Date, and any capital stock into which such Common Stock may thereafter be
changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of Common
Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a
specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common Stock
on any date herein specified, the average of the daily market prices for the 20
consecutive Trading Days immediately preceding such date. The daily market
price for each such Trading Day shall be (i) the last sale price on such day on
the principal stock exchange on which such Common Stock is then listed or
admitted to trading, (ii) if no sale takes place on such day on any such
exchange, the last reported sale price as officially quoted on any such
exchange, (iii) if the Common Stock is not then listed or admitted to trading
on any stock exchange but is traded on the Nasdaq Stock Market, the last
reported sale price as officially quoted on the Nasdaq Stock Market, (iv) if
the Common Stock is not then traded on the Nasdaq Stock Market, the last
reported sale price on the over-the-counter market, as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices), or if such sale price is not available
on such date, the average of the closing bid and asked prices on such date as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices), or (v)
if there is no such organization or agency, as furnished by any member of the
NASD selected mutually by the Majority Holders and the Company or, if they
cannot agree upon such selection, by a member selected by two such members of
the NASD, one of which shall be selected by the Majority Holders and one of
which shall be selected by the Company.
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<PAGE> 6
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date. On the Closing Date, the
Current Warrant Price is $1.8759559 per share of Common Stock, and is subject
to adjustment pursuant to Section 4.
"DEI shall mean Directed Electronics, Inc., a California corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period beginning on the Closing Date and
ending at 5:00 P.M., Michigan time, on the seventh anniversary of the Closing
Date.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant outstanding on such date
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date, whether or not such options,
warrants or other securities are presently convertible or exercisable.
"GECC" shall mean General Electric Capital Corporation, a New York
corporation.
"Holder" shall mean, as the context requires, the Person in whose name
this Warrant or one of the other Warrants is registered on the books of the
Company maintained for such purpose and/or the Person holding any Warrant
Stock.
"Independent Counsel" shall mean counsel to the Holder reasonably
acceptable to the Company.
"Litigation Guarantee" shall mean the guarantee dated as of October 24,
1997 Date given by Pegasus to GECC, pursuant to which Pegasus has agreed to
provide the Company with financing for a judgment, appeal bond or settlement in
connection with the litigation pending with the United States District Court for
the Eastern District of Michigan known as Code Alarm, Inc. v. Electromotive
Technology Corporation, case number 87-CV-74022-DT.
"Litigation Warrants" shall mean warrants to purchase Common Stock issued
to Pegasus pursuant to Section 5.04 of the Unit Purchase Agreement, and all
warrants issued upon transfer, division or combination of, or in substitution
or exchange for, any thereof.
"Majority Holders" shall mean, at any given time, holders of Warrants and
Other Warrants then outstanding who would hold a majority of the Common Stock
purchasable upon
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<PAGE> 7
exercise of all Warrants and Other Warrants in the event all Warrants and Other
Warrants were so exercised at such time.
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"New Securities" shall mean any Additional Shares of Common Stock, and any
rights or options to purchase any Additional Shares of Common Stock, and any
Convertible Securities.
"Other Property" shall have the meaning set forth in Section 4.8.
"Other Warrants" shall mean (i) warrants to purchase Common Stock issued
as part of Units purchased by Pegasus pursuant to the Unit Purchase Agreement
or issued to Pegasus or their successors or assigns as part of Units issued in
payment of dividends on Preferred Shares, (ii) Litigation Warrants and (iii)
all warrants issued upon transfer, division or combination of, or in
substitution or exchange for, any thereof.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any Subsidiary, and shall include all shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Payment Shares" shall have the meaning set forth in Section 2.1.
"Pegasus" shall mean collectively, Pegasus Partners, L.P., a Delaware
limited partnership and Pegasus Related Partners, L.P., a Delaware limited
partnership.
"Permitted Issuances" shall mean (i) the issuance of shares of Common
Stock pursuant to an underwritten public offering, (ii) the issuance of Other
Warrants, (iii) the issuance of shares of Common Stock upon exercise of the
Warrants or the Other Warrants, (iv) the issuance of up to 280,000 shares of
Common Stock upon the exercise of options issued to management employees of the
Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan,
(v) provided that the Charter Amendment (as defined in the Unit Purchase
Agreement) has (1) been approved and adopted by the Company's stockholders, (2)
been filed with the Department of Consumer and Industry Services of the State
of Michigan and (3) become effective, the issuance of up to 1,317,178 shares of
Common Stock or options to acquire such shares to management employees of the
Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan,
(vi) the issuance of Preferred Shares and (vii) the issuance to GECC on October
24, 1997 of warrants to purchase up to 131,718 shares of Common Stock (subject
to adjustment as provided therein) and the issuance of Common Stock upon the
exercise thereof.
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<PAGE> 8
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Preferred Shares" shall mean shares of Series A Preferred Stock of the
Company.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the Closing Date among the Company, Pegasus and GECC.
"Reorganization" shall have the meaning set forth in Section 4.8.
"Repurchase Price" shall have the meaning set forth in Section 13.2.
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on the exercise of this warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Restrictions" shall have the meaning set forth in Section 13.1(c).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shortfall Guarantee" shall mean the guarantee dated as of October 24, 1997
given by Pegasus to GECC, pursuant to which Pegasus has guaranteed up to
$4,000,000 of the Company's obligations to GECC.
"Subsidiary" shall mean any corporation of which an aggregate of more than
50% of the outstanding stock having ordinary voting power to elect a majority
of the board of directors of such corporation (irrespective of whether, at the
time, stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by the Company
and/or one or more Subsidiaries of the Company.
"Trading Day" shall mean (i) any day on which stock is traded on the
principal stock exchange on which the Common Stock is listed or admitted to
trading, (ii) if the Common Stock is not then listed or admitted to trading on
any stock exchange but is traded on the Nasdaq Stock Market, any day on which
stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not
then traded on the Nasdaq Stock Market, any day on which stock is traded in the
over-the counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
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<PAGE> 9
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or
of any interest in either thereof, which would constitute a sale thereof within
the meaning of the Securities Act.
"Unit Purchase Agreement" shall mean the Unit Purchase Agreement dated as
of the Closing Date, by and among the Company and Pegasus.
"Units" shall mean units consisting of one Preferred Share and one warrant
to purchase 72.2525247 shares of Common Stock, as adjusted from time to time.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by Holders
of the Warrants upon the exercise thereof.
"Warrants" shall mean this warrant and the other warrants issued to
Pegasus pursuant to Section 3.01(s) of the Unit Purchase Agreement, and all
warrants issued upon transfer, division or combination of, or in substitution
or exchange for, any thereof.
2. EXERCISE OF WARRANT
2.1.. Manner of Exercise. At any time during the Exercise Period, the
Holder may exercise this Warrant, on any Business Day, for all or any part of
the number of shares of Common Stock purchasable hereunder provided, however,
that the Company shall only be required to issue shares to the extent such
shares are required to be available for issuance pursuant to Section 7; and
provided, further, however, that for all purposes hereunder other than its
direct exercise for shares of Common Stock (including but not limited to for
purposes of Section 4.8 and 16), this Warrant shall be deemed to be exercisable
for the full amount of shares of Common Stock represented by this Warrant,
without regard to the number of shares of Common Stock available or set aside
for issuance upon such exercise.
In order to exercise this Warrant, in whole or in part, the Holder shall
deliver to the Company at its office at 950 East Whitcomb, Madison Heights,
Michigan 48071, or at the office or agency designated by the Company pursuant
to Section 12, (i) a written notice of the Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) payment of the Warrant Price in the manner provided below, and
(iii) this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by the Holder or its duly appointed agent or attorney. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the Holder a certificate or certificates
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<PAGE> 10
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as the Holder
shall request in the notice and shall be registered in the name of the Holder
or, subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder or any other
Person so designated to be named therein shall be deemed to have become a
holder of record of such shares for all purposes, as of the date the notice,
together with the cash or check or checks, if any, and this Warrant, are
received by the Company as described above and all taxes required to be paid by
the Holder, if any, pursuant to Section 2.2 prior to the issuance of such
shares have been paid. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or certificates
representing Warrant Stock, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the unpurchased shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the request of the Holder, appropriate notation may
be made on this Warrant and the same returned to the Holder. Notwithstanding
any provision herein to the contrary, the Company shall not be required to
register shares in the name of any Person who acquired this Warrant (or part
hereof) or any Warrant Stock otherwise than in accordance with this Warrant.
Payment of the Warrant Price shall be made at the option of the Holder by
(i) cash, (ii) wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, (iii) certified or official
bank check, or (iv) any combination of the foregoing; provided, however, that
the Holder shall have the right, at its election, in lieu of delivering the
Warrant Price in cash, to instruct the Company in the form of Subscription
Notice to retain, in payment of the Warrant Price, a number of shares of Common
Stock (the "Payment Shares") equal to the quotient of the aggregate Warrant
Price of the shares as to which this Warrant is then being exercised divided by
the Current Market Price.
2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon the Holder, in which case such
taxes or charges shall be paid by the Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for shares of Common
Stock issuable upon exercise of this Warrant in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the satisfaction of the Company that no such tax or other
charge is due.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the
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<PAGE> 11
Holder of one or more Warrants, the rights under which are exercised in the
same transaction, would otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
2.4. Continued Validity. A holder of shares of Common Stock issued upon
the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as the Holder under Sections 6, 10,
13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The
Company will, at the time of each exercise of this Warrant, in whole or in
part, upon the request of the holder of the shares of Common Stock issued upon
such exercise hereof, acknowledge in writing, in form reasonably satisfactory
to such holder, its continuing obligation to afford to such holder all such
rights; provided, however, that if such holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by the Holder or its agent or attorney and if
such transfer is not to be made pursuant to Section 13, funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall, subject to Section
9, execute and deliver a new Warrant or Warrants in the name(s) of the assignee
or assignees and in the denomination(s) specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned in compliance with Section 9, may
be exercised by a new Holder for the purchase of shares of Common Stock without
having a new Warrant issued. If requested by the Company, a new Holder shall
acknowledge in writing, in form reasonably satisfactory to the Company, such
Holder's continuing obligation under Section 9.
3.2. Division and Combination. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants
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<PAGE> 12
in exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give the Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or
other distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, by a reverse stock split
or otherwise,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder of
the same number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
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(a) cash;
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common
Stock); or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock);
and the Holder of this Warrant has not received a payment on behalf of such
dividend or distribution pursuant to Section 16 hereof, then (i) the number of
shares of Common Stock for which this Warrant is exercisable shall be adjusted
to equal the product obtained by multiplying the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock, minus the amount allocable to one share of Common Stock of (x) any such
cash so distributable and (y) the fair value (as determined in good faith by
the Board of Directors of the Company and, if requested by the Holder,
supported by an opinion from an investment banking firm of recognized national
standing reasonably acceptable to the Majority Holders) of any and all such
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights so distributable, and (ii)
the Current Warrant Price shall be adjusted to equal (A) the Current Warrant
Price multiplied by the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such adjustment.
A reclassification of the Common Stock (other than a change in par value, or
from par value to no par value or from no par value to par value) into shares
of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares
of such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such
change shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) In the event the
Company shall issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, for a consideration per Additional Share of Common Stock
less than the greater of the Current Warrant Price and the Current Market
Price, then the Current Warrant Price shall be reduced to the lower of the
prices calculated as follows:
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(1) by dividing (A) an amount equal to the sum of (x) the number of Fully
Diluted Outstanding shares of Common Stock immediately prior to such issue or
sale multiplied by the then existing Current Warrant Price plus (y) the
aggregate consideration, if any, received by the Company upon such issue or
sale, by (B) the total number of Fully Diluted Outstanding shares of Common
Stock outstanding immediately after such issue or sale; and
(2) by multiplying the then existing Current Warrant Price by a fraction
the numerator of which shall be the sum of (x) the number of Fully Diluted
Outstanding shares of Common Stock immediately prior to such issue or sale
multiplied by the Current Market Price per share of Common Stock immediately
prior to such issue or sale plus (y) the consideration received by the Company
upon such issue or sale, and the denominator of which shall be the total number
of Fully Diluted Outstanding shares of Common Stock immediately after such
issue or sale multiplied by the Current Market Price per share of Common Stock
immediately prior to such issue or sale.
For purposes of this subsection (a), the date as of which the Current
Market Price per share of Common Stock shall be computed shall be the earlier
of the date upon which the Company shall (i) enter into a firm contract for the
issuance of such shares or (ii) issue such shares.
Upon any adjustment of the Current Warrant Price as provided in this
Section 4.3(a), the Holder shall thereafter be entitled to purchase, at the
Current Warrant Price resulting from such adjustment, the number of shares of
Common Stock (calculated to the nearest 1/100th of a share) obtained by
multiplying the Current Warrant Price in effect immediately prior to such
adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and dividing the product thereof by the
Current Warrant Price resulting from such adjustment.
(b) The provisions of this Section 4.3 shall not apply to any issuance of
Additional Shares of Common Stock for which an adjustment is provided under
Section 4.1 or 4.2. No adjustment shall be made under this Section 4.3 upon
the issuance of any Additional Shares of Common Stock which are issued pursuant
to the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5.
4.4. Issuance of Warrants or Other Rights. Except with respect to
Permitted Issuances and distributions on behalf of which a payment is made to
the Holder of this Warrant pursuant to Section 16 hereof, if at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants (other than the Warrants) or other
rights to subscribe for
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or purchase any Additional Shares of Common Stock or any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such warrants or other rights or upon conversion
or exchange of such Convertible Securities shall be less than the greater of
the Current Warrant Price and the Current Market Price in effect immediately
prior to the time of such distribution, issue or sale, then the number of
shares of Common Stock for which this Warrant is exercisable and the Current
Warrant Price shall be adjusted as provided in Section 4.3(a) on the basis that
(i) the maximum number of Additional Shares of Common Stock issuable pursuant
to all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
and outstanding, (ii) the price per share for such Additional Shares of Common
Stock shall be deemed to be the lowest price per share at which such Additional
Shares of Common Stock are issuable to such holders, and (iii) the Company
shall have received all of the consideration, if any, payable for such warrants
or other rights as of the date of the actual issuance thereof. No further
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable or of the Current Warrant Price shall be made upon the actual issue
of such Common Stock or of such Convertible Securities upon exercise of such
warrants or other rights or upon the actual issue of such Common Stock upon
such conversion or exchange of such Convertible Securities.
4.5. Issuance of Convertible Securities. Except with respect to Permitted
Issuances and distributions on behalf of which a payment is made to the Holder
of this Warrant pursuant to Section 16 hereof, if at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which the Company is the surviving corporation)
issue or sell, any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange shall
be less than the greater of the Current Warrant Price and the Current Market
Price in effect immediately prior to the time of such issue or sale, then the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding, (ii) the price per share of such
Additional Shares of Common Stock shall be deemed to be the lowest possible
price in any range of prices at which such Additional Shares of Common Stock
are available to such holders, and (iii) the Company shall have received all of
the consideration payable therefor, if any, as of the date of actual issuance
of such Convertible Securities. No further adjustment of the number of shares
of Common Stock for which this Warrant is exercisable or of the Current Warrant
Price shall be made under this Section 4.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 4.4. No further adjustments of the number of shares of
Common Stock for which this Warrant is exercisable or of the Current Warrant
Price shall be made upon the actual issue of such Common Stock upon
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<PAGE> 16
conversion or exchange of such Convertible Securities and, if any issue or sale
of such Convertible Securities is made upon exercise of any warrant or other
right to subscribe for or to purchase or any warrant or other right to purchase
any such Convertible Securities for which adjustments thereof have been or are
to be made pursuant to other provisions of this Section 4, no further
adjustments shall be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable shall
have been made pursuant to Section 4.4 or Section 4.5 as the result of any
issuance of warrants, rights or Convertible Securities, and either
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and
all or a portion of such warrants or rights, or the right of
conversion or exchange with respect to all or a portion of such
other Convertible Securities, as the case may be, shall not have
been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or such
other Convertible Securities, shall be increased or decreased by
virtue of provisions therein contained,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the then outstanding
Warrants, but not on any then outstanding Warrant Stock, on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or
any such right of conversion or exchange, as having been issued on
the date or dates of any such exercise and for the consideration
actually received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase or
decrease of the consideration per share for which shares of Common
Stock or other property are issuable under such warrants or rights
or other Convertible Securities.
4.7. Other Provisions Applicable to Adjustments Under This Section. The
following provisions shall be applicable to the making of adjustments provided
for in this Section 4:
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(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or
any warrants or other rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities
shall be issued for cash consideration, the consideration received
by the Company therefor shall be the amount of the cash received by
the Company therefor, or, if such Additional Shares of Common Stock
or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares
of Common Stock or Convertible Securities are sold to underwriters
or dealers for public offering without a subscription offering, the
public offering price (in any such case subtracting any amounts
paid or receivable for accrued interest or accrued dividends, but
not subtracting any compensation, discounts or expenses paid or
incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent
that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good
faith by the Board of Directors of the Company. In case any
Additional Shares of Common Stock or any Convertible Securities or
any warrants or other rights to subscribe for or purchase such
Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which the Company issues
any securities, the amount of consideration therefor shall be
deemed to be the fair value, as determined in good faith by the
Board of Directors of the Company, of such portion of the assets
and business of the nonsurviving corporation as such Board in good
faith shall determine to be attributable to such Additional Shares
of Common Stock, Convertible Securities, warrants or other rights,
as the case may be. The consideration for any Additional Shares of
Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration
received by the Company for issuing such warrants or other rights
plus the additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for
any Additional Shares of Common Stock issuable pursuant to the
terms of any Convertible Securities shall be the consideration, if
any, received by the Company for issuing warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to the Company upon
the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in
payment or satisfaction of any dividends upon any class of stock
other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible
Securities a consideration equal to the amount of such dividend so
paid or satisfied.
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<PAGE> 18
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any
adjustment of the number of shares of Common Stock for which this
Warrant is exercisable that would otherwise be required may be
postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4.1) up to,
but not beyond the date of exercise if such adjustment either by
itself or with other adjustments not previously made adds or
subtracts less than 1% of the shares of Common Stock for which this
Warrant is exercisable immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such
minimum amount (except as aforesaid) which is postponed shall be
carried forward and made upon the earlier of (i) the date upon
which such adjustment, together with other adjustments required by
this Section 4 and not previously made, would result in a minimum
adjustment, and (ii) the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before
the distribution to stockholders thereof, legally abandon its plan
to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of
any record of the holders of Common Stock, but prior to the
occurrence of the event for which such record is taken, the Holder
exercises this Warrant, any Additional Shares of Common Stock
issuable and other property distributable upon exercise by reason
of such adjustment shall be held in escrow for the Holder by the
Company to be issued to the Holder upon and to the extent that the
event actually takes place, upon payment of the then Current
Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur
or is rescinded, then such escrowed shares shall be cancelled by
the Company and escrowed property returned.
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<PAGE> 19
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a
determination in good faith of the fair value of any item under
this Section 4, such determination may be challenged in good faith
by the Majority Holders, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by
the Company and acceptable to the Majority Holders.
4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger,
Consolidation or Disposition of Assets. In case the Company shall reorganize
its capital, reclassify its capital stock, liquidate its assets, dissolve,
consolidate or merge with or into another corporation (where the Company is not
the surviving corporation or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
corporation or other entity (hereinafter, a "Reorganization") and, pursuant to
the terms of such Reorganization, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then the Holder shall have the
right following the effectiveness of such Reorganization to receive, upon
exercise of such Warrant, or, in the case of a liquidation of assets or a
dissolution to receive, upon such liquidation or dissolution, without taking
any further action, the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such Reorganization by a
holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event (without regard to the number of
shares of Common Stock available or set aside for issuance upon such exercise).
In case of any such Reorganization, the successor or acquiring corporation (if
other than the Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such appropriate modifications as are satisfactory to the
Holder in order to provide for adjustments of shares of the Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.8 "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions
of this Section 4.8 shall similarly apply to successive Reorganizations.
4.9. Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
other than any action
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<PAGE> 20
described in this Section 4 for which a specific adjustment is provided, then,
unless such action will not have a materially adverse effect upon the rights of
the Holder, the number of shares of Common Stock or other stock for which this
Warrant is exercisable and/or the purchase price thereof shall be adjusted in
such manner as may be equitable in the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO WARRANTHOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of Common Stock
or the class or type of stock or other property for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of this Warrant, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the
chief financial officer of the Company setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of
Directors of the Company determined the fair value of any evidences of
indebtedness, shares of stock, other securities or property or warrants or
other subscription or purchase rights referred to in Section 4.2 or 4.7(a)),
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.8 or 4.9)
describing the number and kind of any other shares of stock or Other Property
for which this Warrant is exercisable, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The Company
shall promptly cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 17.2. The Company shall keep at its office
or agency designated pursuant to Section 12 copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by the Holder or any prospective purchaser of a Warrant
designated by the Holder.
5.2. Notice of Certain Corporate Action. The Holder shall be entitled to
the same rights to receive notice of corporate action as any holder of Common
Stock.
6. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the rights of
the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Current
Warrant
17
<PAGE> 21
Price immediately prior to such increase in par value, (b) take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than as
provided herein) upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of the Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to the Holder, the continuing validity of this Warrant and the obligations of
the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Closing Date, subject to the limitation set forth in
the last sentence of this paragraph, the Company shall at all times reserve and
keep available for issue upon the exercise of warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
permit the exercise in full of all outstanding Warrants and Other Warrants, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose, including,
without limitation, taking appropriate board action, recommending such an
increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
shareholder approval and upon such approval, the Company shall reserve and keep
available such additional shares solely for the purpose of permitting the
exercise of Warrants or Other Warrants. Prior to the earlier of (i) May 31,
1998 or (ii) the approval by the shareholders of the Company of an increase in
the number of authorized shares of Common Stock as contemplated in the Unit
Purchase Agreement, the Company shall be in compliance with this Section 7 to
the extent that it reserves and keeps available out of its authorized but
unissued shares of Common stock, solely for the purpose of permitting the
exercise of Warrants and Attached Warrants (as defined in the Unit Purchase
Agreement), 2,267,421 shares of Common Stock.
All shares of Common Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment therefor in accordance with the terms of
such Warrant, shall be duly and validly issued, fully paid and nonassessable
and free and clear of any liens, claims and restrictions (other than as
provided herein). Except as provided in this Warrant, no stockholder of the
Company has or shall have any preemptive rights to subscribe for such shares of
Common Stock.
18
<PAGE> 22
Before taking any action which would result in an adjustment in the number
of shares of Common Stock or the type of consideration for which this Warrant
is exercisable or in the Current Warrant Price, the Company shall obtain all
such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
If any shares of Common Stock required to be reserved for issuance upon
exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such shares may be so issued, the Company will in
good faith and as expeditiously as possible and at its expense endeavor to
cause such shares to be duly registered.
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business
on a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise
or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9.
The Holder, by acceptance of this Warrant, agrees to be bound by the provisions
of this Section 9.
9.1. Restrictive Legends. (a) Except as otherwise provided in this
Section 9, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with legends in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, or under the securities or blue sky laws of any
state and are subject to the conditions specified in a
certain Warrant dated October 27, 1997, originally issued by
Code Alarm Inc. The shares represented by this certificate
may not be sold, or otherwise transferred, in the absence of
such registration or an exemption therefrom under such Act
and under any such applicable state laws, or in violation of
the provisions of the Warrant. A copy of the form of said
Warrant is on file with the Secretary of Code Alarm Inc.
The holder of
19
<PAGE> 23
this certificate, by acceptance of this certificate, agrees
to be bound by the provisions of such Warrant."
"The shares represented by this certificate are subject
to the terms and conditions of a Registration Rights
Agreement, dated as of October 27, 1997."
(b) Except as otherwise provided in this Section 9, each Warrant shall be
stamped or otherwise imprinted with legends in substantially the following
form:
"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933,
as amended, or under the securities or blue sky laws of any
state and may not be sold, or otherwise transferred, in the
absence of such registration or an exemption therefrom under
such Act and under any such applicable state laws, or in
violation of the provisions of this Warrant."
"This Warrant and the securities represented hereby are
subject to the terms and conditions of a Registration Rights
Agreement, dated as of October 27, 1997."
9.2. Notice of Proposed Transfers; Requests for Registration. Prior to
any Transfer or attempted Transfer of any Warrants or any shares of Restricted
Common Stock, the Holder of such Warrants or Restricted Common Stock shall
deliver to the Company either a written opinion reasonably acceptable to the
Company of Independent Counsel addressed to the Company or a no-action letter
from the Commission to the effect that the proposed Transfer of such Warrants
or such Restricted Common Stock may be effected without registration under the
Securities Act and applicable state securities or blue sky laws. After delivery
of the written opinion or the no-action letter to the Company, such Holder
shall thereupon be entitled to Transfer such Warrants or such Restricted Common
Stock. Each certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer shall bear the restrictive legend set forth in
Section 9.1(a), and each Warrant issued upon such Transfer shall bear the
restrictive legend set forth in Section 9.1(b), unless in the written opinion
of Independent Counsel addressed to the Company such legend is not required in
order to ensure compliance with the Securities Act.
9.3. No Transfer to Directed Electronics, Inc. The Holder shall not sell
or otherwise transfer any Warrants to DEI, any affiliate of DEI, Mr. Darrell
Issa, the president of DEI, any entity which, to the knowledge of the Holder,
is controlled by Mr. Issa, or any person who, to the knowledge of the Holder,
is a member of the immediate family (as such term is defined in Rule 16a-1
promulgated under the Exchange Act) of Mr. Issa.
