<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998.
-------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to ___________________.
Commission File Number: 016441
CODE - ALARM, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN
-------------------------------
(State or other jurisdiction of
incorporation or organization)
38-2334698
-------------------
(I.R.S. Employer
Identification No.)
950 EAST WHITCOMB, MADISON HEIGHTS, MICHIGAN 48071
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): 248-583-9620
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrants common stock,
without par value, as of August 14, 1998 is 2,320,861.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. - Financial Information
Consolidated Condensed Balance Sheets -
As of June 30, 1998 (Unaudited) and December 31, 1997 3
Consolidated Condensed Statements of Operations (Unaudited) -
Three months ended June 30, 1998 and 1997, and six months 4
ended June 30, 1998 and 1997
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six months ended June 30, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements
6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. - Other Information
9
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CODE-ALARM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
ASSETS (Unaudited) 1997
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 52 $ 36
Accounts receivable, less allowance for doubtful accounts
(June 30, 1998 and December 31, 1997, of $1,514 and $1,073, respectively) 5,957 5,615
Inventories 4,417 4,291
Refundable income taxes 950 950
Other 580 503
-------- --------
Total current assets 11,956 11,395
Property and equipment, net of accumulated depreciation 2,396 2,444
Excess of cost over net assets acquired, net 307 320
Other intangibles, net 218 424
Other 1,338 1,479
-------- --------
Total assets $ 16,215 $ 16,062
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 5,217 $ 5,545
Accrued expenses 2,169 2,040
Current portion of long-term debt 1,731 797
-------- --------
Total current liabilities 9,117 8,382
Long-term debt 16,881 6,574
Reserve for litigation 10,000
-------- --------
Total liabilities 25,998 24,956
Redeemable preferred stock 7,000 7,000
Shareholders' equity (deficit):
Common stock 12,213 12,213
Additional paid in capital 4,179 4,179
(Accumulated deficit) (33,175) (32,286)
-------- --------
Total shareholders' equity (deficit) (16,783) (15,894)
-------- --------
Total liabilities and shareholders' equity (deficit) $ 16,215 $ 16,062
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 10,581 $ 12,639 $ 24,407 $ 28,414
Cost of sales 7,109 7,820 15,925 17,563
-------- -------- -------- --------
Gross profit 3,472 4,819 8,482 10,851
Operating expenses:
Sales and marketing 1,640 1,757 3,476 4,001
Engineering 422 420 818 846
General and administrative 1,219 1,371 2,715 3,791
Impairment of goodwill 373
-------- -------- -------- --------
3,281 3,548 7,009 9,011
-------- -------- -------- --------
Income from operations 191 1,271 1,473 1,840
Other expense:
Interest expense 475 376 913 712
Other - net 1,020 609 1,099 729
-------- -------- -------- --------
1,495 985 2,012 1,441
-------- -------- -------- --------
Income (loss) before income taxes (1,304) 286 (539) 399
Income taxes
-------- -------- -------- --------
Net income (loss) (1,304) 286 (539) 399
Preferred stock dividends 175 350
-------- -------- -------- --------
Net income (loss) applicable to common stock $ (1,479) $ 286 $ (889) $ 399
======== ======== ======== ========
Basic earnings (loss) per share $ (0.64) $ 0.12 $ (0.38) $ 0.17
======== ======== ======== ========
Weighted average common
shares outstanding 2,321 2,321 2,321 2,321
======== ======== ======== ========
Diluted earnings (loss) per share $ (0.64) $ 0.12 $ (0.38) $ 0.17
======== ======== ======== ========
Weighted average common and dilutive
shares outstanding 2,321 2,321 2,321 2,321
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities (Note 4) $(10,448) $ (5,063)
Cash flows from investing activities:
Capital expenditures (449) (155)
Cash flows from financing activities:
Issuance of term note 10,000
Payments on term notes and capitalized lease obligations (706) (136)
Net advances (paydowns) on revolving line of credit 1,947 5,479
Preferred stock dividends paid (328)
-------- --------
Net increase in cash and cash equivalents 16 125
Cash and cash equivalents, beginning of period 36 45
-------- --------
Cash and cash equivalents, end of period $ 52 $ 170
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the six month period for:
Interest $ 467 $ 1,200
======== ========
Income taxes $ 25
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
CODE-ALARM, INC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The consolidated condensed interim financial statements reflect all
adjustments which in the opinion of management are necessary to fairly
state results for the interim periods presented. All adjustments are of a
normal and recurring nature, except for the impairment of goodwill of
$373,000 in the first quarter of 1997 relating to the divestiture of the
Company's European operations. Results of operations for the interim
periods presented are not necessarily indicative of results to be
expected for the fiscal year.