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<PAGE> 24
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto, or (ii) when the Company shall have delivered to the Holder
or Holders of Warrants, Warrant Stock or Restricted Common Stock the written
opinion of Independent Counsel stating that such legend is not required in
order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by Section 9 shall terminate as to this Warrant, as hereinabove
provided, the Holder hereof shall be entitled to receive from the Company, at
the expense of the Company, a new Warrant bearing the following legend in place
of the first restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON ____________,
199_, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination
of, or in substitution for, any Warrant or Warrants entitled to bear such
legend shall have a similar legend endorsed thereon. Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the Holder thereof shall be entitled to receive
from the Company, at the Company's expense, a new certificate representing such
Common Stock not bearing the restrictive legend set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and each Holder
of Restricted Common Stock in supplying such information as may be reasonably
requested by such Holder or reasonably necessary for such Holder to complete
and file any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written indemnity agreement of Pegasus Partners, L.P.
or Pegasus Related Partners, L.P. shall be sufficient indemnity) and in case of
mutilation upon surrender and cancellation hereof, the Company will execute and
deliver in lieu hereof a new Warrant of like tenor to the Holder; provided, in
the case
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<PAGE> 25
of mutilation, no indemnity shall be required if this warrant in identifiable
form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK
13.1. Obligation to Repurchase Warrant and Warrant Stock. (a) At any time
and from time to time, at the election of the Holder, after the date which is
three years and six months after the Closing Date, the Holder may, by notice to
the Company (the "Put Notice"), demand repurchase of this Warrant, in whole or
in part, and/or all or part of the Holder's shares of Warrant Stock which are
Restricted Common Stock. Subject to the provisions of Section 13.2, the
Company shall, on the date (not less than 30 days after the date of the Put
Notice) designated in such Put Notice, repurchase from the Holder all or the
portion of this Warrant and/or the number of shares of such Holder's Warrant
Stock designated in the Put Notice for an amount determined by multiplying (x)
the number of shares of Warrant Stock and/or the Common Stock subject to this
Warrant or portion thereof being repurchased by (y) the Current Market Price
per share of Common Stock determined as of the date of the repurchase demand
and, in the event of repurchase of all or a portion of this Warrant, deducting
from the product thereby obtained the Current Warrant Price times the number of
shares of Common Stock subject to this Warrant (or portion thereof) being
repurchased.
(b) Notwithstanding the provisions of Section 13.1(a), if, at any time
during the period between the date on which the Holder shall have delivered a
Put Notice and the date of repurchase by the Company pursuant thereto, a
Reorganization shall occur and the consideration received or receivable by
stockholders in connection with such Reorganization shall consist solely of
cash, then the Holder shall (whether or not the Holder shall have previously
surrendered its Warrant and/or Warrant Stock for repurchase by the Company
pursuant to this Section 13) be entitled to receive, on the date of such
repurchase, the higher of (i) the amount payable to the Holder as determined
pursuant to Section 13.1(a) and (ii) an amount equal to the amount of cash the
Holder would have received upon the occurrence of such Reorganization had the
Holder's Warrant (or the portion thereof being repurchased) been fully
exercised immediately prior thereto less, in the event of a repurchase of all
or a portion of this Warrant, the purchase price payable at such time for the
purchase of the shares of Common Stock then subject to the Holder's Warrant (or
the portion thereof being repurchased).
(c) The Company shall not be obligated under this Section 13.1 to
repurchase any Warrant or portion thereof and/or issued Warrant Stock if the
Company is in default under
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<PAGE> 26
any agreement or instrument evidencing the Company's or any of its
Subsidiaries' indebtedness for borrowed money, and such default has not been
waived, or if and to the extent such a repurchase (i) would cause an event of
default to exist by reason of such repurchase, which event of default has not
been waived, with respect to any such agreement or would violate any provision
of any such agreement or instrument, or (ii) would be in violation of
applicable law ("Restrictions"), in any such case as determined by an opinion
of counsel to the Company reasonably acceptable to the Holder; provided,
however, that the Company shall use its reasonable best efforts to have any
such Restriction either waived or terminated (including, without limitation, by
obtaining refinancing for any such indebtedness). In the event that, following
receipt of a Put Notice, the Company will not repurchase all or any portion of
such Warrant and/or Warrant Stock because of the existence of any Restriction,
the Company shall, within twenty (20) days of receipt of the Put Notice, so
notify the Holder in writing, setting forth the portion of the Warrant and/or
Warrant Stock which will not be repurchased and the Restrictions which apply,
and deliver to the Holder a copy of the opinion referred to in the prior
sentence. In addition, in such event, the Company shall thereafter, upon the
request of the Holder, use its best efforts to register the Warrant Stock
and/or the Common Stock subject to this Warrant, in accordance with the terms
of the Registration Rights Agreement.
13.2. Payment of Repurchase Price. The purchase price for any repurchase
pursuant to Section 13.1 (the "Repurchase Price") shall be determined pursuant
to Section 13.1 and shall be payable in cash.
On the date of any repurchase of Warrants and/or Warrant Stock pursuant to
this Section 13, the Holder shall assign to the Company its Warrant or portion
thereof being repurchased and a certificate for the number of shares of Warrant
Stock being repurchased, as the case may be, without any representation or
warranty (other than that the Holder has good and marketable title thereto,
free and clear of liens, encumbrances and restrictions of any kind), by the
surrender of the Holder's Warrant and certificate for Warrant Stock together
with, in the case of Warrant Stock, instruments of transfer reasonably
acceptable to the Company, at the principal office of the Company referred to
in Section 2.1 against payment therefor of the Repurchase Price by, at the
option of the Holder, (i) wire transfer to an account in a bank located in the
United States designated by the Holder for such purpose or (ii) a certified or
official bank check payable to the order of the Holder. If less than all of
the Holder's Warrant is being repurchased, the Company shall, pursuant to
Section 3, cancel such Warrant and issue in the name of, and deliver to, the
Holder a new Warrant for the portion not being repurchased. If less than all
of the shares represented by a certificate for Warrant Stock are being
repurchased, the Company shall cancel such certificate and issue in the name
of, and deliver to, the Holder a new certificate for the number of shares of
Warrant Stock not being repurchased.
13.3. Right to Repurchase Portion of Warrant and Warrant Stock.
(a) In the event the Company shall cause Pegasus to be fully and
unconditionally released from the Shortfall Guarantee (without any payment by
Pegasus pursuant
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<PAGE> 27
thereto) within the time periods specified below, the Company shall have the
right, exercisable at any time during such period, but subject to and as may be
extended by Section 13.3(c), to repurchase from the Holders the percentage of
the Warrants initially issued set forth below:
<TABLE>
<CAPTION>
Date of Release Percentage
--------------- ----------
<S> <C>
Closing Date through April 26, 1998 75%
April 27, 1998 through July 26, 1998 50%
July 27, 1998 through October 26, 1998 25%
</TABLE>
In the event that, at the time the Company exercises its repurchase right,
the Warrants shall have been exercised for a greater percentage than the
difference between (i) 100% and (ii) the applicable percentage set forth above,
the Company shall also have the right to purchase from any Person who shall
have exercised Warrants (and such Person shall be obligated to sell to the
Company) a number of shares of Common Stock equal to the number of shares of
Warrant Stock for which Warrants shall have been exercised by such Person.
(b) The purchase price to be paid by the Company for any Warrants
repurchased pursuant to this Section 13.3 shall be $.0001 per share of Common
Stock underlying the portion of the Warrants repurchased. The purchase price
per share to be paid by the Company for any shares of Common Stock purchased
pursuant to this Section 13.3 shall be the sum of (i) the exercise price paid
for any corresponding share of Warrant Stock and (ii) $.0001. In either case,
the purchase price shall be paid in cash and the aggregate purchase price shall
be rounded to the nearest penny.
(c) Notwithstanding anything to the contrary contained herein, the Company
shall not purchase any portion of the Warrants or any Common Stock pursuant to
this Section 13.3 until the earlier of (i) the date which is six months and one
day following the issuance to Pegasus of the Litigation Warrants or (ii) such
time as Pegasus is fully and unconditionally released from the Litigation
Guarantee, provided that no Litigation Warrants shall have been issued to
Pegasus prior to such release. In the event the Company is precluded from
purchasing Warrants and Common Stock at any time pursuant to the preceding
sentence, the period of time during which the Company may exercise its right to
purchase Warrants and Common Stock shall be extended to a date which is thirty
days following the date on which the restriction set forth in the preceding
sentence terminates.
(d) Notice of repurchase pursuant to this Section 13.3 shall be given by
first class mail, postage prepaid, mailed not less than 10 nor more than 20
days prior to the repurchase date to each Holder's address as the same appears
on the books of the Company. Each such notice shall state: (i) the purchase
date; (ii) the portion of Warrants and the number of shares of Common Stock to
be purchased; (iii) the amount of the purchase price; and (iv) the place or
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<PAGE> 28
places where such Warrants and certificates for such shares of Common Stock are
to be surrendered for payment of the purchase price.
(e) In the event only a portion of this Warrant is being repurchased
pursuant to this Section 13.3, the Holder shall surrender this Warrant to the
Company for cancellation on the repurchase date at the place specified in the
repurchase notice, and the Company shall thereupon issue to the Holder a new
Warrant evidencing the portion of this Warrant not so repurchased.
14. REGISTRATION RIGHTS
This Warrant is entitled to the benefits of the registration rights
provisions contained in the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto,
at the office or agency designated by the Company pursuant to Section 12 and
shall furnish copies thereof to the Holder upon request.
15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
16. DIVIDENDS ON UNDERLYING COMMON STOCK
In the event that, at any time before the Charter Amendment (as defined in
the Unit Purchase Agreement) shall have (a) been approved and adopted by the
Company's stockholders, (b) been filed with the Department of Consumer and
Industry Services of the State of Michigan and (c) become effective, or at any
time after the Company shall have failed for any reason to issue Common Stock
to the Holder upon exercise of this Warrant or shall have failed to comply with
Section 7 hereof, the Company shall pay a dividend or make any other
distribution with respect to its Common Stock whether in the form of cash,
evidences of indebtedness, securities or other property (other than a Common
Stock dividend subject to the provisions of Section 4.1 or a dividend of
warrants or rights to purchase Common Stock subject to the provisions of
Section 4.2), then the Company shall pay to the Holder of this Warrant on the
date of payment of such dividend or other distribution, an amount in cash equal
to the number of shares of Common Stock issuable upon exercise of this Warrant
in full on the record date for such dividend or other distribution (without
regard to the number of shares of Common Stock available or set aside for
issuance upon such exercise) multiplied by the sum of (i) the amount of cash
and (ii) the fair value of any evidences of indebtedness, securities or other
property distributed with respect to each share of Common Stock. The "fair
value" of any such evidences
25
<PAGE> 29
of indebtedness, securities or other property shall mean the fair market value
thereof, as determined by the Board of Directors in good faith, which good
faith determination may be challenged by the Holder in accordance with Section
4.7(f).
17. MISCELLANEOUS
17.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights, powers or
remedies. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover
any costs and expenses including, but not limited to, reasonable attorneys'
fees, including those of appellate proceedings, incurred by the Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
17.2. Notice Generally. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Warrant shall be in writing and shall
be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery (including delivery
by courier), or facsimile transmission, addressed as follows:
(a) If to the Company:
Code Alarm Inc.
950 East Whitcomb
Madison Heights, Michigan 48071
Attention: Rand Mueller and Craig Camalo
Facsimile: (248) 585-4799
with a copy to:
Pepper Hamilton & Scheetz LLP
100 Renaissance Center
Detroit, Michigan 48243
Attention: Dennis S. Kayes, Esq.
Facsimile: (313) 259-7926
(b) If to the Holder, at its last known address appearing on the books of
the Company maintained for such purpose.
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication shall be deemed to have
been duly given five business days after being
26
<PAGE> 30
deposited in the mail, postage prepaid, if mailed; when delivered by hand, if
personally delivered; or upon receipt, if sent by facsimile (followed by a
confirmation copy sent by either overnight or two (2) day courier).
17.3. Indemnification. The Company agrees to indemnify and hold harmless
the Holder, its officers, directors, employees, agents, and attorneys from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against the Holder
relating to or arising out of any litigation to which the Holder is made a
party in its capacity as a stockholder or warrantholder of the Company;
provided, however, that the Company will not be liable hereunder to the extent
that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a judgment by a court to have resulted from (i) the Holder's gross
negligence or willful misconduct, (ii) actions or omissions taken or not taken
by the Holder in any capacity other than as a stockholder or warrantholder of
the Company or (iii) actions or omissions taken or not taken by the Holder
solely as a stockholder or warrantholder of the Company and for which
stockholders or warrantholders may be held liable under Michigan law.
17.4. Successors and Assigns. Subject to the provisions of Sections 3.1
and 9, (i) this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of the Holder, and (ii) the provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant, and
shall be enforceable by any such Holder.
17.5. Amendment. The Warrants may be modified or amended or the
provisions thereof waived with the written consent of the Company and the
Holder.
17.6. Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
17.7. Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
17.8. Governing Law; Consent to Jurisdiction and Venue. In all respects,
including all matters of construction, validity and performance, this Agreement
and the obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the laws of the State of Michigan applicable to
contracts made and performed in such state, without regard to the principles
thereof regarding conflict of laws, and any applicable laws of the United
States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL
JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR
27
<PAGE> 31
VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR
VENUE, IN THE CITY OF NEW YORK, STATE OF NEW YORK. Service of process on the
Company or the Holder in any action arising out of or relating to this
Agreement shall be effective if mailed to such party in accordance with the
procedures and requirements set forth in Section 17.2. Nothing herein shall
preclude the Holder or the Company from bringing suit or taking other legal
action in any other jurisdiction.
17.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR
REMEDIES UNDER THIS WARRANT.
28
<PAGE> 32
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its duly authorized officer and its corporate seal to be impressed
hereon and attested by its Secretary or Assistant Secretary.
Dated: October __, 1997
CODE ALARM INC.
By:_______________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
<PAGE> 33
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of _______ shares of Common Stock of CODE ALARM
INC. and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
__________________ whose address is ___________________________ and, if such
shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered
to the undersigned.
_____________________ (Name of Registered Owner)
_____________________ (Signature of Registered Owner)
_____________________ (Street Address)
_____________________ (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE> 34
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ______________
attorney-in-fact to register such transfer on the books of Code Alarm Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:_________________
Name:__________________
Signature:_____________
Witness:_______________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE> 1
EXHIBIT 5
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER __, 1997.
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
Issuance Date: ________ __, 199_
Issued To: [Pegasus Partners, L.P.] [Pegasus Related Partners, L.P.]
No. of Shares of Common Stock: _________
<PAGE> 2
TABLE OF CONTENTS
Page
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4. Continued Validity . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . 8
3.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2. Division and Combination . . . . . . . . . . . . . . . . . . . . . . 8
3.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4. Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . 9
4. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1. Stock Dividends, Subdivisions and Combinations . . . . . . . . . . . 9
4.2. Certain Other Distributions . . . . . . . . . . . . . . . . . . . . 9
4.3. Issuance of Additional Shares of Common Stock . . . . . . . . . . 10
4.4. Issuance of Warrants or Other Rights . . . . . . . . . . . . . . . 11
4.5. Issuance of Convertible Securities . . . . . . . . . . . . . . . . 12
4.6. Superseding Adjustment . . . . . . . . . . . . . . . . . . . . . . 13
4.7. Other Provisions Applicable to Adjustments Under This Section . . . 13
4.8. Reorganization, Reclassification, Liquidation, Dissolution, Merger,
Consolidation or Disposition of Assets . . . . . . . . . . . . . . 16
4.9. Other Action Affecting Common Stock . . . . . . . . . . . . . . . 16
4.10. Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . 17
5. NOTICES TO WARRANTHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 17
5.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . . 17
5.2. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . 17
6. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL
OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . . . . . . 18
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS . . . . . . . . . . 19
9. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . 19
i
<PAGE> 3
Page
9.1. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2. Notice of Proposed Transfers; Requests for Registration . . . . . . 20
9.3. No Transfer to Directed Electronics, Inc . . . . . . . . . . . . . . 20
9.4. Termination of Restrictions . . . . . . . . . . . . . . . . . . . . 20
10. SUPPLYING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 21
11. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12. OFFICE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK . . . . . . . . . 22
13.1. Obligation to Repurchase Warrant and Warrant Stock . . . . . . . . 22
13.2. Payment of Repurchase Price . . . . . . . . . . . . . . . . . . . . 23
13.3. Right to Repurchase Warrant and Warrant Stock . . . . . . . . . . 23
14. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
15. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 24
16. DIVIDENDS ON UNDERLYING COMMON STOCK . . . . . . . . . . . . . . . . . . 24
17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.1. Nonwaiver and Expenses . . . . . . . . . . . . . . . . . . . . . . 25
17.2. Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 26
17.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 26
17.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
17.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
17.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17.8. Governing Law; Consent to Jurisdiction and Venue. . . . . . . . . 27
17.9. Mutual Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 27
ii
<PAGE> 4
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS
WARRANT.
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER __, 1997.
Warrant Number: ___________ Date of Issuance: _______
No. of Shares of Common Stock: ________
WARRANT
To Purchase Common Stock of
CODE ALARM INC.
THIS IS TO CERTIFY THAT [Pegasus Partners, L.P.] [Pegasus Related
Partners, L.P.] or its registered assigns, is entitled, at any time during the
Exercise Period (as hereinafter defined), to purchase from Code Alarm Inc., a
Michigan corporation (the "Company"), _______________________ (______) shares
of Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price of
$___1 per share (subject to adjustment as set forth herein), all on the terms
and conditions and pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock, whether now authorized or not.
- --------------
(1) $164,731 divided by the number of shares constituting
1% of the outstanding Common Stock of the Company, on a fully-diluted
basis, on the date of issuance of this Warrant.
<PAGE> 5
"Affiliate" of any Person shall mean a Person that directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with, such Person.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall mean October __, 1997.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, no par value, of the Company as constituted on
the Issuance Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.8) received by or
distributed to the holders of Common Stock of the Company in the circumstances
contemplated by Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with
or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the average of the daily market prices for
the 20 consecutive Trading Days immediately preceding such date. The daily
market price for each such Trading Day shall be (i) the last sale price on such
day on the principal stock exchange on which such Common Stock is then listed or
admitted to trading, (ii) if no sale takes place on such day on any such
exchange, the last reported sale price as officially quoted on any such
exchange, (iii) if the Common Stock is not then listed or admitted to trading on
any stock exchange but is traded on the Nasdaq Stock Market, the last reported
sale price as officially quoted on the Nasdaq Stock Market, (iv) if the Common
Stock is not then traded on the Nasdaq Stock Market, the last reported sale
price on the over-the-counter market, as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices), or if such sale price is not available on such
date, the average of the closing bid and asked prices on such date as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding to its functions of reporting prices), or (v) if there is no
such organization or agency, as furnished by any member of the NASD selected
mutually by the Majority Holders and the Company or, if they cannot agree upon
such selection, by a member
2
<PAGE> 6
selected by two such members of the NASD, one of which shall be selected by the
Majority Holders and one of which shall be selected by the Company.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date. On the Issuance Date,
the Current Warrant Price is $___1 per share of Common Stock, and is subject to
adjustment pursuant to Section 4.
"DEI shall mean Directed Electronics, Inc., a California corporation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period beginning on the Issuance Date
and ending at 5:00 P.M., Michigan time, on the seventh anniversary of the
Closing Date.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant outstanding on such date and
other options or warrants to purchase, or securities convertible into, shares of
Common Stock outstanding on such date, whether or not such options, warrants or
other securities are presently convertible or exercisable.
"Holder" shall mean, as the context requires, the Person in whose name
this Warrant or one of the other Warrants is registered on the books of the
Company maintained for such purpose and/or the Person holding any Warrant Stock.
"Independent Counsel" shall mean counsel to the Holder reasonably
acceptable to the Company.
"Issuance Date" shall mean ______ __, 199_ [the date of issuance of
this Warrant].
"Majority Holders" shall mean, at any given time, holders of Warrants
and Other Warrants then outstanding who would hold a majority of the Common
Stock purchasable upon exercise of all Warrants and Other Warrants in the
event all Warrants and Other Warrants were so exercised at such time.
- --------------
(1) $164,731 divided by the number of shares constituting 1% of the
outstanding Common Stock of the Company, on a fully-diluted basis, on
the date of issuance of this Warrant.
3
<PAGE> 7
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"New Securities" shall mean any Additional Shares of Common Stock,
and any rights or options to purchase any Additional Shares of Common Stock,
and any Convertible Securities.
"Non-Repurchasable Stock" shall have the meaning set forth in
Section 13.3.
"Other Property" shall have the meaning set forth in Section 4.8.
"Other Warrants" shall mean (i) warrants to purchase Common Stock
issued as part of Units purchased by Pegasus Partners, L.P. or Pegasus
Related Partners, L.P. pursuant to the Unit Purchase Agreement or issued to
Pegasus Partners, L.P., Pegasus Related Partners, L.P. or their successors or
assigns as part of Units issued in payment of dividends on Preferred Shares,
(ii) warrants issued to Pegasus Partners, L.P. or Pegasus Related Partners, L.P.
pursuant to Section 3.01(s) of the Unit Purchase Agreement, and (iii) all
warrants issued upon transfer, division or combination of, or in substitution or
exchange for, any thereof.
"Outstanding" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any Subsidiary, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Payment Shares" shall have the meaning set forth in Section 2.1.
"Permitted Issuances" shall mean (i) the issuance of shares of Common
Stock pursuant to an underwritten public offering, (ii) the issuance of Other
Warrants, (iii) the issuance of shares of Common Stock upon exercise of the
Warrants or the Other Warrants, (iv) the issuance of up to 280,000 shares of
Common Stock upon the exercise of options issued to management employees of the
Company or its Subsidiaries pursuant to the Company's 1987 Stock Option Plan,
(v) provided that the Charter Amendment (as defined in the Unit Purchase
Agreement) has (1) been approved and adopted by the Company's stockholders, (2)
been filed with the Department of Consumer and Industry Services of the State of
Michigan and (3) become effective, the issuance of up to 1,317,178 shares of
Common Stock or options to acquire such shares to management employees of the
Company or its Subsidiaries pursuant to the Company's 1997 Stock Option Plan,
(vi) the issuance of Preferred Shares and (vii) the issuance to General Electric
Capital Corporation on the Closing Date of warrants to purchase up to 131,718
shares of Common Stock (subject to adjustment as provided therein) and the
issuance of Common Stock upon the exercise thereof.
4
<PAGE> 8
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Preferred Shares" shall mean shares of Series A Preferred Stock of the
Company.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the Closing Date among the Company, Pegasus Partners,
L.P., Pegasus Related Partners, L.P. and General Electric Capital Corporation.
"Reorganization" shall have the meaning set forth in Section 4.8.
"Repurchase Price" shall have the meaning set forth in Section 13.2.
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Restrictions" shall have the meaning set forth in Section 13.1(c).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subsidiary" shall mean any corporation of which an aggregate of more
than 50% of the outstanding stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by the Company and/or one or more Subsidiaries of the Company.
"Trading Day" shall mean (i) any day on which stock is traded on the
principal stock exchange on which the Common Stock is listed or admitted to
trading, (ii) if the Common Stock is not then listed or admitted to trading on
any stock exchange but is traded on the Nasdaq Stock Market, any day on which
stock is traded on the Nasdaq Stock Market, or (iii) if the Common Stock is not
then traded on the Nasdaq Stock Market, any day on which stock is traded in the
over-the counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices).
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
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<PAGE> 9
"Unit Purchase Agreement" shall mean the Unit Purchase Agreement dated
as of the Closing Date, by and among the Company, Pegasus Partners, L.P. and
Pegasus Related Partners, L.P.
"Units" shall mean units consisting of one Preferred Share and one
warrant to purchase 72.2525247 shares of Common Stock, as adjusted from time to
time.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
Holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this warrant and the other warrants issued by the
Company to Pegasus Partners, L.P. or Pegasus Related Partners, L.P. pursuant
to Section 5.04 of the Unit Purchase Agreement, and all warrants issued upon
transfer, division or combination of, or in substitution or exchange for, any
thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. At any time during the Exercise Period, the
Holder may exercise this Warrant, on any Business Day, for all or any part of
the number of shares of Common Stock purchasable hereunder provided, however,
that the Company shall only be required to issue shares to the extent such
shares are required to be available for issuance pursuant to Section 7; and
provided, further, however, that for all purposes hereunder other than its
direct exercise for shares of Common Stock (including but not limited to for
purposes of Section 4.8 and 16), this Warrant shall be deemed to be exercisable
for the full amount of shares of Common Stock represented by this Warrant,
without regard to the number of shares of Common Stock available or set aside
for issuance upon such exercise..
In order to exercise this Warrant, in whole or in part, the Holder
shall deliver to the Company at its office at 950 East Whitcomb, Madison
Heights, Michigan 48071, or at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of the Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price in the manner provided
below, and (iii) this Warrant. Such notice shall be substantially in the form
of the subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by the Holder or its duly appointed agent or attorney. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate
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<PAGE> 10
or certificates so delivered shall be, to the extent possible, in such
denomination or denominations as the Holder shall request in the notice and
shall be registered in the name of the Holder or, subject to Section 9, such
other name as shall be designated in the notice. This Warrant shall be deemed
to have been exercised and such certificate or certificates shall be deemed to
have been issued, and the Holder or any other Person so designated to be named
therein shall be deemed to have become a holder of record of such shares for
all purposes, as of the date the notice, together with the cash or check or
checks, if any, and this Warrant, are received by the Company as described
above and all taxes required to be paid by the Holder, if any, pursuant to
Section 2.2 prior to the issuance of such shares have been paid. If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock, deliver
to the Holder a new Warrant evidencing the rights of the Holder to purchase the
unpurchased shares of Common Stock called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant, or, at the
request of the Holder, appropriate notation may be made on this Warrant and the
same returned to the Holder. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares in the name of
any Person who acquired this Warrant (or part hereof) or any Warrant Stock
otherwise than in accordance with this Warrant.
Payment of the Warrant Price shall be made at the option of the Holder
by (i) cash, (ii) wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, (iii) certified or official
bank check, or (iv) any combination of the foregoing; provided, however, that
the Holder shall have the right, at its election, in lieu of delivering the
Warrant Price in cash, to instruct the Company in the form of Subscription
Notice to retain, in payment of the Warrant Price, a number of shares of Common
Stock (the "Payment Shares") equal to the quotient of the aggregate Warrant
Price of the shares as to which this Warrant is then being exercised divided by
the Current Market Price.
2.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of this Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon the Holder, in which case such
taxes or charges shall be paid by the Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the satisfaction of the Company that no such tax or other
charge is due.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay a cash
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<PAGE> 11
adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price per share of Common Stock on the date of
exercise.
2.4. Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as the Holder under Sections 6, 10,
13, 14, 15 and 17 of this Warrant, subject to the obligations thereunder. The
Company will, at the time of each exercise of this Warrant, in whole or in part,
upon the request of the holder of the shares of Common Stock issued upon such
exercise hereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford to such holder all such rights;
provided, however, that if such holder shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
such holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by the Holder or its agent or attorney and if
such transfer is not to be made pursuant to Section 13, funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall, subject to Section
9, execute and deliver a new Warrant or Warrants in the name(s) of the assignee
or assignees and in the denomination(s) specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned in compliance with Section 9, may
be exercised by a new Holder for the purchase of shares of Common Stock without
having a new Warrant issued. If requested by the Company, a new Holder shall
acknowledge in writing, in form reasonably satisfactory to the Company, such
Holder's continuing obligation under Section 9.
3.2. Division and Combination. Subject to Section 9, this Warrant may
be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
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<PAGE> 12
3.3. Expenses. The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give the Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations.If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, by a reverse stock split or
otherwise,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record holder of
the same number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. Certain Other Distributions. If at any time the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash;
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<PAGE> 13
(b) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock); or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock);
and the Holder of this Warrant has not received a payment on behalf of such
dividend or distribution pursuant to Section 16 hereof, then (i) the number of
shares of Common Stock for which this Warrant is exercisable shall be adjusted
to equal the product obtained by multiplying the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Current Market Price per share of Common
Stock, minus the amount allocable to one share of Common Stock of (x) any such
cash so distributable and (y) the fair value (as determined in good faith by
the Board of Directors of the Company and, if requested by the Holder,
supported by an opinion from an investment banking firm of recognized national
standing reasonably acceptable to the Majority Holders) of any and all such
evidences of indebtedness, shares of stock, other securities or property or
warrants or other subscription or purchase rights so distributable, and (ii)
the Current Warrant Price shall be adjusted to equal (A) the Current Warrant
Price multiplied by the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the adjustment divided by (B) the number of
shares for which this Warrant is exercisable immediately after such adjustment.
A reclassification of the Common Stock (other than a change in par value, or
from par value to no par value or from no par value to par value) into shares
of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares
of such other class of stock within the meaning of this Section 4.2 and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller
number of shares of Common Stock as a part of such reclassification, such
change shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. (a) In the event
the Company shall issue or sell any Additional Shares of Common Stock, other
than Permitted Issuances, for a consideration per Additional Share of Common
Stock less than the greater of the Current Warrant Price and the Current Market
Price, then the Current Warrant Price shall be reduced to the lower of the
prices calculated as follows:
(1) by dividing (A) an amount equal to the sum of (x) the number of
Fully Diluted Outstanding shares of Common Stock immediately prior to such
issue or sale multiplied by the then existing Current Warrant Price plus (y) the
aggregate consideration, if any, received
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<PAGE> 14
by the Company upon such issue or sale, by (B) the total number of Fully
Diluted Outstanding shares of Common Stock outstanding immediately after such
issue or sale; and
(2) by multiplying the then existing Current Warrant Price by a
fraction the numerator of which shall be the sum of (x) the number of Fully
Diluted Outstanding shares of Common Stock immediately prior to such issue or
sale multiplied by the Current Market Price per share of Common Stock
immediately prior to such issue or sale plus (y) the consideration received by
the Company upon such issue or sale, and the denominator of which shall be the
total number of Fully Diluted Outstanding shares of Common Stock immediately
after such issue or sale multiplied by the Current Market Price per share of
Common Stock immediately prior to such issue or sale.
For purposes of this subsection (a), the date as of which the Current
Market Price per share of Common Stock shall be computed shall be the earlier
of the date upon which the Company shall (i) enter into a firm contract for the
issuance of such shares or (ii) issue such shares.
Upon any adjustment of the Current Warrant Price as provided in this
Section 4.3(a), the Holder shall thereafter be entitled to purchase, at the
Current Warrant Price resulting from such adjustment, the number of shares of
Common Stock (calculated to the nearest 1/100th of a share) obtained by
multiplying the Current Warrant Price in effect immediately prior to such
adjustment by the number of shares of Common Stock purchasable hereunder
immediately prior to such adjustment and dividing the product thereof by the
Current Warrant Price resulting from such adjustment.
(b) The provisions of this Section 4.3 shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided under
Section 4.1 or 4.2. No adjustment shall be made under this Section 4.3 upon
the issuance of any Additional Shares of Common Stock which are issued pursuant
to the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Section 4.4 or Section 4.5.
4.4. Issuance of Warrants or Other Rights. Except with respect to
Permitted Issuances and distributions on behalf of which a payment is made to
the Holder of this Warrant pursuant to Section 16 hereof, if at any time the
Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a distribution of, or shall in any manner
(whether directly or by assumption in a merger in which the Company is the
surviving corporation) issue or sell, any warrants (other than the Warrants) or
other rights to subscribe for or purchase any Additional Shares of Common Stock
or any Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such warrants or other rights or
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<PAGE> 15
upon conversion or exchange of such Convertible Securities shall be less than
the greater of the Current Warrant Price and the Current Market Price in effect
immediately prior to the time of such distribution, issue or sale, then the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be adjusted as provided in Section 4.3(a) on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share for such Additional
Shares of Common Stock shall be deemed to be the lowest price per share at
which such Additional Shares of Common Stock are issuable to such holders, and
(iii) the Company shall have received all of the consideration, if any, payable
for such warrants or other rights as of the date of the actual issuance
thereof. No further adjustments of the number of shares of Common Stock for
which this Warrant is exercisable or of the Current Warrant Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such warrants or other rights or upon the actual issue of such
Common Stock upon such conversion or exchange of such Convertible Securities.
4.5. Issuance of Convertible Securities. Except with respect to
Permitted Issuances and distributions on behalf of which a payment is made to
the Holder of this Warrant pursuant to Section 16 hereof, if at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the greater of the Current Warrant Price and the
Current Market Price in effect immediately prior to the time of such issue or
sale, then the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 4.3(a) on the basis that (i) the maximum number of Additional Shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding, (ii) the price
per share of such Additional Shares of Common Stock shall be deemed to be the
lowest possible price in any range of prices at which such Additional Shares of
Common Stock are available to such holders, and (iii) the Company shall have
received all of the consideration payable therefor, if any, as of the date of
actual issuance of such Convertible Securities. No further adjustment of the
number of shares of Common Stock for which this Warrant is exercisable or of the
Current Warrant Price shall be made under this Section 4.5 upon the issuance of
any Convertible Securities which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to Section 4.4. No further adjustments of the number of
shares of Common Stock for which this Warrant is exercisable or of the Current
Warrant Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities and, if any issue or sale
of such Convertible Securities is made upon exercise of any warrant or other
right to subscribe for or to purchase or any warrant or other right to purchase
any such Convertible Securities for which
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<PAGE> 16
adjustments thereof have been or are to be made pursuant to other provisions of
this Section 4, no further adjustments shall be made by reason of such issue or
sale.
4.6. Superseding Adjustment. If, at any time after any adjustment of
the number of shares of Common Stock for which this Warrant is exercisable
shall have been made pursuant to Section 4.4 or Section 4.5 as the result of any
issuance of warrants, rights or Convertible Securities, and either
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all
or a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common Stock
are issuable pursuant to such warrants or rights, or such other
Convertible Securities, shall be increased or decreased by virtue of
provisions therein contained,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the then outstanding
Warrants, but not on any then outstanding Warrant Stock, on the basis of
(c) treating the number of Additional Shares of Common Stock or
other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase or
decrease of the consideration per share for which shares of Common
Stock or other property are issuable under such warrants or rights or
other Convertible Securities.
4.7. Other Provisions Applicable to Adjustments Under This Section.
The following provisions shall be applicable to the making of adjustments
provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other
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<PAGE> 17
rights to subscribe for or purchase any Additional Shares of Common Stock or
any Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the cash
received by the Company therefor, or, if such Additional Shares of Common
Stock or Convertible Securities are offered by the Company for subscription,
the subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public offering
without a subscription offering, the public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or accrued
dividends, but not subtracting any compensation, discounts or expenses paid or
incurred by the Company for and in the underwriting of, or otherwise in
connection with, the issuance thereof). To the extent that such issuance
shall be for a consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to be the
fair value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any Additional
Shares of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase such Additional Shares of Common Stock or
Convertible Securities shall be issued in connection with any merger in which
the Company issues any securities, the amount of consideration therefor shall
be deemed to be the fair value, as determined in good faith by the Board of
Directors of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible
Securities, warrants or other rights, as the case may be. The consideration
for any Additional Shares of Common Stock issuable pursuant to any warrants or
other rights to subscribe for or purchase the same shall be the consideration
received by the Company for issuing such warrants or other rights plus the
additional consideration payable to the Company upon exercise of such warrants
or other rights. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Convertible Securities shall be the
consideration, if any, received by the Company for issuing warrants or other
rights to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the subscription
for or purchase of such Convertible Securities, plus the additional
consideration, if any, payable to the Company upon the exercise of the right
of conversion or exchange in such Convertible Securities. In case of the
issuance at any time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class of stock
other than Common Stock, the Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
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<PAGE> 18
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than 1% of the
shares of Common Stock for which this Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made upon
the earlier of (i) the date upon which such adjustment, together with
other adjustments required by this Section 4 and not previously made,
would result in a minimum adjustment, and (ii) the date of exercise.
For the purpose of any adjustment, any specified event shall be deemed
to have occurred at the close of business on the date of its
occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, the Holder exercises this
Warrant, any Additional Shares of Common Stock issuable and other
property distributable upon exercise by reason of such adjustment shall
be held in escrow for the Holder by the Company to be issued to the
Holder upon and to the extent that the event actually takes place, upon
payment of the then Current Warrant Price. Notwithstanding any other
provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares
shall be cancelled by the Company and escrowed property returned.
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(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a determination
in good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Majority Holders,
and any dispute shall be resolved by an investment banking firm of
recognized national standing selected by the Company and acceptable to
the Majority Holders.
4.8. Reorganization, Reclassification, Liquidation, Dissolution,
Merger, Consolidation or Disposition of Assets. In case the Company shall
reorganize its capital, reclassify its capital stock, liquidate its assets,
dissolve, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation or other entity (hereinafter, a
"Reorganization") and, pursuant to the terms of such Reorganization, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right following the effectiveness of such
Reorganization to receive, upon exercise of such Warrant, or, in the case of a
liquidation of assets or a dissolution to receive, upon such liquidation or
dissolution, without taking any further action, the number of shares of common
stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such
Reorganization by a holder of the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such event (without regard to
the number of shares of Common Stock available or set aside for issuance upon
such exercise). In case of any such Reorganization, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Warrant to be performed and observed by the Company and all the obligations
and liabilities hereunder, subject to such appropriate modifications as are
satisfactory to the Holder in order to provide for adjustments of shares of the
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.8 "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
Reorganizations.
4.9. Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
other than any action
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<PAGE> 20
described in this Section 4 for which a specific adjustment is provided, then,
unless such action will not have a materially adverse effect upon the rights
of the Holder, the number of shares of Common Stock or other stock for which
this Warrant is exercisable and/or the purchase price thereof shall be
adjusted in such manner as may be equitable in the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to be
less than the par value per share of Common Stock.
5. NOTICES TO WARRANTHOLDERS
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock or the class or type of stock or other property for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of this Warrant, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Company determined the fair value of any evidences of indebtedness, shares of
stock, other securities or property or warrants or other subscription or
purchase rights referred to in Section 4.2 or 4.7(a)), specifying the number of
shares of Common Stock for which this Warrant is exercisable and (if such
adjustment was made pursuant to Section 4.8 or 4.9) describing the number and
kind of any other shares of stock or Other Property for which this Warrant is
exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to the Holder in accordance with
Section 17.2. The Company shall keep at its office or agency designated
pursuant to Section 12 copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by the
Holder or any prospective purchaser of a Warrant designated by the Holder.
5.2. Notice of Certain Corporate Action. The Holder shall be entitled
to the same rights to receive notice of corporate action as any holder of
Common Stock.
6. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Holder against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Current Warrant
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<PAGE> 21
Price immediately prior to such increase in par value, (b) take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than as
provided herein) upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
Upon the request of the Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to the Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the earlier of (i) May 31, 1998 or (ii) the approval by
the shareholders of the Company of an increase in the number of authorized
shares of Common Stock as contemplated in the Unit Purchase Agreement, the
Company shall at all times reserve and keep available for issue upon the
exercise of warrants such number of its authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full of all
outstanding Warrants. If at any time from and after the date referred to above
the number of authorized but unissued shares of Common Stock shall not be
sufficient to permit the exercise in full of all outstanding Warrants and Other
Warrants, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
shareholder approval and upon such approval, the Company shall reserve and keep
available such additional shares solely for the purpose of permitting the
exercise of Warrants or Other Warrants.
All shares of Common Stock which shall be so issuable, when issued
upon exercise of any Warrant and payment therefor in accordance with the terms
of such Warrant, shall be duly and validly issued, fully paid and
nonassessable and free and clear of any liens, claims and restrictions (other
than as provided herein). Except as provided in this Warrant, no stockholder of
the Company has or shall have any preemptive rights to subscribe for such shares
of Common Stock.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock or the type of consideration for which this
Warrant is exercisable or in the Current Warrant Price, the Company shall obtain
all such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.
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<PAGE> 22
If any shares of Common Stock required to be reserved for issuance upon
exercise of Warrants require registration or qualification with any
governmental authority under any federal or state law (otherwise than as
provided in Section 9) before such shares may be so issued, the Company will in
good faith and as expeditiously as possible and at its expense endeavor to cause
such shares to be duly registered.
8. TAKING OF A RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in
this Section 9. The Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legends. (a) Except as otherwise provided in this
Section 9, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with legends in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under the
securities or blue sky laws of any state and are subject to the
conditions specified in a certain Warrant dated _______ __, 199_,
originally issued by Code Alarm Inc. The shares represented by this
certificate may not be sold, or otherwise transferred, in the absence
of such registration or an exemption therefrom under such Act and under
any such applicable state laws, or in violation of the provisions of
the Warrant. A copy of the form of said Warrant is on file with the
Secretary of Code Alarm Inc. The holder of this certificate, by
acceptance of this certificate, agrees to be bound by the provisions of
such Warrant."
"The shares represented by this certificate are subject to the
terms and conditions of a Registration Rights Agreement, dated as of
October __, 1997."
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<PAGE> 23
(b) Except as otherwise provided in this Section 9, each Warrant
shall be stamped or otherwise imprinted with legends in substantially the
following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended, or under
the securities or blue sky laws of any state and may not be sold, or
otherwise transferred, in the absence of such registration or an
exemption therefrom under such Act and under any such applicable state
laws, or in violation of the provisions of this Warrant."
"This Warrant and the securities represented hereby are subject
to the terms and conditions of a Registration Rights Agreement, dated
as of October __, 1997."
9.2. Notice of Proposed Transfers; Requests for Registration. Prior
to any Transfer or attempted Transfer of any Warrants or any shares of
Restricted Common Stock, the Holder of such Warrants or Restricted Common Stock
shall deliver to the Company either a written opinion reasonably acceptable to
the Company of Independent Counsel addressed to the Company or a no-action
letter from the Commission to the effect that the proposed Transfer of such
Warrants or such Restricted Common Stock may be effected without registration
under the Securities Act and applicable state securities or blue sky laws. After
delivery of the written opinion or the no-action letter to the Company, such
Holder shall thereupon be entitled to Transfer such Warrants or such Restricted
Common Stock. Each certificate, if any, evidencing such shares of Restricted
Common Stock issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1(a), and each Warrant issued upon such Transfer shall bear
the restrictive legend set forth in Section 9.1(b), unless in the written
opinion of Independent Counsel addressed to the Company such legend is not
required in order to ensure compliance with the Securities Act.
9.3. No Transfer to Directed Electronics, Inc. The Holder shall not
sell or otherwise transfer any Warrants to DEI, any affiliate of DEI, Mr.
Darrell Issa, the president of DEI, any entity which, to the knowledge of the
Holder, is controlled by Mr. Issa, or any person who, to the knowledge of the
Holder, is a member of the immediate family (as such term is defined in Rule
16a-1 promulgated under the Exchange Act) of Mr. Issa.
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto, or (ii) when the Company shall have delivered to the Holder or
Holders of Warrants, Warrant Stock or Restricted
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<PAGE> 24
Common Stock the written opinion of Independent Counsel stating that such
legend is not required in order to ensure compliance with the Securities Act.
Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to
receive from the Company, at the expense of the Company, a new Warrant bearing
the following legend in place of the first restrictive legend set forth
hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED
IN SECTION 9 HEREOF TERMINATED ON ____________, 199_, AND ARE OF NO
FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or
combination of, or in substitution for, any Warrant or Warrants entitled to bear
such legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of
Restricted Common Stock, as hereinabove provided, the Holder thereof shall be
entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive legend
set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant and each
Holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such Holder or reasonably necessary for such Holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written indemnity agreement of Pegasus Partners, L.P.
or Pegasus Related Partners, L.P. shall be sufficient indemnity) and in case of
mutilation upon surrender and cancellation hereof, the Company will execute and
deliver in lieu hereof a new Warrant of like tenor to the Holder; provided, in
the case of mutilation, no indemnity shall be required if this warrant in
identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the
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warrants may be presented for exercise, registration of transfer, division or
combination as provided in this Warrant.
13. REPURCHASE BY THE COMPANY OF WARRANT AND WARRANT STOCK
13.1. Obligation to Repurchase Warrant and Warrant Stock. (a) At any
time and from time to time, at the election of the Holder, after the date
which is three years and six months after the Closing Date, the Holder may, by
notice to the Company (the "Put Notice"), demand repurchase of this Warrant, in
whole or in part, and/or all or part of the Holder's shares of Warrant Stock
which are Restricted Common Stock. Subject to the provisions of Section 13.2,
the Company shall, on the date (not less than 30 days after the date of the Put
Notice) designated in such Put Notice, repurchase from the Holder all or the
portion of this Warrant and/or the number of shares of such Holder's Warrant
Stock designated in the Put Notice for an amount determined by multiplying (x)
the number of shares of Warrant Stock and/or the Common Stock subject to this
Warrant or portion thereof being repurchased by (y) the Current Market Price per
share of Common Stock determined as of the date of the repurchase demand and, in
the event of repurchase of all or a portion of this Warrant, deducting from the
product thereby obtained the Current Warrant Price times the number of shares of
Common Stock subject to this Warrant (or portion thereof) being repurchased.
(b) Notwithstanding the provisions of Section 13.1(a), if, at any time
during the period between the date on which the Holder shall have delivered a
Put Notice and the date of repurchase by the Company pursuant thereto, a
Reorganization shall occur and the consideration received or receivable by
stockholders in connection with such Reorganization shall consist solely of
cash, then the Holder shall (whether or not the Holder shall have previously
surrendered its Warrant and/or Warrant Stock for repurchase by the Company
pursuant to this Section 13) be entitled to receive, on the date of such
repurchase, the higher of (i) the amount payable to the Holder as determined
pursuant to Section 13.1(a) and (ii) an amount equal to the amount of cash the
Holder would have received upon the occurrence of such Reorganization had the
Holder's Warrant (or the portion thereof being repurchased) been fully exercised
immediately prior thereto less, in the event of a repurchase of all or a portion
of this Warrant, the purchase price payable at such time for the purchase of the
shares of Common Stock then subject to the Holder's Warrant (or the portion
thereof being repurchased).
(c) The Company shall not be obligated under this Section 13.1 to
repurchase any Warrant or portion thereof and/or issued Warrant Stock if the
Company is in default under any agreement or instrument evidencing the Company's
or any of its Subsidiaries' indebtedness for borrowed money, and such default
has not been waived, or if and to the extent such a repurchase (i) would
cause an event of default to exist by reason of such repurchase, which event of
default has not been waived, with respect to any such agreement or would violate
any provision of any such agreement or instrument, or (ii) would be in violation
of applicable law ("Restrictions"), in any such case as determined by an opinion
of counsel to the Company reasonably acceptable to the Holder; provided,
however, that the Company shall use its
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<PAGE> 26
reasonable best efforts to have any such Restriction either waived or
terminated (including, without limitation, by obtaining refinancing for any
such indebtedness). In the event that, following receipt of a Put Notice, the
Company will not repurchase all or any portion of such Warrant and/or Warrant
Stock because of the existence of any Restriction, the Company shall, within
twenty (20) days of receipt of the Put Notice, so notify the Holder in writing,
setting forth the portion of the Warrant and/or Warrant Stock which will not be
repurchased and the Restrictions which apply, and deliver to the Holder a copy
of the opinion referred to in the prior sentence. In addition, in such event,
the Company shall thereafter, upon the request of the Holder, use its best
efforts to register the Warrant Stock and/or the Common Stock subject to this
Warrant, in accordance with the terms of the Registration Rights Agreement.
13.2. Payment of Repurchase Price. The purchase price for any
repurchase pursuant to Section 13.1 (the "Repurchase Price") shall be
determined pursuant to Section 13.1 and shall be payable in cash.
On the date of any repurchase of Warrants and/or Warrant Stock
pursuant to this Section 13, the Holder shall assign to the Company its Warrant
or portion thereof being repurchased and a certificate for the number of shares
of Warrant Stock being repurchased, as the case may be, without any
representation or warranty (other than that the Holder has good and marketable
title thereto, free and clear of liens, encumbrances and restrictions of any
kind), by the surrender of the Holder's Warrant and certificate for Warrant
Stock together with, in the case of Warrant Stock, instruments of transfer
reasonably acceptable to the Company, at the principal office of the Company
referred to in Section 2.1 against payment therefor of the Repurchase Price by,
at the option of the Holder, (i) wire transfer to an account in a bank located
in the United States designated by the Holder for such purpose or (ii) a
certified or official bank check payable to the order of the Holder. If less
than all of the Holder's Warrant is being repurchased, the Company shall,
pursuant to Section 3, cancel such Warrant and issue in the name of, and deliver
to, the Holder a new Warrant for the portion not being repurchased. If less
than all of the shares represented by a certificate for Warrant Stock are being
repurchased, the Company shall cancel such certificate and issue in the name of,
and deliver to, the Holder a new certificate for the number of shares of Warrant
Stock not being repurchased.
13.3. Right to Repurchase Warrant and Warrant Stock. (a) In the event
the Company exercises its rights to repurchase all of the outstanding Units and
the Common Stock for which Attached Warrants (as defined in the Unit Purchase
Agreement) have theretofore been exercised, pursuant to Section 8.01(b) of
the Unit Purchase Agreement, then, simultaneously therewith, the Company, at its
sole option, may repurchase not less than and not more than 95% of the
outstanding Warrants and 95% of the shares of Common Stock for which Warrants
have been exercised (other than shares of Common Stock which have been sold to a
Person that is not an affiliate or associate (as defined in Rule 405 promulgated
under the Securities Act) of the initial Holder ("Non-Repurchasable Stock")),
for an aggregate repurchase price equal to the amount determined by multiplying
(x) the sum of (1) 100% of the number of shares of Common Stock for which the
Warrants are then exercisable and (2) 100% of the number of shares for
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<PAGE> 27
which the Warrants have theretofore been exercised (other than shares of
Non-Repurchasable Stock) by (y) the price per share of Common Stock which the
holders of Units would receive pursuant to Section 8.01(b) of the Unit Purchase
Agreement (assuming exercise of the Attached Warrants which are part of such
Units) and then deducting the aggregate exercise price of the Warrants to be
repurchased.
(b) Notice of repurchase pursuant to this Section 13.3 shall be given
by first class mail, postage prepaid, mailed not less than 10 nor more than 20
days prior to the repurchase date to each Holder's address as the same appears
on the books of the Company. Each such notice shall state: (i) the purchase
date; (ii) the portion of Warrants and the number of shares of Common Stock to
be purchased; (iii) the amount of the purchase price; and (iv) the place or
places where such Warrants and certificates for such shares of Common Stock are
to be surrendered for payment of the purchase price. Upon receipt of
any such notice, the Warrants being repurchased may not be exercised or
transferred and the Common Stock being repurchased may not be transferred,
unless the Company fails to make the repurchases on the terms set forth in its
notice.
(c) In the event only a portion of this Warrant is being repurchased
pursuant to this Section 13.3, the Holder shall surrender this Warrant to
the Company for cancellation on the repurchase date at the place specified in
the repurchase notice, and the Company shall thereupon issue to the Holder a
new Warrant evidencing the portion of this Warrant not so repurchased.
14. REGISTRATION RIGHTS
This Warrant is entitled to the benefits of the registration rights
provisions contained in the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 12 and shall
furnish copies thereof to the Holder upon request.
15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
the Holder for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
16. DIVIDENDS ON UNDERLYING COMMON STOCK
In the event that, at any time before the Charter Amendment (as defined
in the Unit Purchase Agreement) shall have (a) been approved and adopted by the
Company's
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stockholders, (b) been filed with the Department of Consumer and Industry
Services of the State of Michigan and (c) become effective, or at any time
after the Company shall have failed for any reason to issue Common Stock to
the Holder upon exercise of this Warrant or shall have failed to comply with
Section 7 hereof, the Company shall pay a dividend or make any other
distribution with respect to its Common Stock whether in the form of cash,
evidences of indebtedness, securities or other property (other than a Common
Stock dividend subject to the provisions of Section 4.1 or a dividend of
warrants or rights to purchase Common Stock subject to the provisions of
Section 4.2), then the Company shall pay to the Holder of this Warrant on the
date of payment of such dividend or other distribution, an amount in cash
equal to the number of shares of Common Stock issuable upon exercise of this
Warrant in full on the record date for such dividend or other distribution
(without regard to the number of shares of Common Stock available or set aside
for issuance upon such exercise) multiplied by the sum of (i) the amount of
cash and (ii) the fair value of any evidences of indebtedness, securities or
other property distributed with respect to each share of Common Stock. The
"fair value" of any such evidences of indebtedness, securities or other
property shall mean the fair market value thereof, as determined by the Board
of Directors in good faith, which good faith determination may be challenged
by the Holder in accordance with Section 4.7(f).
17. MISCELLANEOUS
17.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights, powers
or remedies. If the Company fails to make, when due, any payments provided
for hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
17.2. Notice Generally. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Warrant shall be in writing and shall
be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery (including delivery
by courier), or facsimile transmission, addressed as follows:
(a) If to the Company:
Code Alarm Inc.