The Company has been involved in various matters of litigation, including
those more fully described in "Legal Proceedings" in Part II of this Form
10Q.
On January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income." During the
periods presented, the Company had no elements of comprehensive income.
Accordingly, a Statement of Comprehensive Income has not been provided as
comprehensive income equals net income for all periods presented.
2. The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
3. Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1998
(Unaudited) December 31, 1997
----------- ------------------
<S> <C> <C>
Raw materials $3,740 $3,425
Work in process 513 680
Finished goods 164 186
------ ------
$4,417 $4,291
====== ======
</TABLE>
4. In July 1997, the Company was found to infringe upon a patent involving a
shock sensing device, and in March 1998 the Court entered a final amended
judgment for approximately $9.3 million. The Company recorded a reserve at
December 31, 1997, in the amount of $10 million to provide for damages and
other costs. On March 5, 1998, the Company posted a bond with the Court in
the amount of $9.3 million to permit an appeal of the judgment against the
Company. The bond was secured by an irrevocable letter of credit provided
by the Company's senior lender and guaranteed by the holders of the
Company's Series A-1 Preferred Stock.
On June 1, 1998, the Company entered into a comprehensive worldwide
settlement agreement and mutual release with the prevailing party in the
above judgment, whereby each party released any and all pending claims,
counterclaims, third-party claims, appeals and cross-appeals against each
other in exchange for payment of $10 million by the Company. Payment was
made on June 19, 1998, with proceeds from a term loan provided for under
the terms of the Company's credit agreement. The payment is reflected in
the Consolidated Condensed Financial Statement of Cash Flows for the
period ended June 30, 1998 within "Cash flows from operating activities."
The holders of Series A-1 Preferred Stock have guaranteed payment of the
term loan. In return for the above guarantees, the Company issued to
the holders of its Series A-1 Preferred Stock, warrants to acquire
7,026,790 shares of the Company's Common Stock. These warrants have an
average exercise price of $.47 per share and expire in 2004.
The Company is currently determining the potential financial impact of the
guarantees on its financial statements, and as of June 30, 1998, no
amount has been recorded with respect to these guarantees.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The Company's consolidated net sales decreased $4.0 million , or 14.1%, to
$24.4 million for the six months ended June 30, 1998, as compared to $28.4
million for the six months ended June 30, 1997. Net sales for the period
ended June 30, 1997, included sales of $2.5 million from the Company's
discontinued European operations. Sales from U.S. operations decreased
5.7% during the six month period ended June 30, 1998 versus the prior year
period, as pricing competition affected both the domestic retail
aftermarket and expediter sales, and the economic crisis in the Asian
markets negatively impacted our direct sales to international dealers.
Sales to original equipment manufacturers ("OEM") increased by 3.8% during
the six month period ended June 30, 1998, as compared to the same prior
year period. Sales for the second quarter ended June 30, 1998, were $10.6
million compared to $12.6 million for the comparable period of 1997, a
decrease of 16.3%. In addition to price competition and the weak Asian
markets, second quarter sales were further impacted by the recent General
Motors strike and weakness in the South American market.
For the six months ended June 30, 1998, consolidated gross profit
percentage was 34.8% as compared to 38.2% for the comparable six month
period ended June 30, 1997. The gross profit percentage for the six month
period ended June 30, 1998, was negatively affected by higher warranty
costs in the second quarter and by the impact the consolidation of the
Company's U.S. operations had on the production processes.
Consolidated operating expenses for the first six months of 1998 decreased
$2.0 million, or 22.2%, to $7 million as compared to $9 million for the
first six months of 1997. This decrease was primarily due to the
discontinued European operations and related costs, and the charge for
impairment of goodwill recorded in the first quarter of 1997.
As a result of the foregoing, the Company's consolidated operating income
for six months ended June 30, 1998, was $1.5 million, or 6.0% of sales, as
compared to $1.8 million, or 6.5% of sales, for the comparable period in
1997.
Interest expense was up 28.2% for the six months ended June 30, 1998, as
compared to the six month period ended June 30, 1997. The increase was
primarily due to the cost associated with the senior debt refinancing in
October 1997, and additional borrowings resulting from the $10 million
judgment and settlement relating to the patent infringement claim.