950 East Whitcomb
Madison Heights, Michigan 48071
Attention: Rand Mueller and Craig Camalo
Facsimile: (248) 585-4799
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with a copy to:
Pepper Hamilton & Scheetz LLP
100 Renaissance Center
Detroit, Michigan 48243
Attention: Dennis S. Kayes, Esq.
Facsimile: (313) 259-7926
(b) If to the Holder, at its last known address appearing on the books
of the Company maintained for such purpose.
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication shall be deemed to have
been duly given five business days after being deposited in the mail, postage
prepaid, if mailed; when delivered by hand, if personally delivered; or upon
receipt, if sent by facsimile (followed by a confirmation copy sent by either
overnight or two (2) day courier).
17.3. Indemnification. The Company agrees to indemnify and hold
harmless the Holder, its officers, directors, employees, agents, and attorneys
from and against any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, attorneys' fees, expenses and
disbursements of any kind which may be imposed upon, incurred by or asserted
against the Holder relating to or arising out of any litigation to which the
Holder is made a party in its capacity as a stockholder or warrantholder of the
Company; provided, however, that the Company will not be liable hereunder to the
extent that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a judgment by a court to have resulted from (i) the Holder's gross
negligence or willful misconduct, (ii) actions or omissions taken or not taken
by the Holder in any capacity other than as a stockholder or warrantholder of
the Company or (iii) actions or omissions taken or not taken by the Holder
solely as a stockholder or warrantholder of the Company and for which
stockholders or warrantholders may be held liable under Michigan law.
17.4. Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, (i) this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and assigns of the Holder, and (ii) the provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant, and shall be enforceable by any such Holder.
17.5. Amendment. The Warrants may be modified or amended or the
provisions thereof waived with the written consent of the Company and the
Holder.
17.6. Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision
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of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Warrant.
17.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
17.8. Governing Law; Consent to Jurisdiction and Venue. In all
respects, including all matters of construction, validity and performance,
this Agreement and the obligations arising hereunder shall be governed by, and
construed and enforced in accordance with, the laws of the State of Michigan
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws, and any applicable laws of the
United States of America. EACH OF THE COMPANY AND HOLDER CONSENTS TO PERSONAL
JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND AGREES NOT
TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE CITY OF NEW
YORK, STATE OF NEW YORK. Service of process on the Company or the Holder in any
action arising out of or relating to this Agreement shall be effective if mailed
to such party in accordance with the procedures and requirements set forth in
Section 17.2. Nothing herein shall preclude the Holder or the Company from
bringing suit or taking other legal action in any other jurisdiction.
17.9. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE
JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS WARRANT.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its duly authorized officer and its corporate seal to be
impressed hereon and attested by its Secretary or Assistant Secretary.
Dated: October __, 1997
CODE ALARM INC.
By:_______________________
Name:
Title:
Attest:
By:_______________________
Name:
Title:
<PAGE> 32
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _______ shares of Common Stock of
CODE ALARM INC. and herewith makes payment therefor, all at the price and on
the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to __________________ whose address is
___________________________ and, if such shares of Common Stock shall not
include all of the shares of Common Stock issuable as provided in this Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Common Stock issuable hereunder be delivered to the undersigned.
_____________________________ (Name of Registered Owner)
_____________________________ (Signature of Registered Owner)
_____________________________ (Street Address)
_____________________________ (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE> 33
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under this Warrant, with respect to the number
of shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ______________
attorney-in-fact to register such transfer on the books of Code Alarm Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated: ____________________________
Name: ____________________________
Signature: ________________________
Witness: __________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE> 1
EXHIBIT 6
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
entered into as of October 27, 1997, by and among CODE ALARM INC, a Michigan
corporation (the "Company"), Pegasus Partners, L.P., Pegasus Related Partners,
L.P. (together with Pegasus Partners, L.P., "Pegasus") and General Electric
Capital Corporation ("GECC").
RECITALS
WHEREAS, the Company and Pegasus have entered into that
certain Unit Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), pursuant to which, among other things, Pegasus is purchasing units
("Units"), each Unit consisting of one share of the Company's Series A
Preferred Stock (collectively, with other such shares, the "Preferred Shares")
and one Warrant (as hereinafter defined) to purchase 72.2525247 shares of the
Company's common stock, no par value (the "Common Stock"); and
WHEREAS, the Company has issued, and may in the future issue,
additional Warrants (as hereinafter defined) to Pegasus in consideration for
certain financial accommodations provided and to be provided by Pegasus to GECC
as contemplated by the Purchase Agreement and the Company or as part of Units
issued in payment of dividends on Preferred Shares;
WHEREAS, the Company has issued Warrants to GECC in
consideration for GECC making loans to the Company pursuant to the Credit
Agreement dated as of October 24, 1997 among the Company, GECC and the other
lenders and credit parties signatory thereto (the "Credit Agreement");
WHEREAS, in connection with the purchase and sale of the
Units, the making of loans pursuant to the Credit Agreement and the issuance of
the Warrants, the Company has agreed, on the terms and conditions set forth
herein, to register shares of Common Stock as set forth below.
NOW THEREFORE, in consideration of the foregoing recitals and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" means, with respect to any specified person, any
other person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified person. For the purposes
of this definition, "control" when used with respect to any specified person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
<PAGE> 2
"Business Day" means any day that is not a Saturday, a Sunday
or a legal holiday on which banking institutions in the State of New York are
not required to be open.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock issued by such person, including each class of common stock and
preferred stock of such person.
"Common Stock" shall have the meaning set forth in the Recitals.
"Company" shall have the meaning set forth in the Recitals.
"Credit Agreement" shall have the meaning set forth in the Recitals.
"Delay Period" shall have the meaning set forth in Section 2(d) hereof.
"Demand Notice" shall have the meaning set forth in Section 2(a)
hereof.
"Demand Registration" shall have the meaning set forth in Section 2(b)
hereof.
"Demanding Holders" means the Holders delivering the Demand Notice
pursuant to Section 2(a) hereof.
"Effectiveness Period" shall have the meaning set forth in Section 2(d) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"GECC Holders" means GECC and its Affiliates (to the extent that they
hold Registrable Shares or securities exercisable for Registrable Shares) and
any other holder of Registrable Shares, or securities exercisable for
Registrable Shares initially held by or issuable to GECC or an Affiliate of
GECC.
"Hold Back Period" shall have the meaning set forth in Section 4
hereof.
"Holder" means Pegasus Partners, L.P., Pegasus Related Partners, L.P.,
GECC or such other person or persons who owns Registrable Shares or securities
exercisable for Registrable Shares.
"Interruption Period" shall have the meaning set forth in Section 5
hereof.
"Majority-in-Interest" of any group of Holders means holders of more
than 50% of the Registrable Shares held by such Holders or obtainable by such
Holders upon exercise of Warrants.
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<PAGE> 3
"Pegasus Holders" means Pegasus and their Affiliates (to the extent
that they hold Registrable Shares or securities exercisable for Registrable
Shares) and any other holder of Registrable Shares, or securities exercisable
for Registrable Shares, initially held by or issuable to Pegasus or an
Affiliate of Pegasus.
"person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Piggyback Registration" shall have the meaning set forth in Section 3
hereof.
"Preferred Shares" shall have the meaning set forth in the Recitals.
"Prospectus" means the prospectus included in any Registration
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Shares covered by such Registration Statement and all other
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Purchase Agreement" shall have the meaning set forth in the Recitals.
"Registrable Shares" means (i) shares of Common Stock issuable or
issued upon exercise of the Warrants and (ii) any shares of Common Stock issued
or issuable with respect to the shares of Common Stock referred to in clause
(i) above upon any stock split, stock dividend, recapitalization or similar
event; provided, however, that shares of Common Stock shall only be registrable
pursuant to this Agreement if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect to such shares of Common Stock are removed upon the consummation
of such sale and the Company and the seller and purchaser of such shares of
Common Stock shall have received an opinion of counsel for the seller, which
shall be in form and content reasonably satisfactory to the Company and the
seller and purchaser and their respective counsel, to the effect that such
shares of Common Stock in the hands of the purchaser are freely transferable
without restriction or registration under the Securities Act in any public or
private transaction; provided, further, however, that shares of Common stock
issuable upon exercise of Warrants issued as part of Units shall not be deemed
"Registrable Shares" until the first anniversary of the date hereof.
"Registration" means registration under the Securities Act of an
offering of Registrable Shares pursuant to a Demand Registration or a Piggyback
Registration.
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<PAGE> 4
"Registration Statement" means any registration statement under the
Securities Act of the Company that covers any of the Registrable Shares
pursuant to the provisions of this Agreement, including the related Prospectus,
all amendments and supplements to such registration statement, including pre-
and post-effective amendments, all exhibits thereto and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"underwritten registration or underwritten offering" means a
registration under the Securities Act in which securities of the Company are
sold to an underwriter for reoffering to the public.
"Units" shall have the meaning set forth in the Recitals.
"Warrants" mean (i) warrants to purchase Common Stock issued as part of
Units purchased by Pegasus pursuant to the Purchase Agreement or issued to
holders of Preferred Shares as part of Units issued in payment of dividends on
such Preferred Shares, (ii) warrants to purchase Common Stock issued to Pegasus
pursuant to Section 3.01(s) or 5.04 of the Purchase Agreement and (iii)
warrants to purchase Common Stock issued to GECC pursuant to the Warrant
Purchase Agreement dated as of October 24, 1997 between the Company and GECC.
SECTION 2. Demand Registration. (a) At any time and from time to
time, a Majority-in-Interest of the Pegasus Holders or a Majority-in-Interest
of the GECC Holders shall have the right, by written notice (the "Demand
Notice") given to the Company, to request the Company to register under and in
accordance with the provisions of the Securities Act all or any portion of the
Registrable Shares held by such Holders and/or the Registrable Shares for which
Warrants held by such Holders are exercisable, as designated by such Holders;
provided, however, that the aggregate number of Registrable Shares requested to
be registered pursuant to any Demand Notice shall be at least 50,000. Upon
receipt of any such Demand Notice, the Company shall promptly, but in no event
more than five days after receipt thereof, notify all other Holders of the
receipt of such Demand Notice and, subject to the limitations set forth below,
shall include in the proposed registration all Registrable Shares with respect
to which the Company has received written requests for inclusion therein within
20 days after delivery of the Company's notice. In connection with any Demand
Registration in which more than one holder of securities participates, in the
event that such Demand Registration involves an underwritten offering and the
managing underwriter or underwriters participating in such offering advise in
writing the Holders of Registrable Shares and the holders of other securities
to be included in such offering that the total number of Registrable Shares and
other securities to be included in such offering exceeds the amount that can be
sold in (or during the time of) such offering without delaying or jeopardizing
the success of such offering (including the price per share of the
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<PAGE> 5
Registrable Shares and other securities to be sold), then the amount of
Registrable Shares and other securities to be offered for the account of such
Holders shall be reduced as follows: first, pro rata on the basis of the number
of securities other than Registrable Shares requested to be registered by the
holders of such securities; second, pro rata on the basis of the number of
Registrable Shares requested to be registered by Holders other than the
Demanding Holders; and third, pro rata on the basis of the number of
Registrable Shares requested to be registered by the Demanding Holders. The
Pegasus Holders as a group shall be entitled to five Demand Registrations and
the GECC Holders as a group shall be entitled to one Demand Registration
pursuant to this Section 2; provided, that any Demand Registration that does
not become effective or is not maintained for the time period required in
accordance with Section 2(c) shall not count as one of such Demand
Registrations, except as set forth in Section 2(f). Anything herein to the
contrary notwithstanding, the Company shall not be required to effect a Demand
Registration pursuant to this Section 2 within a period of six (6) months after
the effective date of any other Demand Registration.
(b) The Company, within 45 days of the date on which the Company
receives a Demand Notice given by Holders in accordance with Section 2(a)
hereof, shall file with the SEC, and the Company shall thereafter use its best
efforts to cause to be declared effective within 90 days following the date the
Company receives such Demand Notice, a Registration Statement on the
appropriate form for the registration and sale, in accordance with the intended
method or methods of distribution, of the total number of Registrable Shares
specified by the Holders in such Demand Notice (a "Demand Registration").
(c) The Company shall use commercially reasonable efforts to keep
each Registration Statement filed pursuant to this Section 2 continuously
effective and usable for the resale of the Registrable Shares covered thereby
for a period of 270 days from the date on which the SEC declares such
Registration Statement effective, as such period may be extended pursuant to
this Section 2, or if shorter, until all the Registrable Shares covered by such
Registration Statement have been sold pursuant to such Registration Statement.
(d) The Company shall be entitled to postpone the filing of any
Registration Statement otherwise required to be prepared and filed by the
Company pursuant to this Section 2, or suspend the use of any effective
Registration Statement under this Section 2, for a reasonable period of time
which shall be as short as practicable, but in any event not in excess of 60
days (a "Delay Period"), if the Company determines in good faith that the
registration and distribution of the Registrable Shares covered or to be
covered by such Registration Statement would materially interfere with any
pending material financing, acquisition or corporate reorganization or other
material corporate development involving the Company or any of its subsidiaries
or would require premature disclosure thereof and promptly gives the Holders
written notice of such determination, containing a statement of the reasons for
such postponement and an approximation of the period of the anticipated delay;
provided, however, that (i) the aggregate number of days included in all Delay
Periods during any consecutive 12 months shall not exceed the aggregate of (x)
180 days minus (y) the number of days occurring during all Hold Back Periods
and Interruption Periods during such consecutive 12 months and (ii) a period of
at least
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<PAGE> 6
60 days shall elapse between the termination of any Delay Period, Hold Back
Period or Interruption Period and the commencement of the immediately
succeeding Delay Period. If the Company shall so postpone the filing of a
Registration Statement, the Holders of Registrable Shares to be registered
shall have the right to withdraw the request for registration by giving written
notice from the Holders of a majority of the Registrable Shares that were to be
registered to the Company within 45 days after receipt of the notice of
postponement or, if earlier, the termination of such Delay Period. The time
period for which the Company is required to maintain the effectiveness of any
Registration Statement shall be extended by the aggregate number of days of all
Delay Periods, all Hold Back Periods and all Interruption Periods occurring
during such Registration and such period and any extension thereof is
hereinafter referred to as the "Effectiveness Period". The Company shall not
be entitled to initiate a Delay Period unless it shall (A) to the extent
permitted by agreements with other security holders of the Company,
concurrently prohibit sales by such other security holders under registration
statements covering securities held by such other security holders and (B) in
accordance with the Company's policies from time to time in effect, forbid
purchases and sales in the open market by senior executives of the Company.
(e) The Company shall not include any securities that are
not Registrable Shares in any Registration Statement filed pursuant to this
Section 2 without the prior written consent of the Holders of a majority in
number of the Registrable Shares covered by such Registration Statement.
(f) The Demanding Holders may, at any time prior to the
effective date of the Registration Statement relating to a Demand Registration,
revoke such request by providing a written notice to the Company revoking such
request. In the event of such revocation, the Demanding Holders shall
reimburse the Company for all of its out-of-pocket expenses incurred in
connection with the preparation, filing and processing of the Registration
Statement, unless (i) there has been a material adverse change in the business,
assets, properties, condition (financial or other), results of operations or
prospects of the Company and its subsidiaries, since the time of the Demand
Notice, (ii) such revocation was based on the Company's failure to comply in
any material respect with its obligations hereunder or (iii) the Demanding
Holders choose to count the Demand Registration as one of the Demand
Registrations to which the Demanding Holders are entitled pursuant to the
second-to-last sentence of Section 2(a).
SECTION 3. Piggyback Registration. () Right to Piggyback.
If at any time the Company proposes to file a registration statement under the
Securities Act with respect to a public offering of securities of the same type
as the Registrable Shares for its own account (other than a registration
statement (i) on Form S-8 or any successor form thereto, (ii) filed solely in
connection with a dividend reinvestment plan or employee benefit plan covering
officers or directors of the Company or its Affiliates or (iii) on Form S-4 or
any successor form thereto, in connection with a merger, acquisition or similar
corporate transaction) or for the account of any holder of securities of the
same type as the Registrable Shares, then the Company shall give written notice
of such proposed filing to the Holders at least 30 days before the anticipated
filing date. Such notice shall offer the Holders the opportunity to register
such amount of Registrable Shares as they may request (a "Piggyback
Registration"). Subject to Section 3(b) hereof, the Company shall include in
each such Piggyback Registration all Registrable Shares with respect to which
the Company has received written requests for inclusion therein within 20 days
after notice has been given to the Holders. Each Holder shall be permitted to
withdraw all or any portion of the Registrable
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Shares of such Holder from a Piggyback Registration at any time prior to the
effective date of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company
shall permit the Holders to include all such Registrable Shares on the same
terms and conditions as any similar securities, if any, of the Company included
therein. Notwithstanding the foregoing, if the Company or the managing
underwriter or underwriters participating in such offering advise the Holders
in writing that the total amount of securities requested to be included in such
Piggyback Registration exceeds the amount which can be sold in (or during the
time of) such offering without delaying or jeopardizing the success of the
offering (including the price per share of the securities to be sold), then the
amount of securities to be offered for the account of the Holders and other
holders of securities who have piggyback registration rights with respect
thereto shall be reduced (to zero if necessary) pro rata on the basis of the
number or amount of Common Stock (or the equivalent) requested to be registered
by each such Holder or holder participating in such offering.
(c) Right To Abandon. Nothing in this Section 3 shall
create any liability on the part of the Company to the Holders if the Company
in its sole discretion should decide not to file a registration statement
proposed to be filed pursuant to Section 3(a) hereof or to withdraw such
registration statement subsequent to its filing, regardless of any action
whatsoever that a Holder may have taken, whether as a result of the issuance by
the Company of any notice hereunder or otherwise.
SECTION 4. Holdback Agreement. If (i) the Company shall file
a registration statement (other than in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan or pursuant to a merger, exchange offer or a transaction of the
type specified in Rule 145(a) under the Securities Act) with respect to the
Common Stock or similar securities or securities convertible into, or
exchangeable or exercisable for, such securities and (ii) with reasonable prior
notice, the Company (in the case of a nonunderwritten public offering by the
Company pursuant to such registration statement) advises the Holders in writing
that a public sale or distribution of such Registrable Shares would materially
adversely affect such offering or the managing underwriter or underwriters (in
the case of an underwritten public offering by the Company pursuant to such
registration statement) advises the Company in writing (in which case the
Company shall notify the Holders with a copy of such underwriter's notice) that
a public sale or distribution of Registrable Shares would materially adversely
impact such offering, then each Holder shall, to the extent not inconsistent
with applicable law, refrain from effecting any public sale or distribution of
Registrable Shares during the ten (10) days prior to the effective date of such
registration statement and until the earliest of (A) the abandonment of such
offering, (B) 180 days after the effective date of such registration statement
and (C) if such offering is an underwritten offering, the termination in
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whole or in part of any "hold back" period obtained by the underwriter or
underwriters in such offering from the Company in connection therewith (each
such period, a "Hold Back Period"), provided, that the Holder shall be under no
such obligation unless each other beneficial owner (as defined in Rule 13d-3
under the Exchange Act) of at least 5% of the Company's Common Stock and each
director and executive officer of the Company also agrees to refrain from
effecting any such public sale or distribution.
SECTION 5. Registration Procedures. In connection with the
registration obligations of the Company pursuant to and in accordance with
Sections 2 and 3 hereof (and subject to Sections 2 and 3 hereof), the Company
shall use commercially reasonable efforts to effect such registration to permit
the sale of such Registrable Shares in accordance with the intended method or
methods of disposition thereof, and pursuant thereto the Company shall as
expeditiously as possible (but subject to Sections 2 and 3 hereof):
(a) prepare and file with the SEC a Registration
Statement for the sale of the Registrable Shares on any form for which the
Company then qualifies or which counsel for the Company shall deem appropriate
in accordance with such Holders' intended method or methods of distribution
thereof, subject to Section 2(b) hereof, and use commercially reasonable
efforts to cause such Registration Statement to become effective and remain
effective as provided herein;
(b) prepare and file with the SEC such amendments
(including post-effective amendments) to such Registration Statement, and such
supplements to the related Prospectus, as may be required by the applicable
rules, regulations or instructions under the Securities Act during the
applicable period in accordance with the intended methods of disposition
specified by the Holders of the Registrable Shares covered by such Registration
Statement, make generally available earnings statements satisfying the
provisions of Section 11(a) of the Securities Act (provided that the Company
shall be deemed to have complied with this clause if it has complied with Rule
158 under the Securities Act), and cause the related Prospectus as so
supplemented to be filed pursuant to Rule 424 under the Securities Act;
provided, however, that before filing a Registration Statement or Prospectus,
or any amendments or supplements thereto (other than reports required to be
filed by it under the Exchange Act), the Company shall furnish to the Holders
of Registrable Shares covered by such Registration Statement and their counsel
for review and comment, copies of all documents required to be filed;
(c) notify the Holders of any Registrable Shares covered
by such Registration Statement promptly and (if requested) confirm such notice
in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to such Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC for amendments or supplements to such
Registration Statement or the related Prospectus or for additional information
regarding such Holders, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of such Registration Statement or the initiation
of any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any
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proceeding for such purpose, and (v) of the happening of any event that
requires the making of any changes in such Registration Statement, Prospectus
or documents incorporated or deemed to be incorporated therein by reference so
that they will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(d) use commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such Registration
Statement, or the lifting of any suspension of the qualification or exemption
from qualification of any Registrable Shares for sale in any jurisdiction in
the United States;
(e) furnish to the Holder of any Registrable Shares
covered by such Registration Statement, each counsel for such Holders and each
managing underwriter, if any, without charge, one conformed copy of such
Registration Statement, as declared effective by the SEC, and of each
post-effective amendment thereto, in each case including financial statements
and schedules and all exhibits and reports incorporated or deemed to be
incorporated therein by reference; and deliver, without charge, such number of
copies of the preliminary prospectus, any amended preliminary prospectus, each
final Prospectus and any post- effective amendment or supplement thereto, as
such Holder may reasonably request in order to facilitate the disposition of
the Registrable Shares of such Holder covered by such Registration Statement in
conformity with the requirements of the Securities Act;
(f) prior to any public offering of Registrable Shares
covered by such Registration Statement, use commercially reasonable efforts to
register or qualify such Registrable Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Holders of such
Registrable Shares shall reasonably request in writing; provided, however, that
the Company shall in no event be required to qualify generally to do business
as a foreign corporation or as a dealer in any jurisdiction where it is not at
the time so qualified or to execute or file a general consent to service of
process in any such jurisdiction where it has not theretofore done so or to
take any action that would subject it to general service of process or taxation
in any such jurisdiction where it is not then subject;
(g) upon the occurrence of any event contemplated by
paragraph 5(c)(v) above, prepare a supplement or post-effective amendment to
such Registration Statement or the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference and file any
other required document so that, as thereafter delivered to the purchaser of
the Registrable Shares being sold thereunder (including upon the termination of
any Delay Period), such Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(h) use its best efforts to cause all Registrable Shares
covered by such Registration Statement to be listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed or quoted and, if no such securities are so listed,
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to be listed on the Nasdaq Stock Market and, if listed on the Nasdaq Stock
Market, use its best efforts to secure designation of all such Registrable
Shares covered by such registration statement as "NASDAQ Securities" within the
meaning of Rule 11Aa2-1 promulgated under the Exchange Act or, failing that, to
secure Nasdaq Stock Market authorization for such Registrable Shares and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Shares with
the National Association of Securities Dealers, Inc. (the "NASD");
(i) on or before the effective date of such Registration
Statement, provide the transfer agent of the Company for the Registrable Shares
with printed certificates for the Registrable Shares covered by such
Registration Statement, which are in a form eligible for deposit with The
Depository Trust Company;
(j) make available for inspection by any Holder of
Registrable Shares included in such Registration Statement, any underwriter
participating in any offering pursuant to such Registration Statement, and any
attorney, accountant or other agent retained by any such Holder or underwriter
(collectively, the "Inspectors"), all financial and other records and other
information, pertinent corporate documents and properties of any of the Company
and its subsidiaries and affiliates (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibilities; provided, however, that the Records that the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors in writing are confidential shall not be disclosed to any Inspector
unless such Inspector signs a confidentiality agreement reasonably satisfactory
to the Company (which shall permit the disclosure of such Records in such
Registration Statement or the related Prospectus if necessary to avoid or
correct a material misstatement in or material omission from such Registration
Statement or Prospectus) or either (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Registration
Statement or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction; provided further,
however, that (A) any decision regarding the disclosure of information pursuant
to subclause (i) shall be made only after consultation with counsel for the
applicable Inspectors and the Company and (B) with respect to any release of
Records pursuant to subclause (ii), each Holder of Registrable Shares agrees
that it shall, promptly after learning that disclosure of such Records is
sought in a court having jurisdiction, give notice to the Company so that the
Company, at the Company's expense, may undertake appropriate action to prevent
disclosure of such Records; and
(k) if such offering is an underwritten offering, enter
into such agreements (including an underwriting agreement in form, scope and
substance as is customary in underwritten offerings) and take all such other
appropriate and reasonable actions requested by the Holders of a majority of
the Registrable Shares being sold in connection therewith (including those
reasonably requested by the managing
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underwriters) in order to expedite or facilitate the disposition of such
Registrable Shares, and in such connection, (i) use commercially reasonable
efforts to obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters and counsel to the Holders of the
Registrable Shares being sold), addressed to each selling Holder of Registrable
Shares covered by such Registration Statement and each of the underwriters as
to the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such counsel
and underwriters, (ii) use commercially reasonable efforts to obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each
selling holder of Registrable Shares covered by the Registration Statement
(unless such accountants shall be prohibited from so addressing such letters by
applicable standards of the accounting profession) and each of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings, (iii) if requested and if an underwriting agreement is
entered into, provide indemnification provisions and procedures reasonably
requested by such underwriters. The above shall be done at each closing under
such underwriting or similar agreement, or as and to the extent required
thereunder. The Company may require each Holder of Registrable Shares covered
by a Registration Statement to furnish such information regarding such Holder
and such Holder's intended method of disposition of such Registrable Shares as
it may from time to time reasonably request in writing. If any such
information is not furnished within a reasonable period of time after receipt
of such request, the Company may exclude such Holder's Registrable Shares from
such Registration Statement. Each Holder of Registrable Shares covered by a
Registration Statement agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 5(c)(ii),
5(c)(iii), 5(c)(iv) or 5(c)(v) hereof, that such Holder shall forthwith
discontinue disposition of any Registrable Shares covered by such Registration
Statement or the related Prospectus until receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(g) hereof, or
until such Holder is advised in writing by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus
(such period during which disposition is discontinued being an "Interruption
Period") and, if requested by the Company, the Holder shall deliver to the
Company (at the expense of the Company) all copies then in its possession,
other than permanent file copies then in such holder's possession, of the
Prospectus covering such Registrable Shares at the time of receipt of such
request. Each Holder of Registrable Shares covered by a Registration Statement
further agrees not to utilize any material other than the applicable current
preliminary prospectus or Prospectus in connection with the offering of such
Registrable Shares.
SECTION 6. Registration Expenses. Whether or not any
Registration Statement is filed or becomes effective but subject to Section
2(f), the Company shall pay all costs, fees and expenses incident to the
Company's performance of or compliance with this Agreement, including (i) all
registration and filing fees, including NASD filing fees, (ii) all fees and
expenses of compliance with securities or Blue Sky laws, including reasonable
fees and disbursements of counsel in connection therewith, (iii) printing
expenses (including expenses of printing
11
<PAGE> 12
certificates for Registrable Shares and of printing prospectuses if the
printing of prospectuses is requested by the Holders or the managing
underwriter, if any), (iv) messenger, telephone and delivery expenses, (v) fees
and disbursements of counsel for the Company, (vi) fees and disbursements of
all independent certified public accountants of the Company (including expenses
of any "cold comfort" letters required in connection with this Agreement) and
all other persons retained by the Company in connection with such Registration
Statement, (vii) fees and disbursements of one counsel, other than the
Company's counsel, representing all of the Holders of Registrable Shares being
registered, selected by a Majority-in-Interest of Holders of the Registrable
Shares being registered, or in the event of a Demand Registration, selected by
the Demanding Holders and reasonably satisfactory to a Majority-in-Interest of
Holders of the Registrable Shares being registered other than the Demanding
Holders, (viii) fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities and (ix) all other costs, fees and expenses
incident to the Company's performance or compliance with this Agreement.
Notwithstanding the foregoing, any discounts, commissions or brokers' fees or
fees of similar securities industry professionals and any transfer taxes
relating to the disposition of the Registrable Shares by a Holder, will be
payable by such Holder and the Company will have no obligation to pay any such
amounts.
SECTION 7. Underwriting Requirements. (a) Subject to
Section 7(b) hereof, the Demanding Holders shall have the right, by written
notice, to require that any Demand Registration provide for an underwritten
offering.
(b) In the case of any underwritten offering pursuant to
a Demand Registration, the Demanding Holders shall select the institution or
institutions that shall manage or lead such offering, which institution or
institutions shall be reasonably satisfactory to the Company and to a
Majority-in-Interest of the Holders participating in such offering, other than
the Demanding Holders. In the case of any underwritten offering pursuant to a
Piggyback Registration, the Company shall select the institution or
institutions that shall manage or lead such offering. No Holder shall be
entitled to participate in an underwritten offering unless and until such
Holder has entered into an underwriting or other agreement with such
institution or institutions for such offering in such form as the Company and
such institution or institutions shall determine.
(c) Each Holder participating in a Registration shall
promptly supply in writing such information as the Demanding Holders, the
Company or the underwriters reasonably request.
SECTION 8. Indemnification. () Indemnification by the
Company. The Company shall, without limitation as to time, indemnify and hold
harmless, to the full extent permitted by law, each Holder of Registrable
Shares whose Registrable Shares are covered by a Registration Statement or
Prospectus, the officers, directors and agents and employees of each of them,
each Person who controls each such Holder (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent lawful, from and against any and
12
<PAGE> 13
all losses, claims, damages, liabilities, judgment, costs (including, without
limitation, costs of investigation, preparation and reasonable attorneys' fees)
and expenses (collectively, "Losses"), as incurred, arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in
such Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are based upon information furnished in writing to the Company by or
on behalf of such Holder expressly for use therein.
(b) Indemnification by Holder of Registrable Shares. In
connection with any Registration Statement in which a Holder is participating,
such Holder shall indemnify and hold harmless, to the full extent permitted by
law, the Company, its directors, officers, agents or employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) and the directors, officers, agents or
employees of such controlling Persons, from and against all Losses arising out
of or based upon any untrue or alleged untrue statement of a material fact
contained in such Registration Statement or the related Prospectus or any
amendment or supplement thereto, or any preliminary prospectus, or arising out
of or based upon any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue or alleged
untrue statement or omission or alleged omission is based upon any information
furnished in writing by or on behalf of such Holder to the Company expressly
for use in such Registration Statement or Prospectus. Each Holder's indemnity
obligations under this Section 8 shall be limited to the total sales proceeds
(net of all underwriting discounts and commissions) actually received by such
Holder in connection with the applicable offering.
(c) Conduct of Indemnification Proceedings. If any
Person shall be entitled to indemnity hereunder (an "indemnified party"), such
indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "indemnifying party") of any claim or of the
commencement of any proceeding with respect to which such indemnified party
seeks indemnification or contribution pursuant hereto; provided, however, that
the delay or failure to so notify the indemnifying party shall not relieve the
indemnifying party from any obligation or liability except to the extent that
the indemnifying party has been prejudiced by such delay or failure. The
indemnifying party shall have the right, exercisable by giving written notice
to an indemnified party promptly after the receipt of written notice from such
indemnified party of such claim or proceeding, to assume, at the indemnifying
party's expense, the defense of any such claim or proceeding, with counsel
reasonably satisfactory to such indemnified party; provided, however, that (i)
an indemnified party shall have the right to employ separate counsel in any
such claim or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless: (1) the indemnifying party agrees to pay such fees and expenses;
(2) the indemnifying party fails promptly to assume the defense of such claim
or proceeding or fails to employ counsel reasonably satisfactory to such
indemnified party; or (3) the named parties to any proceeding (including
impleaded parties) include both such indemnified party and the indemnifying
party,
13
<PAGE> 14
and such indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to it that are inconsistent with those
available to the indemnifying party or that a conflict of interest is likely to
exist among such indemnified party and any other indemnified parties (in which
case the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party); and (ii) subject to clause
(3) above, the indemnifying party shall not, in connection with any one such
claim or proceeding or separate but substantially similar or related claims or
proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one firm of attorneys (together with appropriate local counsel) at any time for
all of the indemnified parties, or for fees and expenses that are not
reasonable. Whether or not such defense is assumed by the indemnifying party,
such indemnified party shall not be subject to any liability for any settlement
made without its consent. The indemnifying party shall not consent to entry of
any judgment or enter into any settlement unless (i) there is no finding or
admission of any violation of any rights of any person and no effect on any
other claims that may be made against the indemnified party, (ii) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party and (iii) such judgment or settlement includes as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release, in form and substance reasonably satisfactory to the indemnified
party, from all liability in respect of such claim or litigation for which such
indemnified party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in
this Section 8 is unavailable to an indemnified party in respect of any Losses
(other than in accordance with its terms), then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and such indemnified party, on the other
hand, in connection with the actions, statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations. The
relative fault of such indemnifying party, on the one hand, and indemnified
party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been taken by, or relates to information supplied by, such indemnifying party
or indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The amount paid or payable by a party as a result of any Losses
shall be deemed to include any legal or other fees or expenses incurred by such
party in connection with any investigation or proceeding. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in the immediately preceding paragraph. Notwithstanding the provisions of
this Section 8(d), an indemnifying party that is a Holder shall not be required
to contribute any amount which is in excess of the amount by which the total
proceeds (net of all underwriting discounts and commissions) received by such
Holder from the sale of the Registrable Shares sold by such Holder in the
applicable offering exceeds the amount of any damages that such indemnifying
14
<PAGE> 15
party has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
SECTION 9. Granting of Registration Rights. The Company
shall not grant any registration rights inconsistent with those granted
hereunder or that give any securityholder a position with respect to cut-backs
that are superior to the Holders' position as granted herein, without the
consent of a Majority-in-Interest of the Holders of the Registrable Shares
(voting together as a single class).
SECTION 10. Miscellaneous. (a) Rules 144 and 144A. The
Company covenants that it will file any reports required to be filed by it
under the Securities Act and the Exchange Act so as to enable Holders holding
Registrable Shares to sell such Registrable Shares without registration under
the Securities Act within the limitation of the exemptions provided by (a)
Rules 144 and 144A under the Securities Act, as each such Rule may be amended
from time to time, or (b) any similar rule or rules hereafter adopted by the
SEC. Upon the request of any such Holder, the Company will forthwith deliver
to such Holder a written statement as to whether it has complied with such
requirements.
(b) Termination. This Agreement and the obligations of
the Company and the Holders hereunder (other than Section 8 hereof) shall
terminate on the first date on which no Registrable Shares remain outstanding.
(c) Notices. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Agreement shall be in writing and
shall be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery (including delivery
by courier), or facsimile transmission, addressed as follows:
(i) If to the Company:
Code Alarm Inc.
950 East Whitcomb
Madison Heights, Michigan 48071
Attention: Rand Mueller and Craig Camalo
Facsimile: (248) 585-4799
15
<PAGE> 16
with a copy to:
Pepper Hamilton & Scheetz LLP
100 Renaissance Center
Detroit, Michigan 48243
Attention: Dennis S. Kayes, Esq.
Facsimile: (313) 259-7926
(ii) If to any Holder, at its last known address
appearing on the books of the Company maintained for such purpose.
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication shall be deemed to have
been duly given five business days after being deposited in the mail, postage
prepaid, if mailed; when delivered by hand, if personally delivered; or upon
receipt, if sent by facsimile (followed by a confirmation copy sent by either
overnight or two (2) day courier).
(d) Separability. If any provision of this Agreement
shall be declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in full force and effect.
(e) Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
devisees, legatees, legal representatives, successors and assigns.
(f) Entire Agreement. This Agreement represents the
entire agreement of the parties and shall supersede any and all previous
contracts, arrangements or understandings between the parties hereto with
respect to the subject matter hereof.
(g) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of a
Majority-in-Interest of the Holders. Notwithstanding the foregoing, this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions thereof may not be given, (i) in a manner
which adversely affects the rights of the GECC Holders, unless the Company has
obtained the written consent of a Majority-in-Interest of the GECC Holders or
(ii) in a manner which adversely affects the rights of the Pegasus Holders,
unless the Company has obtained the written consent of a Majority-in-Interest
of the Pegasus Holders.
(h) Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
16
<PAGE> 17
(i) Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be one and the same agreement, and
shall become effective when counterparts have been signed by each of the
parties and delivered to each other party.
(j) Governing Law; Consent to Jurisdiction and Venue. In
all respects, including all matters of construction, validity and performance,
this Agreement and the obligations arising hereunder shall be governed by, and
construed and enforced in accordance with, the laws of the State of Michigan
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws, and any applicable laws of the
United States of America. EACH OF THE COMPANY, PEGASUS AND GECC CONSENTS TO
PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO JURISDICTION OR VENUE, AND
AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN THE
CITY OF NEW YORK, STATE OF NEW YORK. Service of process on the Company or any
Holder in any action arising out of or relating to this Agreement shall be
effective if mailed to such party in accordance with the procedures and
requirements set forth in Section 10(c). Nothing herein shall preclude any
Holder or the Company from bringing suit or taking other legal action in any
other jurisdiction.
(k) Mutual Waiver of Jury Trial. BECAUSE DISPUTES
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND
ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT.
(l) Calculation of Time Periods. Except as otherwise
indicated, all periods of time referred to herein shall include all Saturdays,
Sundays and holidays; provided, however, that if the date to perform the act or
give any notice with respect to this Agreement shall fall on a day other than a
Business Day, such act or notice may be timely performed or given if performed
or given on the next succeeding Business Day.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first written above.
CODE ALARM INC.
By: /s/ Rand Mueller
--------------------------
Name: Rand Mueller
Title: President
PEGASUS PARTNERS, L.P.
By: Pegasus Investors, L.P., its general partner
By: Pegasus Investors GP, Inc., its general partner
By: /s/ Richard Cion
--------------------------
Name: Richard Cion
Title: Vice President
PEGASUS RELATED PARTNERS, L.P.
By: Pegasus Investors, L.P., its general partner
By: Pegasus Investors GP, Inc., its general partner
By: /s/ Richard Cion
--------------------------
Name: Richard Cion
Title: Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy S. Van Kirk
--------------------------
Name: Timothy S. Van Kirk
Title: Duly Authorized Signatory
18
<PAGE> 1
EXHIBIT 7
October 27, 1997
Pegasus Partners, L.P.
Pegasus Related Partners, L.P.
99 River Road
Cos Cob, Connecticut 06807
Code Alarm, Inc.
950 East Whitcomb
Madison Heights, MI 48071
Gentlemen:
We refer to the Unit Purchase Agreement dated as of the date hereof
among Code Alarm, Inc. (the "Company"), Pegasus Partners, L.P. and Pegasus
Related Partners, L.P. (the "Purchase Agreement"). Capitalized terms used but
not defined herein have the meanings ascribed to them in the Purchase
Agreement. This letter agreement is being delivered to each of you pursuant to
Section 3.01(o) of the Purchase Agreement.
In order to induce the Purchasers to enter into the Purchase Agreement
and related documents, each of the undersigned, other than the Kenneth M.
Mueller Charitable Remainder Unitrust, hereby agrees that he or it will not at
any time or from time to time, directly or indirectly, offer, sell, offer to
sell, contract to sell, or otherwise sell or dispose of, in the aggregate, a
number of shares of Common Stock in excess of twenty percent (20%) of the
shares of Common Stock beneficially owned by such party as of the date hereof;
provided, that during any 12-month period, the Robyn L. Mueller Trust shall be
entitled to sell up to 20% of the shares of Common Stock beneficially owned by
it at the beginning of such 12-month period. The obligations of each of the
undersigned pursuant to this paragraph shall be null and void and of no further
force and effect upon the earlier of (i) the fifth anniversary of the date
hereof and (ii) the date on which the Purchasers no longer hold, together with
their successors and assigns, at least 25% of the Units initially issued to
them pursuant to the Purchase Agreement (for purposes of this calculation,
Units, the Attached Warrants of which have been exercised for shares of Common
Stock which are still held by the party who exercised such Attached Warrants
shall be counted as Units held by such exercising party).
Each of the undersigned hereby agrees that he or it will vote all of
the shares of Common Stock beneficially owned by him or it in favor of approval
of the Charter Amendment, at any and all meetings at which the Charter
Amendment is presented to shareholders for approval, until the Charter
Amendment is approved by the Company's shareholders.
Each of the undersigned, individually and not jointly, represents and
warrants with respect to himself or itself that he or it is the beneficial
owner of the number of shares of Common Stock set forth opposite his or its
name on Annex A hereto, free and clear of any
<PAGE> 2
security interests, liens, charges, encumbrances, equities, claims, options
(other than pledges pursuant to commercially customary brokers margin accounts)
or limitations of whatever nature and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such shares), other than those arising under the Securities Act of
1933, as amended, and applicable state securities laws.
Very truly yours,
ROBYN L. MUELLER TRUST
By: /s/ Robyn L. Mueller
-------------------------------------
Robyn L. Mueller, Trustee
KENNETH M. MUELLER CHARITABLE
REMAINDER UNITRUST
By: /s/ Kenneth M. Mueller
-------------------------------------
Kenneth M. Mueller, Trustee
/s/ Rand Mueller
-----------------------------------------
Rand W. Mueller
Accepted and Agreed:
PEGASUS PARTNERS, L.P.
By: /s/ Richard M. Cion
----------------------------------
Name: Richard M. Cion
Title: Vice President - Pegasus Investors GP, Inc.
PEGASUS RELATED PARTNERS, L.P.
By: /s/ Richard M. Cion
----------------------------------
Name: Richard M. Cion
Title: Vice President - Pegasus Investors GP, Inc.
CODE ALARM INC.
By: /s/ Rand Mueller
----------------------------------
Name: Rand Mueller
Title: President
<PAGE> 3
ANNEX A
NO. OF SHARES OF PERCENTAGES OF
SHAREHOLDER COMMON STOCK OWNED SHARES OWNED
----------- ------------------ --------------
Rand W. Mueller 11,250(1) less than 1%
Kenneth M. Mueller 120,793(2) 5.204%
Charitable Remainder Unitrust
Robyn L. Mueller Trust 538,810 23.216%
- --------------
(1) Includes 11,250 shares of Common Stock to which Rand M. Mueller has the
right to acquire beneficial ownership, within 60 days, by the exercise of
options granted under the Company's 1987 Stock Option plan.
(2) Includes 750 shares of Common Stock to which Kenneth M. Mueller has the
right to acquire beneficial ownership, within 60 days, by the exercise of
options granted under the Company's 1987 Stock Option plan.
<PAGE> 1
EXHIBIT 8
EXECUTION COPY
LIMITED SUPPLEMENTAL GUARANTY
This LIMITED SUPPLEMENTAL GUARANTY (this "Guaranty"), dated as
of October 24, 1997, by and among PEGASUS PARTNERS, L.P., a Delaware limited
partnership, and PEGASUS RELATED PARTNERS, L.P., a Delaware limited partnership
(each individually, a "Guarantor" and together, collectively, the
"Guarantors"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation, individually and as agent (in such capacity, "Agent") for itself
and the lenders from time to time signatory to the Credit Agreement hereinafter
defined ("Lenders").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of
the date hereof by and among Code-Alarm, Inc., a Michigan corporation
("Borrower"), the other Persons signatory thereto as Credit Parties, Agent and
the Persons signatory thereto from time to time as Lenders (including all
annexes, exhibits and schedules thereto, as from time to time amended,
restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders
have agreed to make Loans to, and incur Letter of Credit Obligations for the
benefit of, Borrowers.
WHEREAS, each Guarantor is a shareholder of Borrower and will,
accordingly, derive direct and indirect economic benefits from the making of
the Loans and other financial accommodations provided to Borrower pursuant to
the Credit Agreement; and
WHEREAS, in order to induce Agent and Lenders to enter into
the Credit Agreement and other Loan Documents and to induce Lenders to make the
Loans and to incur Letter of Credit Obligations as provided for in the Credit
Agreement, each Guarantor has agreed to severally and not jointly guarantee
payment of the Obligations, subject to the limitations set forth herein;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, and to induce Lenders to provide the Loans and
other financial accommodations under the Credit Agreement, it is agreed as
follows:
1. DEFINITIONS. Capitalized terms used herein shall
have the meanings assigned to them in the Credit Agreement, unless otherwise
defined herein.
References to this "Guaranty" shall mean this Guaranty,
including all amendments, modifications and supplements and any annexes,
exhibits and schedules to any of the foregoing, and shall refer to this
Guaranty as the same may be in effect at the time such reference becomes
operative.
<PAGE> 2
In addition, the following terms, as used herein, shall have
the meanings set forth below:
"Administrative GP" shall have the meaning ascribed to such
term in Section 3(a).
"Capital Demand Date" shall have the meaning ascribed to such
term in the Partnership Agreements as in effect from time to time.
"Capital Demand Notice(s)" shall have the meaning ascribed to
such term in the Partnership Agreements as in effect from time to time.
"Corporate GP" shall have the meaning ascribed to such term in
Section 3.
"Defaulting Limited Partner" shall have the meaning ascribed
to such term in the Partnership Agreements as in effect on the date hereof.
"Event of Dissolution" shall have the meaning ascribed to such
term in the Partnership Agreements as in effect on the date hereof and any
other "Event of Dissolution" as may be hereafter defined in the Partnership
Agreements.
"Guarantor Default" shall mean (i) any failure of either
Guarantor to pay or perform any of its obligations under this Guaranty, (ii)
any breach by either Guarantor of any representation or warranty hereunder in
any material respect, (iii) the occurrence of any insolvency event with respect
to either Guarantor under Sections 8.1(h) or 8.1(i) of the Credit Agreement,
(iv) any revocation or attempted revocation by either Guarantor of its
obligations under this Guaranty, or (v) any "Guarantor Default" shall have
occurred under and as defined in that certain Limited Litigation Guaranty of
even date herewith among the Guarantors and Agent.
"Guaranteed Obligations" shall have the meaning ascribed to
such term in Section 2.1.
"Instruction Certificate" shall mean one or more written
certificates executed by Agent and delivered to the Administrative GP and to
Guarantors stating that (i) Agent is entitled to demand payment under this
Guaranty, (ii) Agent has demanded payment under this Guaranty, (iii) the
Guarantors have failed to timely satisfy all of such payments properly
demanded, (iv) the Administrative GP is instructed to deliver a Capital Demand
Notice to each limited partner of each Guarantor specifying the earliest
possible Capital Demand Date as is permitted under Section 3.1 of the
Partnership Agreements and demanding capital contributions under such section
in amounts sufficient to permit the Guarantors to satisfy such unsatisfied
payment obligations to Agent under this Guaranty and (v) all of the proceeds of
such capital contributions received by the Administrative GP are to be promptly
sent, by wire transfer, to an account specified in such certificate for
application by Agent to such unsatisfied payment obligations.
2
<PAGE> 3
"Irrevocable Instruction" shall mean a document, in form and
substance acceptable to Agent, pursuant to which the Managing GP instructs the
Administrative GP, and the Administrative GP agrees, that upon the
Administrative GP's receipt of an Instruction Certificate from Agent, the
Administrative Agent shall (i) deliver a Capital Demand Notice to each limited
partner of each Guarantor, specifying the earliest Capital Demand Date as is
permitted under Section 3.1 of the Partnership Agreements and demanding capital
contributions under such section in amounts sufficient to permit the Guarantors
to satisfy the unpaid Guaranteed Obligations set forth in such Instruction
Certificate and (ii) pay all of the proceeds of such capital contributions
received by the Administrative GP to Agent on behalf of the Guarantors for
application by Agent to such Guaranteed Obligations pursuant to the
instructions specified by Agent in such Instruction Certificate. Such
Irrevocable Instruction may only be amended, terminated or modified with the
written consent of Agent, the Administrative GP and the Managing GP.
"Managing GP" shall have the meaning ascribed to such term in
Section 3.
"Partnership Agreements" shall mean the Agreement of Limited
Partnership of each Guarantor as in effect as of the date hereof and attached
hereto as Exhibit A and B, respectively, as amended or otherwise modified from
time to time hereafter.
"Ratable Share" shall mean 27.7727273% in the case of Pegasus
Partners, L.P., and 72.2272727% in the case of Pegasus Related Partners, L.P.
"Termination Date" shall have the meaning ascribed to such
term in Section 2.1.
"Trigger Event" shall mean (i) any Event of Dissolution, (ii)
the existence of any Defaulting Limited Partner and the failure of the
non-defaulting limited partners of the affected Guarantor to assume the Unpaid
Capital Obligations of such Defaulting Limited Partner within thirty days of
the default giving rise such occurrence, (iii) any Guarantor Default or (iv)
any amendment or other modification with respect to either Partnership
Agreement shall become effective and shall have a material adverse effect upon
the rights or claims of Agent and the Lenders under this Guaranty.
"Unpaid Capital Obligations" shall have the meaning ascribed
to such term in the Partnership Agreements as of the date hereof.
2. THE GUARANTY.
2.1. Guaranty of Guaranteed Obligations of Borrower.
Subject to the provisions of this Guaranty, each Guarantor hereby severally
(based upon their respective Ratable Shares and not jointly), irrevocably and
unconditionally guarantees to Agent and Lenders, and their respective
successors, endorsees, transferees and assigns, the prompt payment (whether at
stated maturity, by acceleration or otherwise) of the Obligations of Borrower
other than its
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Litigation Obligations (hereinafter the "Guaranteed Obligations"). Subject to
the provisions of this Guaranty, in the event that either Guarantor shall fail
to timely satisfy any such obligations or any other payment obligations under
this Guaranty, Agent shall be thereafter entitled, in its discretion, to
deliver one or more Instruction Certificates to the Administrative GP
requesting payment thereof pursuant to the Irrevocable Instruction. Each
Guarantor agrees that this Guaranty is a guaranty of payment and not of
collection, and that its obligations under this Guaranty shall be primary,
absolute and unconditional, irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability
or any future amendment of, or change in, this Guaranty, any other Loan
Document or any other agreement, document or instrument to which any
Credit Party, either Guarantor or other Persons are or may become a party;
(b) the absence of any action to enforce this Guaranty or
any other Loan Document or the waiver or consent by Agent and/or Lenders
with respect to any of the provisions thereof;
(c) the existence, value or condition of, or failure to
perfect its Lien against, any Collateral for the Guaranteed Obligations or
any action, or the absence of any action, by Agent in respect thereof;
(d) the discharge, avoidance, subordination or other
ineffectiveness of any of the Guaranteed Obligations, whether pursuant to
any insolvency proceeding or otherwise;
(e) the insolvency of any Credit Party, either Guarantor
or other Person; or
(f) any other action or circumstances which might
otherwise constitute a legal or equitable discharge or defense of a surety
or guarantor;
it being agreed by each Guarantor that its obligations under this Guaranty
shall not be discharged until the earliest date on which the Loans have been
repaid in full and all other Guaranteed Obligations under the Credit Agreement
and other Loan Documents (hereinafter, the Loan Documents") have been paid in
full and the Letter of Credit Obligations have been cash collateralized,
canceled or backed by standby letters of credit in accordance with Annex B of
the Credit Agreement, and Borrower shall have no further right to borrow any
monies or obtain additional financial accommodations under the Credit Agreement
(the "Termination Date"); provided, however, that the Termination Date may be
thereafter be deemed to have not occurred upon Guarantors' obligations under
this Guaranty being reinstated pursuant to Section 2.8 and shall be extended
until such time as the payments giving rise to such reinstatement are
thereafter again repaid to Agent and Lenders. Subject to limitations described
in Section 2.2, each Guarantor shall be regarded, and shall be in the same
position, as principal debtor with respect to
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the Guaranteed Obligations. Each Guarantor agrees that any notice or directive
given at any time to Agent which is inconsistent with this section, or Section
2.5 or 2.7, shall be null and void and may be ignored by Agent and Lenders,
and, in addition, may not be pleaded or introduced as evidence in any
litigation relating to this Guaranty for the reason that such pleading or
introduction would be at variance with the written terms of this Guaranty,
unless Agent and Lenders have specifically agreed otherwise in writing. It is
agreed among Guarantor, Agent and Lenders that the foregoing provisions, and
those of Sections 2.5 and 2.7, are of the essence of the transaction
contemplated by the Loan Documents and that, but for this Guaranty and such
waivers, Agent and Lenders would decline to enter into the Credit Agreement.
2.2. Limitations. Notwithstanding anything in Section 2.1
or elsewhere in this Guaranty to the contrary, (a) the aggregate liability of
Guarantors under this Guaranty shall, in no event, exceed, $4,000,000, plus
interest on each amount payable hereunder from the date such payment by
Guarantors hereunder is due and payable pursuant to clause (b) of this section
at a per annum rate equal to the Default Rate for Revolving Loans bearing
interest based upon the Index Rate (computed on the basis of 360 days and
actual days elapsed), until such payment is received by Agent, and plus all
costs and expenses (including, without limitation, attorneys' and paralegals'
fees and expenses) incurred by Agent following either Guarantor's failure to
timely satisfy its obligations hereunder, in connection with the enforcement
and collection of the Guarantors' obligations under this Guaranty against the
Guarantors and their respective partners and properties, (b) each payment by
Guarantors hereunder shall be due and payable on the tenth (10th) calendar day
following the date on which demand for such payment is given by Agent to
Guarantors, and (c) Agent shall not be permitted to demand payment hereunder
from Guarantors, and Guarantors shall not be liable hereunder for any such
demanded payment, unless, as of the date of such demand, (x) the Obligations
shall have been accelerated pursuant to Section 8.2 of the Credit Agreement (or
any successor provision thereto) or (y) any Event of Default shall have
occurred under Section 8.1(h) or 8.1(i) of the Credit Agreement (or any
successor provisions thereto).
2.3. Payment by Guarantor. Payment by either Guarantor
shall be made to Agent in immediately available Federal funds to an account
designated by Agent or at the address set forth herein for the giving of notice
to Agent or at any other address that may be specified in writing from time to
time by Agent, and shall be credited and applied to the Guaranteed Obligations.
2.4. Enforcement of Guaranty. In no event shall Agent
have any obligation (although it is entitled, at its option) to proceed against
Borrower, any other Credit Party, one but not the other Guarantor, or other
Person, or any Collateral before seeking satisfaction from either Guarantor.
2.5. Waiver. In addition to the provisions of Section 2.1
hereof, each Guarantor waives, and agrees that it shall not at any time insist
upon, plead or in any manner whatever claim or take the benefit or advantage
of, any appraisal, valuation, stay, extension,
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marshaling of assets or redemption laws, or exemption, whether now or at any
time hereafter in force, which may delay, prevent or otherwise affect the
performance by such Guarantor of its Guaranteed Obligations under, or the
enforcement by Agent or Lenders of, this Guaranty. Each Guarantor hereby waives
diligence, presentment and demand upon Borrower or, other than as provided in
this Guaranty, such Guarantor (whether for non-payment or protest or of
acceptance, maturity, extension of time, change in nature or form of the
Guaranteed Obligations, acceptance of further security, release of further
security, composition or agreement arrived at as to the amount of, or the terms
of, the Guaranteed Obligations, notice of adverse change in Borrower's
financial condition or any other fact which might increase the risk to such
Guarantor) with respect to any of the Guaranteed Obligations or all other
demands whatsoever and waive the benefit of all provisions of law which are or
might be in conflict with the terms of this Guaranty. Each Guarantor
represents, warrants and agrees that, as of the date of this Guaranty, its
obligations under this Guaranty are not subject to any offsets or defenses
against Agent or Lenders or any other Credit Party of any kind. Each Guarantor
further agrees that its obligations under this Guaranty shall not be subject to
any counterclaims (other than compulsory counterclaims), offsets or defenses
against Agent or any Lender or against any other Credit Party of any kind which
may arise in the future.
2.6. Benefit of Guaranty. The provisions of this Guaranty
are for the benefit of Agent and Lenders and their respective successors,
transferees, endorsees and assigns, and nothing herein contained shall impair,
as between any Credit Party, either Guarantor or other Person and Agent or
Lenders, the obligations of any Credit Party, either Guarantor or other Person
under the Loan Documents. In the event all or any part of the Guaranteed
Obligations are transferred, indorsed or assigned by Agent or any Lender to any
Person or Persons, any reference to "Agent" or "Lender" herein shall be deemed
to refer equally to such Person or Persons.
2.7. Modification of Guaranteed Obligations, Etc. Each
Guarantor hereby acknowledges and agrees that Agent and Lenders may at any time
or from time to time, with or without the consent of, or notice to, such
Guarantor:
(a) change or extend the manner, place or terms of
payment of, or renew or alter all or any portion of, the Guaranteed
Obligations;
(b) take any action under or in respect of the Loan
Documents in the exercise of any remedy, power or privilege contained
therein or available to it at law, equity or otherwise, or waive or
refrain from exercising any such remedies, powers or privileges;
(c) amend or modify, in any manner whatsoever, the Loan
Documents;
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(d) extend or waive the time for any Credit Party's or
other Person's performance of, or compliance with, any term, covenant or
agreement on its part to be performed or observed under the Loan
Documents, or waive such performance or compliance or consent to a
failure of, or departure from, such performance or compliance;
(e) take and hold Collateral for the payment of the
Guaranteed Obligations guaranteed hereby or sell, exchange, release,
dispose of, or otherwise deal with, any property pledged, mortgaged or
conveyed, or in which Agent or Lenders have been granted a Lien, to
secure any Guaranteed Obligations;
(f) release anyone who may be liable in any manner for
the payment of any amounts owed by either Guarantor or any other Credit
Party or other Person to Agent or any Lender;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of
either Guarantor or any other Credit Party or other Person are
subordinated to the claims of Agent and Lenders; and/or
(h) apply any sums by whomever paid or however realized
to any amounts owing by either Guarantor or any other Credit Party or
other Person to Agent or any Lender in such manner as Agent or any
Lender shall determine in its discretion;
and Agent and Lenders shall not incur any liability to Guarantors as a result
thereof, and no such action shall impair or release the Guaranteed Obligations
of Guarantors under this Guaranty.
2.8. Reinstatement. This Guaranty shall remain in full
force and effect and continue to be effective should any petition be filed by
or against any Credit Party, either Guarantor or any other Person for
liquidation or reorganization, should any Credit Party, either Guarantor or any
other Person become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of such Credit Party's, Guarantor's or other Person's assets,
and shall continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the Guaranteed Obligations or the
obligations of either Guarantor under this Guaranty, or any part of any such
obligations, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by Agent or any Lender pursuant to
applicable law, whether as a "voidable preference", "fraudulent conveyance", or
otherwise, all as though such payment or performance had not been made. In the
event that any such payment, or any part thereof, is rescinded, reduced,
restored or returned, the Guaranteed Obligations and obligations of the
Guarantors under this Guaranty shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned. In the
event any such payment is rescinded, reduced, restored or returned after what
otherwise would be the Termination Date pursuant to the provisions of Section
2.1, the Termination Date shall thereupon be deemed to have not occurred and
shall be extended until such time as such payment is thereafter again repaid to
Agent and Lenders.
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2.9. Deferral of Subrogation, Etc. Notwithstanding
anything to the contrary in this Guaranty, or in any other Loan Document, each
Guarantor hereby:
(a) expressly and irrevocably waives, on behalf of itself
and its successors and assigns (including any surety), until the later of the
Termination Date or the "Termination Date" under and as defined in that certain
Limited Litigation Guaranty of even date herewith executed and delivered by the
Guarantors in favor of Agent and Lenders, any and all rights at law or in
equity to subrogation, to reimbursement, to exoneration, to contribution, to
indemnification, to set off or to any other rights that could accrue to a
surety against a principal, to a guarantor against a principal, to a guarantor
against a maker or obligor, to an accommodation party against the party
accommodated, to a holder or transferee against a maker, or to the holder of
any claim against any Person, and which such Guarantor may have or hereafter
acquire against any Credit Party, the other Guarantor or any other Person in
connection with or as a result of such Guarantor's execution, delivery and/or
performance of this Guaranty; and
(b) acknowledges and agrees (i) that this waiver is
intended to benefit Agent and Lenders and shall not limit or otherwise effect
such Guarantor's liability hereunder or the enforceability of this Guaranty,
and (ii) that Agent, Lenders and their respective successors and assigns are
intended third party beneficiaries of the waivers and agreements set forth in
this Section 2.9 and their rights under this Section 2.9 shall survive payment
in full of the Guaranteed Obligations.
2.10. Election of Remedies. If Agent may, under
applicable law, proceed to realize benefits under any of the Loan Documents
giving Agent and Lenders a Lien upon any Collateral owned by any Credit Party
or other Person, either by judicial foreclosure or by non-judicial sale or
enforcement, Agent may, at its sole option, determine which of such remedies or
rights it may pursue without affecting any of such rights and remedies under
this Guaranty. If, in the exercise of any of its rights and remedies, Agent
shall forfeit any of its rights or remedies, including its right to enter a
deficiency judgment against any Credit Party or other Person, whether because
of any applicable laws pertaining to "election of remedies" or the like, each
Guarantor hereby consents to such action by Agent and waives any claim based
upon such action, even if such action by Agent shall result in a full or
partial loss of any rights of subrogation which either Guarantor might
otherwise have had but for such action by Agent. Any election of remedies
which results in the denial or impairment of the right of Agent to seek a
deficiency judgment against any Credit Party or other Person shall not impair
either Guarantor's obligation to pay the Guaranteed Obligations hereunder. In
the event Agent shall bid at any foreclosure or trustee's sale or at any
private sale permitted by law or the Loan Documents, Agent may bid all or less
than the amount of the Guaranteed Obligations and the amount of such bid need
not be paid by Agent but shall be credited against the Guaranteed Obligations.
The amount of the successful bid at any such sale shall be conclusively deemed
to be the fair market value of the collateral and the difference between such
bid amount and the remaining balance of the Guaranteed Obligations shall be
conclusively deemed to be the amount of the Guaranteed Obligations guaranteed
under this Guaranty, notwithstanding that any present or future law or court
decision or ruling may have
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the effect of reducing the amount of any deficiency claim to which Agent and
Lenders might otherwise be entitled but for such bidding at any such sale.
3. DELIVERIES. In a form, scope and substance
satisfactory to Agent, the Guarantors shall deliver or cause to be delivered to
Agent, concurrently with the execution of this Guaranty and the Credit
Agreement, each of the following in connection with this Guaranty:
(a) a certificate of the corporate secretary of Pegasus
Investors GP, Inc., a Delaware corporation ("Corporate GP"), as general
partner of Pegasus Investors, L.P., a Delaware limited partnership and the
managing general partner of each Guarantor (the "Managing GP"), certifying
(i) that attached thereto are true, correct and current copies of the
Partnership Agreements, the agreement of limited partnership of the
Managing GP and the certificate of incorporation and bylaws of the
Corporate GP (in each case, including any and all signatures, exhibits,
schedules, annexes and amendments thereto), as applicable; (ii) that the
execution, delivery and performance of this Guaranty and all other
agreements, documents and instruments executed and delivered in connection
herewith by the Guarantors, the Managing GP or the Corporate GP,
respectively, by or on behalf of the Guarantors (or either one of them)
(A) are within the partnership or corporate power (as applicable) of such
Person, (B) have been duly authorized by all necessary and proper
partnership, corporate, company, partner, shareholder or member action (as
applicable) of such Persons, (C) do not contravene any provision of such
Person's partnership agreement, certificate of incorporation or bylaws, (D)
do not violate any law or regulation, or any order or decree of any court
or Governmental Authority applicable to such Person, (E) do not conflict
with or result in the breach or termination of, constitute a default under
or accelerate or permit the acceleration of any performance required by,
any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any
of its property is bound, (F) do not result in the creation or imposition
of any Lien upon any of the property of such Person other than those in
favor of Agent, on behalf of itself and Lenders, pursuant to this Guaranty,
(G) do not require the consent or approval of any Governmental Authority or
any other Person, except as has been previously obtained and (H) do not
result in an Event of Dissolution or any Trigger Event; (iii) that attached
thereto are true, correct and current copies of all partnership, corporate
and company resolutions and other authorizations of the limited partnership
panel, board of directors, management committee or other managing bodies of
the Guarantors, the Managing GP and the Corporate GP which were adopted and
approved in connection with, and necessary to permit, the execution,
delivery and performance of this Guaranty by of on behalf of either of the
Guarantors and all other agreements, documents and instruments executed and
delivered by or on behalf of either of the Guarantors in connection
herewith; (iv) the incumbency and true or facsimile signatures of all
officers of the Corporate GP on behalf of the Managing GP and the
Guarantors which will or have executed and delivered this Guaranty or any
other agreements, documents or instruments executed and delivered by or in
behalf of either of
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the Guarantors in connection herewith and (v) that no Event of Dissolution
or other Trigger Event has occurred and is continuing;
(b) certificates of limited partnership of each Guarantor and the
Managing GP, and a certificate of incorporation of the Corporate GP, in
each case certified as of a date no earlier than thirty (30) days prior to
the date hereof by the Secretary of State of Delaware together with good
standing certificates of such Person from the Secretary of State of
Delaware; and
(c) an opinion of counsel to the Guarantors, the Managing GP and
the Corporate GP, favorably addressing, as a matter of Delaware partnership
and corporate law and New York law, as applicable, (i) the organization,
existence and good standing in the jurisdiction of organization and
principal place of business, of each of such Persons, (ii) each of the
matters described in clauses (A), (B), (C), (D) and (G) of Section 3(a)(ii)
hereof and (iii) the enforceability of the provisions of this Guaranty
against the Guarantors.
In a form, scope and substance satisfactory to Agent, the
Guarantors shall deliver or cause to be delivered, to Agent (or to the extent
the items described below are to be executed or delivered by the Administrative
GP, its officers, directors or attorneys, the Guarantors shall exert their
reasonable commercial efforts to deliver or cause to be delivered to Agent), as
soon as practicable following the execution of this Guaranty, the Credit
Agreement and the L/C Agreement, each of the following:
(i) the Irrevocable Instruction;
(ii) a certificate of the corporate secretary of the
Corporate GP, as general partner of the Managing GP, addressing each of the
matters set forth in clause (a), to the extent they pertain to the
Irrevocable Instruction;
(iii) a certificate of the company secretary (or other
equivalent) of Pegasus Administration Limited, a Cayman Islands limited
duration company and the administrative general partner of each Guarantor
(the "Administrative GP"), certifying (A) that attached thereto are true,
correct and current copies of the charter and bylaws of the Administrative
GP (including any and all signatures, exhibits, schedules, annexes and
amendments thereto); (B) that the execution, delivery and performance of
the Irrevocable Instruction and all other agreements, documents and
instruments executed and delivered in connection therewith by the
Administrative GP, (1) are within the company power of the Administrative
GP, (2) have been duly authorized by all necessary and proper company
action of the Administrative GP, (3) do not contravene any provisions of
the Administrative GP's charter or bylaws, (4) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority
applicable to the Administrative Agent, and (5) do not require the consent
or approval of any Governmental Authority or
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any other person, except as has been previously obtained, (C) that attached
thereto are true, correct and current copies of all company resolutions and
other authorizations of the board of directors or other managing body of
the Administrative GP which were adopted and approved in connection with,
and necessary to permit, the execution, delivery and performance of the
Irrevocable Instruction on behalf of the Administrative GP and all other
agreements, documents and instruments executed and delivered by the
Administrative GP and (D) the incumbency and true or facsimile signatures
of all officers of the Administrative GP which will or have executed and
delivered the Irrevocable Instruction or any other agreements, documents or
instruments executed and delivered by the Administrative GP in connection
therewith;
(iv) certificates of existence and good standing with respect to
the Administrative GP certified by the Cayman Islands (or appropriate
agency thereof) as of a date no earlier than thirty (30) days prior to the
date on which the Irrevocable Instruction is executed and delivered; and
(v) an opinion of counsel to the Administrative GP, favorably
addressing, as a matter of the laws of the Cayman Islands, (A) the
organization, existence and good standing in the jurisdiction of
organization and principal place of business of the Administrative GP, (B)
each of the matters described in clause (iii)(B) above, (C) the
enforceability of the provisions of the Irrecovable Instruction against the
Administrative GP and (D) the irrevocability of the Irrecovable
Instruction.
4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to
make the Loans and incur Letter of Credit Obligations under the Credit
Agreement, each Guarantor makes the following representations and warranties to
Agent and each Lender, all of which shall survive the execution and delivery of
this Guaranty:
4.1. Corporate Existence; Corporate Power; Compliance with
Law. Each of the statements contained in the certificates described in Section
3(a)(ii) and 3(a)(v) hereof are true, accurate and complete. Each Guarantor is
in compliance with all applicable provisions of law, except where the failure
to comply, individually or in the aggregate, could not reasonably be expected
to have a material adverse effect upon such Guarantor, its properties or its
ability to perform its obligations hereunder.
4.2. Enforceable Guaranteed Obligations. This Guaranty
constitutes the legal, valid and binding obligation of each Guarantor,
enforceable against such Guarantor in accordance with its terms.
4.3. Trigger Event. As of the date hereof, no Trigger
Event has occurred and is continuing.
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5. FURTHER ASSURANCES. Guarantor agrees, upon the
written request of Agent, to execute and deliver to Agent or such Lender, from
time to time, any additional instruments or documents reasonably considered
necessary by Agent to cause this Guaranty to be, become or remain valid and
effective in accordance with its terms.
6. CASH COLLATERAL. Upon the occurrence of one or more
Trigger Events, the Guarantors shall promptly deliver to Agent, $4,000,000 in
cash or other immediately available funds, as cash collateral for the
Guaranteed Obligations and Guarantors' payment and performance obligations
under this Guaranty. Such funds shall be held by Agent in a cash collateral
account (the "Cash Collateral Account") maintained at a bank or financial
institution acceptable to Agent and shall be invested (for the account of the
Guarantors) in short term, highly rated securities or interest bearing
accounts, in a manner acceptable to Agent. The Cash Collateral Account shall
be in the name of Guarantors and shall be pledged to, and subject to the
control of, Agent, for the benefit of Agent and Lenders, in a manner
satisfactory to Agent. Each Guarantor hereby pledges and grants to Agent, on
behalf of Lenders, a security interest in all such funds held in the Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of the Guaranteed Obligations and Guarantors' payment and
performance obligations under this Guaranty, whether or not then due. From
time to time after the occurrence and during the continuation of any Guarantor
Default, Agent may apply any and all funds held in the Cash Collateral Account
to the payment of the Guaranteed Obligations and Guarantors' payment and
performance obligations under this Guaranty. Neither Guarantor nor any Person
claiming on behalf of or through either Guarantor shall have any right to
withdraw any of the funds held in the Cash Collateral Account until the
ninety-first (91st) day following the Termination Date.
7. REPORTING. Each Guarantor shall deliver or cause to
be delivered to Agent, the following:
(a) at the same times as are delivered or required to be
delivered to each partner of the Guarantors pursuant to Section 8.2 (or any
successor provision thereto) of the Partnership Agreements, each of the
reports, statements, financial statements, schedules, summaries and other
information described in such section (and without giving effect to any
amendments or modifications thereto), excluding, however, any items delivered
pursuant to Section 8.2(d) thereof and the Schedule K-1's referred to in
Section 8.2(b) thereof; and
(b) promptly, following its occurrence, the existence and
nature of any Trigger Event.
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8. OTHER TERMS.
8.1. Entire Agreement. This Guaranty constitutes the
entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements relating to a guaranty of the loans and
advances under the Loan Documents and/or the Guaranteed Obligations.
8.2. Headings. The headings in this Guaranty are for
convenience of reference only and are not part of the substance of this
Guaranty.
8.3. Severability. Whenever possible, each provision of
this Guaranty shall be interpreted in such a manner to be effective and valid
under applicable law, but if any provision of this Guaranty shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Guaranty.
8.4. Notices. Whenever it is provided herein that any
notice, demand, request, consent, approval, declaration or other communication
shall or may be given to or served upon any of the parties by any other party,
or whenever any of the parties desires to give or serve upon another any such
communication with respect to this Guaranty, each such notice, demand, request,
consent, approval, declaration or other communication shall be in writing and
shall be addressed to the party to be notified as follows:
(a) If to Agent, at:
General Electric Capital Corporation
10 South LaSalle Street
Suite 2800
Chicago, Illinois 60603
Attention: Account Manager
Telecopier No.: (312) 419-5957
Telephone No.: (312) 419-0985
with copies to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: H. Bruce Bernstein
Telecopy Number: (312) 853-7036
Telephone Number: (312) 853-7000
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and:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: General Counsel
Telecopy Number: (203) 316-7889
Telephone Number: (203) 316-7552
(b) If to any Lender, at the address of such Lender
specified in the Credit Agreement.
(c) If to either Guarantor, at the address of Guarantors
specified on Schedule I hereto.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been validly served, given or delivered (i) upon the earlier of actual
receipt and three (3) Business Days after the same shall have been deposited
with the United States mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States mail as otherwise provided in this Section 9.4), (iii) one (1)
Business Day after deposit with a reputable overnight carrier with all charges
prepaid, or (iv) when delivered, if hand-delivered by messenger. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any of the above-listed persons
designated to receive copies shall in no way adversely affect the effectiveness
of such notice, demand, request, consent, approval, declaration or other
communication.
8.5. Successors and Assigns. This Guaranty and all
obligations of each Guarantor hereunder shall be binding upon the successors
and assigns of such Guarantor (including a debtor-in-possession on behalf of
such Guarantor) and shall, together with the rights and remedies of Agent, for
itself and for the benefit of Lenders, hereunder, inure to the benefit of Agent
and Lenders, all future holders of any instrument evidencing any of the
Guaranteed Obligations and their respective successors and assigns. No sales
of participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Guaranteed Obligations or
any portion thereof or interest therein shall in any manner affect the rights
of Agent and Lenders hereunder. Neither Guarantor may assign, sell,
hypothecate or otherwise transfer any interest in or obligation under this
Guaranty.
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<PAGE> 15
8.6. No Waiver; Cumulative Remedies; Amendments. Neither
Agent nor any Lender shall by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by Agent and then only to the extent therein
set forth. A waiver by Agent, for itself and the ratable benefit of Lenders,
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which Agent would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Agent or any Lender, any right, power or privilege hereunder, shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Guaranty may be waived, altered, modified,
supplemented or amended except by an instrument in writing, duly executed by
Agent and Guarantors.
8.7. Termination. This Guaranty is a continuing guaranty
and shall remain in full force and effect until the Termination Date. On or
after the Termination Date, Agent shall deliver to Guarantor such documents as
Guarantor may reasonably request to evidence such termination.
8.8. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which shall collectively and separately
constitute one and the same agreement.
8.9. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.
THIS GUARANTY AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. GUARANTOR HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED NEW YORK COUNTY, NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR
AMONG GUARANTORS, AGENT OR ANY LENDER PERTAINING TO THIS GUARANTY OR TO ANY
MATTER ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN
DOCUMENTS, PROVIDED, THAT AGENT AND GUARANTORS ACKNOWLEDGE THAT ANY APPEALS
FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK
COUNTY, NEW YORK AND, PROVIDED, FURTHER, THAT NOTHING IN THIS GUARANTY SHALL BE
DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON PAYMENT CLAIMS OR ANY OTHER
SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN
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FAVOR OF AGENT, FOR THE BENEFIT OF AGENT AND LENDERS. EACH GUARANTOR EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND EACH GUARANTOR HEREBY WAIVES ANY OBJECTION
WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GUARANTOR HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH
GUARANTOR AT THE ADDRESS SET FORTH ON SCHEDULE I HERETO AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
8.10. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES),
GUARANTORS AND AGENT DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO
BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE
THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OR ARBITRATION,
GUARANTORS AND AGENT WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH THIS GUARANTY AND THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.
8.11 Confidentiality. Agent agrees to use commercially
reasonable efforts (equivalent to the efforts Agent applies to maintaining the
confidentiality of its own confidential information) to maintain as
confidential the existence, terms and conditions of this Guaranty, and all
information received by Agent with respect to the Guarantors pursuant to this
Guaranty, except that, subject to the terms and provisions of that certain
letter agreement dated as of October 27, 1997 among GE Capital and the
Guarantors regarding certain information about the limited partners of the
Guarantors, Agent may disclose such information (a) to Persons employed or
engaged by Agent in evaluating, approving, structuring or administering the
Loan Documents and related Obligations and Commitments; (b) to any Lender or
bona fide assignee or participant or potential assignee or participant of a
Lender (or successor Agent or prospective successor Agent) that has agreed in
writing to comply with the covenant contained in this Section 8.11 (and
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<PAGE> 17
any such Lender, bona fide assignee or participant or potential assignee or
participant or Agent or prospective successor Agent may disclose such
information to Persons employed or engaged by them as described in clause (a)
above), which writing has been delivered to the Guarantors; (c) as required or
requested by any Governmental Authority or reasonably believed by Agent to be
compelled by any court decree, subpoena or legal or administrative order or
process; (d) as, in the opinion of Agent's counsel, required by law; (e) in
connection with the exercise of any right or remedy under the Loan Documents or
in connection with any litigation to which Agent is a party; or (f) which
ceases to be confidential through no fault of Agent; provided, however, that
Agent shall use its best efforts to give Guarantors as much advance notice of
the proposed disclosure as is reasonably possible under the circumstances and;
provided, further, however, that, the failure by Agent, any Lender, any
assignee, participant or prospective participant to comply with the terms of
this Section 8.11 shall not operate as a defense, or give rise to any setoff
claims, with respect to any obligation of either Guarantor under this Guaranty.
8.12 Notification to Limited Partners. The Guarantors
shall notify each of their respective limited partners of the existence and
general terms and conditions of this Guaranty along with the next quarterly
financial report which is delivered to such limited partners after the date
hereof pursuant to Section 8.2 of its Partnership Agreements.
* * * *
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Guaranty as of the date first above written.
PEGASUS PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P.,
as Managing General Partner
By: PEGASUS INVESTORS GP, INC.,
as General Partner
By: /s/ Richard M. Cion
----------------------------
Name: Richard M. Cion
---------------------
Title: Vice President
-------------------
and
PEGASUS RELATED PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P.,
as Managing General Partner
By: PEGASUS INVESTORS GP, INC.,
as General Partner
By: /s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
------------------
Title: Vice President
------------------
Agreed and Accepted as of this
24th day of October, 1997:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
By: /s/ Timothy S. Van Kirk
----------------------------
Name: Timothy S. Van Kirk
--------------------
Title: Duly Authorized Signatory
---------------------------
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SCHEDULE I
Addresses for Notices:
Pegasus Partners, L.P. Pegasus Related Partners, L.P.
99 River Road 99 River Road
Cos Cob, Connecticut 06807 Cos Cob, Connecticut 06807
<PAGE> 1
EXHIBIT 9
EXECUTION COPY
LIMITED LITIGATION GUARANTY
This LIMITED LITIGATION GUARANTY (this "Guaranty"), dated as of
October 24, 1997, by and among PEGASUS PARTNERS, L.P., a Delaware limited
partnership, and PEGASUS RELATED PARTNERS, L.P., a Delaware limited partnership
(each individually, a "Guarantor" and together, collectively, the
"Guarantors"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation, individually and as agent (in such capacity, "Agent") for itself
and the lenders from time to time signatory to the Credit Agreement hereinafter
defined ("Lenders").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of the date
hereof by and among Code-Alarm, Inc., a Michigan corporation ("Borrower"), the
other Persons signatory thereto as Credit Parties, Agent and the Persons
signatory thereto from time to time as Lenders (including all annexes, exhibits
and schedules thereto, and, subject to Section 8, as from time to time amended,
restated, supplemented or otherwise modified, the "Credit Agreement"), Lenders
have agreed to make Loans to, and incur Letter of Credit Obligations for the
benefit of, Borrowers.
WHEREAS, pursuant to that certain Litigation L/C and Term Loan C
Agreement of even date herewith among Borrower, Agent and certain of the
Lenders (including all exhibits thereto, as may be from time to time amended,
restated, supplemented or otherwise modified, the "L/C Agreement"), such
Lenders have agreed to incur Litigation L/C Obligations for the benefit of, or
under the Term Loan C to, Borrower.
WHEREAS, each Guarantor is a shareholder of Borrower and will,
accordingly, derive direct and indirect economic benefits from the making of
the Loans and other financial accommodations provided to Borrower pursuant to
the Credit Agreement and L/C Agreement; and
WHEREAS, in order to induce Agent and Lenders to enter into the Credit
Agreement, L/C Agreement and other Loan Documents and to induce Lenders to make
the Loans and to incur Letter of Credit Obligations and Litigation Obligations
as provided for in the Credit Agreement and L/C Agreement, each Guarantor has
agreed to severally and not jointly guarantee payment of the Litigation
Obligations, subject to the limitations set forth herein;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, and to induce Lenders to provide the Loans and other
financial accommodations under the Credit Agreement and L/C Agreement, it is
agreed as follows:
1. DEFINITIONS. Capitalized terms used herein shall have the
meanings assigned to them in the Credit Agreement, unless otherwise defined
herein.
<PAGE> 2
References to this "Guaranty" shall mean this Guaranty, including all
amendments, modifications and supplements and any annexes, exhibits and
schedules to any of the foregoing, and shall refer to this Guaranty as the same
may be in effect at the time such reference becomes operative.
In addition, the following terms, as used herein, shall have the
meanings set forth below:
"Administrative GP" shall have the meaning ascribed to such term in
Section 3(a).
"Aggregate Net Capital" shall mean, as of any date of determination,
the sum of (i) the Net Assets of both Guarantors plus (ii) the Unpaid Capital
Obligations of the limited partners of each of the Guarantors.
"Aggregate Portfolio Cash Flow" shall mean, as of the last day of any
fiscal quarter of the Guarantors or as of the last day of any fiscal year of
the Guarantors, the aggregate sum of the EBTDA, as reported to the Guarantors,
of all Portfolio Companies of the Guarantors for the most recently ended period
of four fiscal quarters (taken as a single accounting period) of each such
Portfolio Company which at the time of determination has been reported to the
Guarantors (it being acknowledged that a fiscal quarter of a Portfolio Company
will not necessarily coincide with a fiscal quarter of the Guarantors);
provided that (i) if such period of four fiscal quarters of a Portfolio Company
shall include periods prior to the Guarantors making a Portfolio Investment in
such Portfolio Company, then "Aggregate Portfolio Cash Flow" shall include the
EBTDA of such Portfolio Company only for full fiscal quarters of the Portfolio
Company commenced after such Portfolio Investment is made and (ii) the
calculation of Aggregate Portfolio Cash Flow for any period shall exclude the
EBTDA of each Portfolio Company in which the Guarantors' Portfolio Investments
consist exclusively of non-convertible debt instruments and non-convertible
preferred stock.
"Capital Demand Date" shall have the meaning ascribed to such term in
the Partnership Agreements as in effect to from time to time.
"Capital Demand Notice(s)" shall have the meaning ascribed to such term
in the Partnership Agreements as in effect from time to time.
"Cash Collateral Account" shall have the meaning ascribed to such term
in Section 6.
"Corporate GP" shall have the meaning ascribed to such terms in Section
3(a).
"Current Market Price" shall mean, as of any date of determination, and
for any asset which is a security, the average of the daily market prices of
such security for the twenty consecutive trading days immediately preceding
such date. The "daily market price" for each
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<PAGE> 3
trading day shall be (i) if such security is then listed on a national
securities exchange or is listed on NASDAQ and is designated as a National
Market System security, the last sale price on such day on the principal stock
exchange or market system on which such security is then listed or admitted for
trading, or (ii) if such security is not then listed or admitted to trading on
any national securities exchange or designated as a National Market System
security on NASDAQ but is traded over-the-counter, the average of the closing
bid and asked prices for such security as reported on NASDAQ or the Electronic
Bulletin Board or in the National Daily Quotation Sheets, as applicable.
"Defaulting Limited Partner" shall have the meaning ascribed to such
term in the Partnership Agreements as in effect on the date hereof.
"EBTDA" shall mean, for any Portfolio Company and for any period, such
Portfolio Company's consolidated earnings before taxes, depreciation and
amortization (excluding, in the case of Borrower, any losses with respect to
the DEI Litigation).
"Effectiveness Conditions" shall mean, subject to Section 3(b) hereof,
(i) the receipt by Agent of each of the items described in Section 3 hereof, in
each case in form, scope and substance satisfactory to Agent and written
confirmation thereof by Agent pursuant to Section 3(b) hereof, (ii) the
execution and delivery by Borrower in favor of the Guarantors of the
"Litigation Warrants" referred to and as defined in the Series A Preferred
Stock Documents and written confirmation thereof and of receipt of the
Litigation Warrant Opinion by Guarantors pursuant to Section 3(b) hereof and
(iii) the issuance of the Litigation L/C.
"Effective Date" shall mean the date on which all of the Effectiveness
Conditions shall have been satisfied.
"Event of Dissolution" shall have the meaning ascribed to such term in
the Partnership Agreements as in effect on the date hereof and any other "Event
of Dissolution" as may be hereafter defined in the Partnership Agreements.
"Fair Market Value" shall mean, as of any date of determination and for
any asset owned by any Guarantor (A) if such asset is a security which is
publicly traded on such date, the Current Market Price of such security or (B)
if such asset is not a publicly traded security as of such date, the fair
market value of such asset as reasonably determined in good faith by the
Managing GP of the applicable Guarantor.
"Guarantor Default" shall mean (i) any failure of either Guarantor to
pay or perform any of its obligations under this Guaranty, (ii) any breach by
either Guarantor of any representation or warranty hereunder in any material
respect, (iii) the occurrence of any insolvency event with respect to either
Guarantor under Sections 8.1(h) or 8.1(i) of the Credit Agreement, (iv) any
revocation or attempted revocation by either Guarantor of its obligations
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<PAGE> 4
under this Guaranty, or (v) any "Guarantor Default" shall have occurred under
and as defined in that certain Limited Supplemental Guaranty of even date
herewith among the Guarantors and Agent.
"Guaranteed Obligations" shall have the meaning ascribed to such term
in Section 2.1.
"Instruction Certificate(s)" shall mean one or more written
certificates executed by Agent and delivered to the Administrative GP stating
that (i) Agent is entitled to demand payment under this Guaranty, (ii) Agent
has demanded payment under this Guaranty, (iii) the Guarantors have failed to
timely satisfy all of such payments properly demanded, (iv) the Administrative
GP is instructed to deliver a Capital Demand Notice to each limited partner of
each Guarantor specifying the earliest possible Capital Demand Date as is
permitted under Section 3.1 of the Partnership Agreements and demanding capital
contributions under such section in amounts sufficient to permit the Guarantors
to satisfy such unsatisfied payment obligations to Agent under this Guaranty
and (v) all of the proceeds of such capital contributions received by the
Administrative GP are to be promptly sent, by wire transfer, to an account
specified in such certificate for application by Agent to such unsatisfied
payment obligations.
"Irrevocable Instruction" shall mean a document, in form and substance
acceptable to Agent, pursuant to which the Managing GP instructs the
Administrative GP, and the Administrative GP agrees, that upon the
Administrative GP's receipt of an Instruction Certificate from Agent, the
Administrative Agent shall (i) deliver a Capital Demand Notice to each limited
partner of each Guarantor, specifying the earliest Capital Demand Date as is
permitted under section 3.1 of the Partnership Agreements and demanding capital
contributions under such section in amounts sufficient to permit the Guarantors
to satisfy the unpaid Guaranteed Obligations set forth in such Instruction
Certificate and (ii) pay all of the proceeds of such capital contributions
received by the Administrative GP to Agent on behalf of the Guarantors for
application by Agent to such Guaranteed Obligations pursuant to the
instructions specified by Agent in such Instruction Certificate. Such
Irrevocable Instruction may only be amended, terminated or modified with the
written consent of Agent, the Administrative GP and the Managing GP.
"Limitation Amount" shall mean the lesser of $12,000,000 and the
originally stated face amount of the Litigation L/C.
"Litigation Warrant Opinion" shall mean an opinion of counsel to
Borrower addressed to the Guarantors confirming, as of the date of the delivery
thereof, with respect to the "Litigation Warrants" referred to and as defined
in the Series A Preferred Stock Documents, substantially the same opinions as
were given by such counsel to Guarantors as of October 27, 1997 with respect to
the "Attached Warrants" pursuant to and as defined in the Series A Stock
Purchase Agreement as provided in the first and third sentences of paragraph 3,
paragraph 8 and paragraph 11 (and for purposes of such paragraph 11, counsel
may assume that Guarantors' representation remains true), and opining that the
Litigation Warrants have been duly executed
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<PAGE> 5
and delivered by the Borrower and constitute valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their terms,
provided, that such opinion shall not contain assumptions as to issuance in
accordance with Series A Purchase Agreement of the Litigation Warrants.
"Managing GP" shall have the meaning ascribed to such term in Section
3(a).
"Net Assets" shall mean, with respect to either Guarantor as of any
date of determination, such Guarantor's consolidated total assets, valued at
the lower of cost or Fair Market Value, minus its consolidated total
liabilities as determined in accordance with GAAP consistently applied and
minus the aggregate amount of such Guarantor's consolidated known contingent
liabilities (to the extent not included in its total liabilities).
"Partnership Agreements" shall mean the Agreement of Limited
Partnership of each Guarantor as in effect as of the date hereof and attached
hereto as Exhibit A and B, respectively, as amended or otherwise modified from
time to time hereafter.
"Portfolio Company" shall have the meaning ascribed to such term in the
Partnership Agreements as of the date hereof.
"Portfolio Investment" shall have the meaning ascribed to such term in
the Partnership Agreements as of the date hereof.
"Ratable Share" shall mean 27.7727273% in the case of Pegasus Partners,
L.P., and 72.2272727% in the case of Pegasus Related Partners, L.P.
"Termination Date" shall have the meaning ascribed to such term in
Section 2.1.
"Trigger Event" shall mean (i) any Event of Dissolution, (ii) the
existence of any Defaulting Limited Partner and the failure of the
non-defaulting limited partners of the affected Guarantor to assume the Unpaid
Capital Obligations of such Defaulting Limited Partner within thirty days of
the default giving rise such occurrence, (iii) any Guarantor Default, (iv) the
Aggregate Portfolio Cash Flow is less than $1.00, (v) the Aggregate Net Capital
at any time shall be less than $125,000,000, (vi) the Unpaid Capital
Obligations at any time during the period commencing on the date hereof and
ending on October 24, 1998 shall be less than $50,000,000, (vii) the Unpaid
Capital Obligations at any time after October 24, 1998 shall be less than
$25,000,000, or (viii) any amendment or other modification with respect to
either Partnership Agreement shall become effective and shall have a material
adverse effect upon the rights or claims of Agent and the Lenders under this
Guaranty.
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<PAGE> 6
"Unpaid Capital Obligations" shall mean, with respect to either
Guarantor's limited partners, as of any date of determination, the "Unpaid
Capital Obligations" under and as defined in such Guarantor's Partnership
Agreement as in effect on the date hereof, excluding, however, such obligations
of each Default Limited Partner of such Guarantor unless and until such limited
partner's obligations are assumed by the non-defaulting limited partners of
such Guarantor.
2. THE GUARANTY.
2.1 Guaranty of Guaranteed Obligations of Borrower. Subject to the
provisions of this Guaranty, each Guarantor hereby severally (based upon their
respective Ratable Shares) and not jointly, irrevocably and unconditionally
guarantees to Agent and Lenders, and their respective successors, endorsees,
transferees and assigns, the prompt payment (whether at stated maturity, by
acceleration or otherwise) of the Litigation Obligations of Borrower
(hereinafter the "Guaranteed Obligations"). Subject to the provisions of this
Guaranty, in the event that either Guarantor shall fail to timely satisfy any
such obligations or any other payment obligations under this Guaranty, Agent
shall be thereafter entitled, in its discretion, to deliver one or more
Instruction Certificates to the Administrative GP requesting payment thereof
pursuant to the Irrevocable Instruction. Each Guarantor agrees that this
Guaranty is a guaranty of payment and not of collection, and that its
obligations under this Guaranty shall be primary, absolute and, subject to the
provisions of this Guaranty, unconditional, irrespective of, and unaffected
by:
(a) the genuineness, validity, regularity, enforceability or
any future amendment of, or change in, this Guaranty, any other Loan
Document or any other agreement, document or instrument to which any Credit
Party, either Guarantor or other Persons are or may become a party;
(b) the absence of any action to enforce this Guaranty or any
other Loan Document or the waiver or consent by Agent and/or Lenders with
respect to any of the provisions thereof;
(c) the existence, value or condition of, or failure to
perfect its Lien against, any Collateral for the Guaranteed Obligations or
any action, or the absence of any action, by Agent in respect thereof;
(d) the discharge, avoidance, subordination or other
ineffectiveness of any of the Guaranteed Obligations, whether pursuant to
any insolvency proceeding or otherwise;
(e) the insolvency of any Credit Party, either Guarantor or other
Person; or
6
<PAGE> 7
(f) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor;
it being agreed by each Guarantor that its obligations under this Guaranty
shall not be discharged until the later of the following dates (hereinafter,
the "Termination Date"): (i) in the event that the Litigation L/C shall have
been issued, the earliest date on which Term Loan C has been repaid in full,
the Litigation L/C has expired, been canceled, or been terminated, all other
Guaranteed Obligations have been paid in full, and the Lenders shall have no
further obligations to incur Litigation L/C Obligations under the Credit
Agreement or L/C Agreement or (ii) in the event that the Litigation L/C shall
not have been issued, the earliest date on which the Litigation L/C have not
been issued and the Lenders have no further obligation to incur Litigation L/C
Obligations under the Credit Agreement or L/C Agreement; provided, however,
that the Termination Date may thereafter be deemed to have not occurred upon
Guarantors' obligations under this Guaranty being reinstated pursuant to
Section 2.8 and shall be extended until such time as the payments giving rise
to such reinstatement are thereafter again repaid to Agent and Lenders.
Subject to limitations described in Section 2.2, each Guarantor shall be
regarded, and shall be in the same position, as principal debtor with respect
to the Guaranteed Obligations. Each Guarantor agrees that any notice or
directive given at any time to Agent which is inconsistent with this section,
or Sections 2.5 or 2.7, shall be null and void and may be ignored by Agent and
Lenders, and, in addition, may not be pleaded or introduced as evidence in any
litigation relating to this Guaranty for the reason that such pleading or
introduction would be at variance with the written terms of this Guaranty,
unless Agent and Lenders have specifically agreed otherwise in writing. It is
agreed among Guarantor, Agent and Lenders that the foregoing provisions, and
those of Sections 2.5 and 2.7, are of the essence of the transaction
contemplated by the Loan Documents and that, but for this Guaranty and such
waivers, Agent and Lenders would decline to enter into the Credit Agreement and
L/C Agreement.
2.2 Limitations. Notwithstanding anything in Section 2.1 or elsewhere
in this Guaranty to the contrary, (a) the aggregate liability of Guarantors
under this Guaranty shall, in no event, exceed, the Limitation Amount, plus
interest on each amount payable hereunder from the date such payment by
Guarantors hereunder is due and payable pursuant to clause (b) of this section
(at a per annum rate equal to the Default Rate for Term Loan C if it were
bearing interest based upon the Index Rate computed on the basis of 360 days
and actual days elapsed), until such payment is received by Agent, and plus all
costs and expenses (including, without limitation, attorneys' and paralegals'
fees and expenses) incurred by Agent following either Guarantor's failure to
timely satisfy its obligations hereunder, in connection with the enforcement
and collection of the Guarantors' obligations under this Guaranty against the
Guarantors and their respective partners and properties, (b) each payment by
Guarantors hereunder shall be due and payable on the tenth (10th) calendar day
following the date on which demand for such payment is given by Agent to
Guarantors, and (c) Agent shall not be permitted to demand payment hereunder
from Guarantors, and Guarantors shall not be liable hereunder for any such
demanded payment, unless the Effectiveness Conditions shall have been
satisfied, there shall have occurred a draw under the Litigation L/C or the
Litigation L/C Obligations shall have been converted to the Term
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<PAGE> 8
Loan C pursuant to the terms of the Loan Documents, and Borrower shall have
failed to pay, when due, all or any portion of the Litigation Obligations.
2.3 Payment by Guarantor. Payment by either Guarantor shall be
made to Agent in immediately available Federal funds to an account designated
by Agent or at the address set forth herein for the giving of notice to Agent
or at any other address that may be specified in writing from time to time by
Agent, and shall be credited and applied to the Guaranteed Obligations.
2.4 Enforcement of Guaranty. In no event shall Agent have any
obligation (although it is entitled, at its option) to proceed against
Borrower, any other Credit Party, one but not the other Guarantor, or other
Person, or any Collateral, before seeking satisfaction from either Guarantor.
2.5 Waiver. In addition to the provisions of Section 2.1 hereof,
each Guarantor waives, and agrees that it shall not at any time insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets or redemption laws,
or exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by such Guarantor of its Guaranteed
Obligations under, or the enforcement by Agent or Lenders of, this Guaranty.
Each Guarantor hereby waives diligence, presentment and demand upon Borrower
or, other than as provided in this Guaranty, such Guarantor (whether for
non-payment or protest or of acceptance, maturity, extension of time, change in
nature or form of the Guaranteed Obligations, acceptance of further security,
release of further security, composition or agreement arrived at as to the
amount of, or the terms of, the Guaranteed Obligations, notice of adverse
change in Borrower's financial condition or any other fact which might increase
the risk to such Guarantor) with respect to any of the Guaranteed Obligations
or all other demands whatsoever and waive the benefit of all provisions of law
which are or might be in conflict with the terms of this Guaranty. Each
Guarantor represents, warrants and agrees that, as of the date of this
Guaranty, its obligations under this Guaranty are not subject to any offsets or
defenses against Agent or Lenders or any other Credit Party of any kind. Each
Guarantor further agrees that its obligations under this Guaranty shall not be
subject to any counterclaims (other than compulsory counterclaims), offsets or
defenses against Agent or any Lender or against any other Credit Party of any
kind which may arise in the future.
2.6 Benefit of Guaranty. The provisions of this Guaranty are for the
benefit of Agent and Lenders and their respective successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between
any Credit Party, either Guarantor or other Person and Agent or Lenders, the
obligations of any Credit Party, either Guarantor or other Person under the
Loan Documents. In the event all or any part of the Guaranteed Obligations are
transferred, indorsed or assigned by Agent or any Lender to any Person or
Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer
equally to such Person or Persons.
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2.7 Modification of Guaranteed Obligations, Etc. Subject to Section
8, each Guarator hereby acknowledges and agrees that Agent and Lenders may at
any time or from time to time, with or without the consent of, or notice to,
such Guarantor:
(a) change or extend the manner, place or terms of payment of,
or renew or alter all or any portion of, the Guaranteed Obligations;
(b) take any action under or in respect of the Loan Documents
in the exercise of any remedy, power or privilege contained therein or
available to it at law, equity or otherwise, or waive or refrain from
exercising any such remedies, powers or privileges;
(c) amend or modify, in any manner whatsoever, the Loan
Documents;
(d) extend or waive the time for any Credit Party's or other
Person's performance of, or compliance with, any term, covenant or
agreement on its part to be performed or observed under the Loan Documents,
or waive such performance or compliance or consent to a failure of, or
departure from, such performance or compliance;
(e) take and hold Collateral for the payment of the Guaranteed
Obligations guaranteed hereby or sell, exchange, release, dispose of, or
otherwise deal with, any property pledged, mortgaged or conveyed, or in
which Agent or Lenders have been granted a Lien, to secure any Guaranteed
Obligations;
(f) release anyone who may be liable in any manner for the
payment of any amounts owed by either Guarantor or any other Credit Party
or other Person to Agent or any Lender;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of
either Guarantor or any other Credit Party or other Person are subordinated
to the claims of Agent and Lenders; and/or
(h) apply any sums by whomever paid or however realized to any
amounts owing by either Guarantor or any other Credit Party or other Person
to Agent or any Lender in such manner as Agent or any Lender shall
determine in its discretion;
and Agent and Lenders shall not incur any liability to Guarantors as a result
thereof, and no such action shall impair or release the Guaranteed Obligations
of Guarantors under this Guaranty.
2.8 Reinstatement. This Guaranty shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Credit Party, either Guarantor or any other Person for liquidation or
reorganization, should any Credit Party, either Guarantor or any other Person
become insolvent or make an assignment for the benefit of
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creditors or should a receiver or trustee be appointed for all or any
significant part of such Credit Party's, Guarantor's or other Person's assets,
and shall continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the Guaranteed Obligations or the
obligations of either Guarantor under this Guaranty, or any part of any such
obligations, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by Agent or any Lender pursuant to
applicable law, whether as a "voidable preference", "fraudulent conveyance", or
otherwise, all as though such payment or performance had not been made. In the
event that any such payment, or any part thereof, is rescinded, reduced,
restored or returned, the Guaranteed Obligations and obligations of the
Guarantors under this Guaranty shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned. In the
event any such payment is rescinded, reduced, restored or returned after what
otherwise would be the Termination Date pursuant to the provisions of Section
2.1, the Termination Date shall thereupon be deemed to have not occurred and
shall be extended until such time as such payment is thereafter again repaid to
Agent and Lenders. In the event legal action is commenced against Agent
seeking any such rescission, reduction, restoration or return with respect to
any portion of the Guaranteed Obligations or Agent's liens securing such
Guaranteed Obligations, Agent will permit Guarantors to jointly defend such
action to the extent pertaining to such Guaranteed Obligations or liens,
provided, that Agent shall retain exclusive control over all material decisions
(including, without limitation, those pertaining to choice of counsel,
settlement, jurisdiction, venue and strategy) unless and until Guarantors shall
have provided cash collateral pursuant to Section 6 hereof as if a Trigger
Event shall have occurred in which case all such decisions (other than those
the principal economic effect of which is borne solely or primarily by Agent or
the Lenders) shall thereafter be made jointly by Agent and Guarantors. In
furtherance of such provisions, Agent shall provide Guarantors with notice of
Agent's knowledge of actual claims against Agent or Lenders of the type
described in this section and shall consult with the Guarantors in connection
with its proposed defense or other disposition of such claims.
2.9 Deferral of Subrogation, Etc. Notwithstanding anything to the
contrary in this Guaranty, or in any other Loan Document, each Guarantor
hereby:
(a) expressly and irrevocably waives, on behalf of itself and its
successors and assigns (including any surety), until the later of the
Termination Date or the "Termination Date" under and as defined in that certain
Limited Supplemental Guaranty of even date herewith executed and delivered by
the Guarantors in favor of Agent and Lenders, any and all rights at law or in
equity to subrogation, to reimbursement, to exoneration, to contribution, to
indemnification, to set off or to any other rights that could accrue to a
surety against a principal, to a guarantor against a principal, to a guarantor
against a maker or obligor, to an accommodation party against the party
accommodated, to a holder or transferee against a maker, or to the holder of
any claim against any Person, and which such Guarantor may have or hereafter
acquire against any Credit Party, the other Guarantor or any other Person in
connection with or as a result of such Guarantor's execution, delivery and/or
performance of this Guaranty; and
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(b) acknowledges and agrees (i) that this waiver is intended to
benefit Agent and Lenders and shall not limit or otherwise effect such
Guarantor's liability hereunder or the enforceability of this Guaranty, and
(ii) that Agent, Lenders and their respective successors and assigns are
intended third party beneficiaries of the waivers and agreements set forth in
this Section 2.9 and their rights under this Section 2.9 shall survive payment
in full of the Guaranteed Obligations.
2.10 Election of Remedies. If Agent may, under applicable law,
proceed to realize benefits under any of the Loan Documents giving Agent and
Lenders a Lien upon any Collateral owned by any Credit Party or other Person,
either by judicial foreclosure or by non-judicial sale or enforcement, Agent
may, at its sole option, determine which of such remedies or rights it may
pursue without affecting any of such rights and remedies under this Guaranty.
If, in the exercise of any of its rights and remedies, Agent shall forfeit any
of its rights or remedies, including its right to enter a deficiency judgment
against any Credit Party or other Person, whether because of any applicable
laws pertaining to "election of remedies" or the like, each Guarantor hereby
consents to such action by Agent and waives any claim based upon such action,
even if such action by Agent shall result in a full or partial loss of any
rights of subrogation which either Guarantor might otherwise have had but for
such action by Agent. Any election of remedies which results in the denial or
impairment of the right of Agent to seek a deficiency judgment against any
Credit Party or other Person shall not impair either Guarantor's obligation to
pay the Guaranteed Obligations hereunder. In the event Agent shall bid at any
foreclosure or trustee's sale or at any private sale permitted by law or the
Loan Documents, Agent may bid all or less than the amount of the Guaranteed
Obligations and the amount of such bid need not be paid by Agent but shall be
credited against the Guaranteed Obligations. The amount of the successful bid
at any such sale shall be conclusively deemed to be the fair market value of
the collateral and the difference between such bid amount and the remaining
balance of the Guaranteed Obligations shall be conclusively deemed to be the
amount of the Guaranteed Obligations guaranteed under this Guaranty,
notwithstanding that any present or future law or court decision or ruling may
have the effect of reducing the amount of any deficiency claim to which Agent
and Lenders might otherwise be entitled but for such bidding at any such sale.
3. DELIVERIES. (a) In a form, scope and substance satisfactory to
Agent, the Guarantors shall deliver or cause to be delivered, to Agent (or to
the extent the items described below are to be executed or delivered by the
Administrative GP, its officers, directors or attorneys, or otherwise relate to
the Irrevocable Instruction, the Guarantors shall exert their reasonable
commercial efforts to deliver or cause to be delivered to Agent), as soon as
practicable following the execution of this Guaranty, the Credit Agreement and
the L/C Agreement, each of the following:
(i) the Irrevocable Instruction;
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(ii) a certificate of the corporate secretary of Pegasus Investors
GP, Inc., a Delaware corporation ("Corporate GP"), as general partner of
Pegasus Investors, L.P., a Delaware limited partnership and the managing
general partner of each Guarantor (the "Managing GP"), certifying (A) that
attached thereto are true, correct and current copies of the Partnership
Agreements, the agreement of limited partnership of the Managing GP and the
certificate of incorporation and bylaws of the Corporate GP (in each case,
including any and all signatures, exhibits, schedules, annexes and
amendments thereto, as applicable); (B) that the execution, delivery and
performance of this Guaranty and all other agreements, documents and
instruments executed and delivered in connection herewith by the
Guarantors, the Managing GP and the Corporate GP, individually or on behalf
of the Guarantors (or either one of them) (1) are within the partnership,
corporate power (as applicable) of such Person, (2) have been duly
authorized by all necessary and proper partnership, corporate, partner or
shareholder action (as applicable) of such Persons, (3) do not contravene
any provision of such Person's partnership agreement, certificate of
incorporation or bylaws, (4) do not violate any law or regulation, or any
order or decree of any court or Governmental Authority applicable to such
Person, (5) do not conflict with or result in the breach or termination of,
constitute a default under or accelerate or permit the acceleration of any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which such Person is a party or by which
such Person or any of its property is bound, (6) do not result in the
creation or imposition of any Lien upon any of the property of such Person
other than those in favor of Agent, on behalf of itself and Lenders,
pursuant to this Guaranty, (7) do not require the consent or approval of
any Governmental Authority or any other Person except as has been
previously obtained and (8) do not result in an Event of Dissolution or any
Trigger Event; (C) that attached thereto are true, correct and current
copies of all partnership and corporate resolutions and other
authorizations of the limited partnership panel, board of directors,
management committee or other managing bodies of the Guarantors, the
Managing GP and the Corporate GP which were adopted and approved in
connection with, and necessary to permit, the execution, delivery and
performance of this Guaranty by of on behalf of either of the Guarantors
and all other agreements, documents and instruments executed and delivered
by or on behalf of either of the Guarantors in connection herewith; (D) the
incumbency and true or facsimile signatures of all officers of the
Corporate GP on behalf of the Managing GP and the Guarantors, which will or
have executed and delivered this Guaranty or any other agreements,
documents or instruments executed and delivered by or in behalf of either
of the Guarantors in connection herewith and (E) that no Event of
Dissolution or other Trigger Event has occurred and is continuing;
(iii) a certificate of the company secretary (or other equivalent) of
Pegasus Administration Limited, a Cayman Islands limited duration company
and the administrative general partner of each Guarantor (the
"Administrative GP"), certifying (A) that attached thereto are true,
correct and current copies of the charter and bylaws of the Administrative
GP (including any and all signatures, exhibits, schedules, annexes and
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amendments thereto); (B) that the execution, delivery and performance of
the Irrevocable Instruction and all other agreements, documents and
instruments executed and delivered in connection therewith by the
Administrative GP, (1) are within the company power of the Administrative
GP, (2) have been duly authorized by all necessary and proper company
action of the Administrative GP, (3) do not contravene any provisions of
the Administrative GP's charter or bylaws, (4) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority
applicable to the Administrative Agent, and (5) do not require the consent
or approval of any Governmental Authority or any other person, except as
has been previously obtained, (C) that attached thereto are true, correct
and current copies of all company resolutions and other authorizations of
the board of directors or other managing body of the Administrative GP
which were adopted and approved in connection with, and necessary to
permit, the execution, delivery and performance of the Irrevocable
Instruction on behalf of the Administrative GP and all other agreements,
documents and instruments executed and delivered by the Administrative GP
and (D) the incumbency and true or facsimile signatures of all officers of
the Administrative GP which will or have executed and delivered the
Irrevocable Instruction or any other agreements, documents or instruments
executed and delivered by the Administrative GP in connection therewith;
(iv) certificates of limited partnership of each Guarantor and the
Managing GP, and a certificate of incorporation of the Corporate GP, in
each case certified, as of a date no earlier than thirty (30) days prior to
the date on which the Irrevocable Instruction is executed and delivered, by
the Secretary of State of Delaware together with good standing certificates
of such Person from the Secretary of State of Delaware, and certificates of
existence and good standing with respect to the Administrative GP certified
by the Cayman Islands (or appropriate agency thereof) as of a date no
earlier than thirty (30) days prior to the date on which the Irrevocable
Instruction is executed and delivered; and
(v) an opinion of counsel to the Guarantors, the Managing GP and the
Corporate GP, favorably addressing, as a matter of Delaware partnership and
corporate law and New York law, as applicable, as to this Guaranty,
substantially in the form delivered by such counsel as of October 27, 1997
with respect to that certain Limited Supplemental Guaranty of even date
herewith; and
(vi) an opinion of counsel to the Administrative GP, favorably
addressing, as a matter of the laws of the Cayman Islands, (A) the
organization, existence and good standing in the jurisdiction of
organization and principal place of business of the Administrative GP, (B)
each of the matters described in Section 3(a)(iii)(B) hereof, (C) the
enforceability of the provisions of the Irrevocable Instruction against the
Administrative GP and (D) the irrevocability of the Irrevocable
Instruction.
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(b) Promptly following the execution and delivery by Borrower to the
Guarantors of the "Litigation Warrants" referred to defined in and in
accordance with the Series A Preferred Stock Documents and delivery by
Borrowers of the Litigation Warrant Opinion (or waiver thereof by the
Guarantors), the Guarantors shall confirm such occurrence in a writing
delivered to the Agent and shall deliver to Agent a certificate (i) setting
forth a calculation of (and showing in reasonable detail) the Net Assets and
Unpaid Capital Obligations of each Guarantor, and the Aggregate Net Capital and
Aggregate Portfolio Cash Flow as of the date of such certification and (ii)
stating that each of the representatives and warranties set forth in Section 4
hereof are true and correct as of the date thereof. Promptly following Agent's
receipt of each of the items described in Section 3(a) hereof and the
Guarantors written confirmation and certification referred to in the
immediately preceding sentence (or waiver thereof by Agent), Agent shall
confirm such occurrence in a writing delivered to Guarantors. Upon Agent's
delivery of such confirmation and the issuance of the Litigation L/C, and
notwithstanding anything herein or any fact to the contrary, the Effectiveness
Conditions shall, for all purposes of this Guaranty, be deemed to have been
satisfied and the Effective Date shall be deemed to have occurred.
4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to make the
Loans and incur Letter of Credit Obligations and Litigation L/C Obligations
under the Credit Agreement and L/C Agreement, each Guarantor makes the
following representations and warranties to Agent and each Lender, as of the
date hereof (except as provided below), all of which shall survive the
execution and delivery of this Guaranty:
4.1 Corporate Existence; Corporate Power; Compliance with Law. Each
of the statements contained in clauses (B) and (E) of Section 3(a)(ii) are
true, accurate and complete. Guarantor is in compliance with all applicable
provisions of law, except where the failure to comply, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect
upon such Guarantor, its properties or its ability to perform its obligations
hereunder.
4.2 Enforceable Guaranteed Obligations. This Guaranty constitutes
the legal, valid and binding obligation of each Guarantor, enforceable against
such Guarantor in accordance with its terms.
4.3 Trigger Event. As of the date hereof, no Trigger Event has
occurred and is continuing.
5. FURTHER ASSURANCES. Guarantor agrees, upon the written request of
Agent on or following the Effective Date, to execute and deliver to Agent, from
time to time, any additional instruments or documents reasonably considered
necessary by Agent to cause their Guaranty or the Irrevocable Instruction to
be, become or remain valid and effective in accordance with its terms.
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6. CASH COLLATERAL. If both the Effective Date and one or more Trigger
Events shall have occurred, the Guarantors shall promptly deliver to Agent,
cash or other immediately available funds in an amount equal to the Limitation
Amount as cash collateral for the Guaranteed Obligations and Guarantors'
payment and performance obligations under this Guaranty. Such funds shall be
held by Agent in a cash collateral account (the "Cash Collateral Account")
maintained at a bank or financial institution acceptable to Agent and shall be
invested (for the account of the Guarantors) in short term, highly rated
securities or interest bearing accounts, in a manner acceptable to Agent. The
Cash Collateral Account shall be in the name of Guarantors and shall be pledged
to, and subject to the control of, Agent, for the benefit of Agent and Lenders,
in a manner satisfactory to Agent. Each Guarantor hereby pledges and grants to
Agent, on behalf of Lenders, a security interest in all such funds held in the
Cash Collateral Account from time to time and all proceeds thereof, as security
for the payment of the Guaranteed Obligations and Guarantors' payment and
performance obligations under this Guaranty, whether or not then due. From
time to time after the occurrence and during the continuation of any Guarantor
Default, Agent may apply any and all funds held in the Cash Collateral Account
to the payment or cash collateralization of the Guaranteed Obligations and
Guarantors' payment and performance obligations under this Guaranty. Neither
Guarantor nor any Person claiming on behalf of or through either Guarantor
shall have any right to withdraw any of the funds held in the Cash Collateral
Account until the ninety-first (91st) day following the Termination Date.
7. REPORTING. From and after the Effective Date, each Guarantor shall
deliver or cause to be delivered to Agent, the following:
(a) at the same times as are delivered or required to be delivered to
each partner of the Guarantors pursuant to Section 8.2 (or any successor
provision thereto) of the Partnership Agreements, each of the reports,
statements, financial statements, schedules, summaries and other information
described in such section (and without giving effect to any amendments or
modifications thereto), excluding, however, any items delivered pursuant to
Section 8.2(d) thereof and the Schedule K-1's referred to in Section 8.2(b)
thereof;
(b) within 45 calendar days after the end of each of the first three
fiscal quarters of the Guarantors, and within 90 days after the end of each
fiscal year of the Guarantors, a written certification of the amounts of the
Net Assets and Unpaid Capital Obligations of each Guarantor, and the Aggregate
Net Capital and Aggregate Portfolio Cash Flow, in each case as of the last day
of such fiscal quarter or fiscal year, as the case may be, and, upon request by
Agent, together with written copies of any and all financial statements and
other written information (redacted to delete proper names to the extent deemed
appropriate by the Guarantors) used by the Guarantors in determining, for such
period, the Net Assets of each Guarantor and the Aggregate Portfolio Cash Flow
for each Portfolio Companies;
(c) notice, within 30 days thereof, of (i) each transfer by any
partner of its interest in either Guarantor, each additional commitment of an
existing partner of either Guarantor, and each "Subsequent Closing" of either
Guarantor (as defined in the Partnership
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Agreements), the amounts transferred or committed, the Unpaid Capital
Obligations of each of the partners party to such assignment, commitment or
"Subsequent Closing", and a recalculation of the Net Assets and Unpaid Capital
Obligations of each Guarantor and the Aggregate Net Capital, in each case after
giving effect to such transactions (provided, however, that no notice shall be
required under this clause (i) with respect to any such transfer, additional
commitment or "Subsequent Closing", if the changes in the amount of the Unpaid
Capital Obligations of each partner party to, such transactions are less than
$2,000,000), and (ii) each closing of any Portfolio Investment a recalculation
of the Net Assets and Unpaid Capital Obligations of each Guarantor, and the
Aggregate Net Capital, in each case after giving effect to such closing;d
(d) promptly following its occurrence, notice of the existence and
nature of any Trigger Event; and
(e) promptly following either Guarantors' knowledge thereof, notice of
the commencement by or against either Guarantor of any material litigation
relating to the affairs of such Guarantor.
8. CERTAIN AMENDMENTS TO LOAN DOCUMENTS. Notwithstanding anything
herein to the contrary, Agent and Lenders shall not agree to any of the
following waivers or modifications with respect to the Loan Documents, without
the Guarantors' prior written consent:
(a) a waiver of or modification to any of the conditions set forth in
Section 2.3 of the Credit Agreement (other than the condition set forth in
clause (I)(b) or (II)(b) thereof);
(b) a waiver of any Event of Default which has actually caused an
acceleration, or was the basis for an actual acceleration, of Obligations
under the Credit Agreement;
(c) a waiver of any Default or Event of Default which was the basis
for an actual exercise by Agent of any of its post-default remedies as a
secured lender with respect to the Collateral of the type provided under
the applicable Uniform Commercial Code;
(d) any modification the effect of which is to extend the maturity of
any commitment relating to Term Loan C or the Litigation Obligations or the
due date for receipt of any payment of any principal, interest or Fees
payable under the Credit Agreement with respect to the Term Loan C or the
Litigation L/C Obligations (provided that Agent and Lenders may waive any
such Fees in their discretion with the only consequence being that such
waived Fees shall thereafter no longer constitute Guaranteed Obligations
herewith);
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(e) any modification the effect of which is to increase the interest
or Fees payable with respect to the Term Loan C or the Litigation
Obligations;
(f) any release of Agent's Liens created pursuant to the Litigation
Collateral Documents if the aggregate forced liquidation value of the
property subject to all such releases exceeds $2,000,000, excluding,
however, all such releases in connection with the sale or other disposition
by Borrower or any of its Subsidiaries of the property subject thereto,
whether or not such sale is in the ordinary course of Borrower's or such
Subsidiary's business;
(g) any amendment to any Collateral Document other than a Litigation
Collateral Document if such amendment enhances the rights and benefits
thereunder to Agent and Lenders, unless a substantially similar amendment
to the corresponding Litigation Collateral Document, if any, is also made
(other than omissions that are subsequently corrected); or
(h) any waiver of an Event of Default under Section 8.1(h) of the
Credit Agreement.
9 OTHER TERMS.
9.1. Entire Agreement. This Guaranty constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements relating to a guaranty of the loans and advances under the
Loan Documents and/or the Guaranteed Obligations.
9.2. Headings. The headings in this Guaranty are for convenience of
reference only and are not part of the substance of this Guaranty.
9.3. Severability. Whenever possible, each provision of this Guaranty
shall be interpreted in such a manner to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
9.4. Notices. Whenever it is provided herein that any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by any other party, or whenever any
of the parties desires to give or serve upon another any such communication
with respect to this Guaranty, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and shall be
addressed to the party to be notified as follows:
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(a) If to Agent, at:
General Electric Capital Corporation
10 South LaSalle Street
Suite 2800
Chicago, Illinois 60603
Attention: Account Manager
Telecopier No.: (312) 419-5957
Telephone No.: (312) 419-0985
with copies to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: H. Bruce Bernstein
Telecopy Number: (312) 853-7036
Telephone Number: (312) 853-7000
and:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: General Counsel
Telecopy Number: (203) 316-7889
Telephone Number: (203) 316-7552
(b) If to any Lender, at the address of suchlender specified in the
Credit Agreement.
(c) If to either Guarantor, at the address of specified on Schedule I
hereto.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been validly served, given or delivered (i) upon the earlier of actual
receipt and three (3) Business Days after the same shall have been deposited
with the United States mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States mail as otherwise provided in this Section 9.4), (iii) one (1)
Business Day after
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deposit with a reputable overnight carrier with all charges prepaid, or (iv)
when delivered, if hand-delivered by messenger. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to any of the above-listed persons designated to receive copies
shall in no way adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration or other communication.
9.5. Successors and Assigns. This Guaranty and all obligations of each
Guarantor hereunder shall be binding upon the successors and assigns of such
Guarantor (including a debtor-in-possession on behalf of such Guarantor) and
shall, together with the rights and remedies of Agent, for itself and for the
benefit of Lenders, hereunder, inure to the benefit of Agent and Lenders, all
future holders of any instrument evidencing any of the Guaranteed Obligations
and their respective successors and assigns. No sales of participations, other
sales, assignments, transfers or other dispositions of any agreement governing
or instrument evidencing the Guaranteed Obligations or any portion thereof or
interest therein shall in any manner affect the rights of Agent and Lenders
hereunder. Neither Guarantor may assign, sell, hypothecate or otherwise
transfer any interest in or obligation under this Guaranty.
9.6. No Waiver; Cumulative Remedies; Amendments. Neither Agent nor any
Lender shall by any act, delay, omission or otherwise be deemed to have waived
any of its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Agent and then only to the extent therein set forth. A
waiver by Agent, for itself and the ratable benefit of Lenders, of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which Agent would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of Agent or any
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Guaranty may be waived, altered, modified,
supplemented or amended except by an instrument in writing, duly executed by
Agent and Guarantors.
9.7. Termination. This Guaranty is a continuing guaranty and shall
remain in full force and effect until the Termination Date. On or after the
Termination Date, Agent shall deliver to Guarantor such documents as Guarantor
may reasonably request to evidence such termination.
9.8. Counterparts. This Guaranty may be executed in any number of
counterparts, each of which shall collectively and separately constitute one
and the same agreement.
19
<PAGE> 20
9.9. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. THIS GUARANTY
AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE
OR FEDERAL COURTS LOCATED NEW YORK COUNTY, NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG
GUARANTORS, AGENT OR ANY LENDER PERTAINING TO THIS GUARANTY OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, THAT AGENT AND GUARANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, NEW
YORK AND, PROVIDED, FURTHER, THAT NOTHING IN THIS GUARANTY SHALL BE DEEMED OR
OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION TO REALIZE ON PAYMENT CLAIMS OR ANY OTHER SECURITY FOR
THE GUARANTEED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT, FOR THE BENEFIT OF AGENT AND LENDERS. EACH GUARANTOR EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND EACH GUARANTOR HEREBY WAIVES ANY OBJECTION
WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GUARANTOR HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH
GUARANTOR AT THE ADDRESS SET FORTH ON SCHEDULE I HERETO AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
9.10. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), GUARANTORS AND AGENT
DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL
20
<PAGE> 21
SYSTEM AND OR ARBITRATION, GUARANTORS AND AGENT WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH
THIS GUARANTY AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO
OR THERETO.
9.11 Confidentiality. Agent agrees to use commercially reasonable
efforts (equivalent to the efforts Agent applies to maintaining the
confidentiality of its own confidential information) to maintain as
confidential the existence, terms and conditions of this Guaranty, and all
information received by Agent with respect to the Guarantors pursuant to this
Guaranty, except that, subject to the terms and provisions of that certain
letter agreement dated as of October 27, 1997 among GE Capital and the
Guarantors regarding certain information about the limited partners of the
Guarantors, Agent may disclose such information (a) to Persons employed or
engaged by Agent in evaluating, approving, structuring or administering the
Loan Documents and related Obligations and Commitments; (b) to any Lender or
bona fide assignee or participant or potential assignee or participant of a
Lender (or successor Agent or prospective successor Agent) that has agreed in
writing to comply with the covenant contained in this Section 9.11 (and any
such Lender, bona fide assignee or participant or potential assignee or
participant or Agent or prospective successor Agent may disclose such
information to Persons employed or engaged by them as described in clause (a)
above), which writing has been delivered to the Guarantors; (c) as required or
requested by any Governmental Authority or reasonably believed by Agent to be
compelled by any court decree, subpoena or legal or administrative order or
process; (d) as, in the opinion of Agent's counsel, required by law; (e) in
connection with the exercise of any right or remedy under the Loan Documents or
in connection with any litigation to which Agent is a party; or (f) which
ceases to be confidential through no fault of Agent; provided, however, that
Agent shall use its best efforts to give Guarantors as much advance notice of
the proposed disclosure as is reasonably possible under the circumstances and;
provided, further, however, that, the failure by Agent, any Lender, any
assignee, participant or prospective participant to comply with the terms of
this Section 9.11 shall not operate as a defense, or give rise to any setoff
claims, with respect to any obligation of either Guarantor under this Guaranty.
9.12 Notification to Limited Partners. The Guarantors shall notify
each of their respective limited partners of the existence and general terms
and conditions of this Guaranty along with the next quarterly financial report
which is delivered to such limited partners after the date hereof pursuant to
Section 8.2 of its Partnership Agreements.
* * * *
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Guaranty as of the date first above written.
PEGASUS PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P.,
as Managing General Partner
By: PEGASUS INVESTORS GP, INC.,
as General Partner
By: /s/ Richard M. Cion
-----------------------------
Name: Richard M. Cion
--------------------
Title: Vice President
-------------------
PEGASUS RELATED PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P.,
as Managing General Partner
By: PEGASUS INVESTORS GP, INC.,
as General Partner
By: /s/ Richard M. Cion
-----------------------------
Name: Richard M. Cion
--------------------
Title: Vice President
------------------
Agreed and Accepted as of this
24th day of October, 1997:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent Lender
By: /s/ Timothy S. Van Kirk
---------------------------
Name: Timothy S. Van Kirk
-------------------
Title: Duly Authorized Signatory
--------------------------
22
<PAGE> 23
SCHEDULE I
Address for Notices:
Pegasus Partners, L.P. Pegasus Related Partners, L.P.
99 River Road 99 River Road
Cos Cob, Connecticut 06807 Cos Cob, Connecticut 06807
<PAGE> 1
EXHIBIT 10
GENERAL ELECTRIC CAPITAL CORPORATION
10 South LaSalle Street
Suite 2800
Chicago, Illinois 60603
October 27, 1997
Pegasus Partners, L.P.
and
Pegasus Related Partners, L.P.
99 River Road
Cos Cob, Connecticut 06807
Gentlemen:
Reference is made to the Credit Agreement dated as of October 24, 1997 (as
amended, restated, supplemented or otherwise modified, the "Credit Agreement")
among Code-Alarm, Inc., certain specified affiliates of Code-Alarm, Inc.
signatory thereto, the lenders from time to time signatory thereto and General
Electric Capital Corporation as agent for the lenders thereunder. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
them in the Credit Agreement.
We hereby agree to furnish to each of you prompt written notice (an
"Acceleration Notice") in the event that all or any portion of the Obligations
are accelerated.
Further, we hereby agree that upon and at any time following an acceleration
of any Obligations (irrespective of whether an Acceleration Notice is furnished
in connection therewith) we shall upon your request sell, assign, transfer and
convey to you (or your designee(s)), or to the extent applicable shall cause to
be sold, assigned, transferred and conveyed to you (or your designee(s)), all
rights, title, interests, remedies, powers and duties of the Agent and the
Lenders in, under and to the Loan Documents (other than the GECC Warrant
Documents), Collateral, Loans, Obligations (other than Obligations relating
exclusively to the GECC Warrant Documents) and Commitments, provided, that (i)
our obligations under this letter agreement shall expire on the sixty-first day
following the date we furnish
<PAGE> 2
Pegasus Partners, L.P. 2 October 27, 1997
and
Pegasus Related Partners, L.P.
to you an Acceleration Notice, (ii) the purchase price payable in connection
with such conveyance shall be 100% of the then outstanding Obligations (other
than Obligations relating exclusively to the GECC Warrant Documents) and your
assumption of 100% of the then outstanding Commitments, if any, and (iii) such
conveyance shall be made pursuant to an Assignment Agreement substantially in
the form of Exhibit 9.1(a) to the Credit Agreement as in effect on the date
hereof and such other documentation as you or we shall reasonably deem
appropriate to effect such conveyance.
Nothing herein shall be deemed to modify any term, provision or condition set
forth in the Limited Supplemental Guaranty or the Limited Litigation Guaranty,
each dated as of October 24, 1997 among GECC, Pegasus Partners, L.P. and
Pegasus Related Partners, L.P., or operate as a defense to any obligation of
any guarantor under either such guarantee.
This letter agreement shall be governed by and construed and enforced in
accordance with the Laws of the State of New York applicable to contracts made
and performed in such state.
Very truly yours,
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Timothy S. Van Kirk
---------------------------
Name: Timothy S. Van Kirk
Title: Duly Authorized Signatory
Acknowledged and Agreed:
CODE-ALARM, INC.
By: /s/ Craig S. Camalo
---------------------
Name: Craig S. Camalo
Title: VP Finance & CFO
<PAGE> 1
EXHIBIT 11
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) under the Securities Exchange Act of 1934, as
amended, the persons named below agree to the joint filing on behalf of each of
them of a statement on Schedule 13D (including amendments thereto) with respect
to the common stock, no par value, of Code Alarm, Inc., and further agree that
this Joint Filing Agreement be included as an Exhibit to such joint filing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 6th day
of November, 1997.
PEGASUS PARTNERS, L.P.
By: Pegasus Investors, L.P., its general partner
By: Pegasus Investors GP, Inc., its general partner
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
PEGASUS RELATED PARTNERS, L.P.
By: Pegasus Investors, L.P., its general partner
By: Pegasus Investors GP, Inc., its general partner
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
PEGASUS INVESTORS, L.P.
By: Pegasus Investors GP, Inc., its general partner
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
PEGASUS INVESTORS GP, INC.
By:/s/ Richard M. Cion
---------------------------
Name: Richard M. Cion
Title: Vice President
/s/ Craig M. Cogut
----------------------------
CRAIG M. COGUT