Other expense for 1998 includes a settlement amount of $550,000, and
related defense costs, paid to a distributor of the Company's discontinued
line of home security equipment, and defense costs relating to the patent
infringement claim, offset by $1 million in income received by the Company
from the settlement of patent infringement claims.
The Company has determined that any income tax benefit resulting from
current and prior year operating losses is not currently recognizable for
the six month period ended June 30, 1998.
As a result of the foregoing, the Company recorded a net loss before
preferred stock dividends for the six months ended June 30, 1998, of
$539,000, compared to net income of $399,000 for the six months ended June
30, 1997. Net loss after preferred stock dividends was $889,000, or $.38
basic and diluted loss per share, versus $399,000, or $.17 basic and
diluted earning per share.
7
<PAGE> 8
Liquidity and Capital Resources
The Company's consolidated working capital at June 30, 1998 was $2.8
million as compared to $3 million at December 31, 1997. The current ratio
(current assets divided by current liabilities) as of June 30, 1998, is
1.31 to 1 compared to 1.36 to 1 at December 31, 1997.
Cash used in operating activities for the six months ended June 30, 1998,
was $10.4 million, which included payment of the $10 million settlement of
the patent infringement claim, financed by a term loan provided for
under the Company's credit agreement. Additional financing by the Company
was used to finance capital expenditures of $449,000, and short term
working capital needs.
The Company amended and restated its credit agreement with its senior
lender as of March 4, 1998, and further amended the agreement as of
April 8, 1998, in order to allow the Company the right to utilize the
letter of credit facility for the Detroit Litigation judgment, both the
initial judgment and for any additional judgment amount, the right
to draw on the letter of credit and utilize an additional term loan, to
waive certain defaults (including those that existed at December 31,
1997), to correct certain disclosures and to modify certain provisions.
The credit agreement was amended subsequently to provide for the adoption
of a certain stock option plan, to request funding for the settlement,
waive certain financial covenant violations and other compliance
requirements, to correct certain disclosures and to modify certain
provisions.
On March 5, 1998, the Company posted a bond with the Court in the amount of
$9.3 million to permit an appeal of the judgment against the Company. The
bond was secured by an irrevocable letter of credit provided by the
Company's senior lender and guaranteed by the holders of the Company's
Series A-1 Preferred Stock. On June 1, 1998, the Company entered into a
comprehensive worldwide settlement agreement and mutual release as it
relates to the above judgment in exchange for payment of $10 million by the
Company. Payment was made on June 19, 1998, with proceeds from a new term
note. Payments on the term loan are to be made quarterly, commencing
October 1, 1998, in the amount of $250,000, with interest at prime rate
plus 2% or LIBOR plus 3.75%. The holders of Series A-1 Preferred Stock have
guaranteed payment of this new term loan. In return for the above
guarantees, the Company issued to the holders of its Series A-1 Preferred
Stock, warrants to acquire 7,026,790 shares of the Company's Common Stock.
These warrants have an average exercise price of $.47 per share and expire
in 2004.
As of August 11, 1998, $7.8 million of the $12 million revolving credit
facility was outstanding. Under this revolving line of credit, $7.5 million
was borrowed at the LIBOR based interest rate.
8
<PAGE> 9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The following cases were settled in the following manner: Code-Alarm,
Inc. v. Directed Electronics Inc., Case No. 87-CV-74022-DT, United States
District Court, Eastern District of Michigan; Code-Alarm, Inc. v. Directed
Electronics, Inc., Case No. A-95-CV-437JN, United States District Court, Western
District of Texas, Austin Division; Directed Electronics, Inc. v. Code-Alarm,
Case No. 95-0513 BTM (CGA), United States District Court for the Southern
District of California; Directed Electronics, Inc. v. Code-Alarm, Inc., Rand
Mueller and Peter J. Stouffer, Case No. 96-659 BTM (CGA), United States District
Court for the Southern District of California; Directed Electronics, Inc. v. TSI
Security Acquisition Corp., United States District Court, Southern District of
California, Case No. 93-1050 BTM, in which Code-Alarm, by assignment, replaced
TSI Security Acquisition Corp. as the defendant and counterclaimant. Code-Alarm,
Inc. and Directed Electronics, Inc. ("Directed") entered into a comprehensive
worldwide settlement agreement and mutual release dated June 1, 1998, whereby
each party released any and all pending claims, counterclaims, third-party
claims, appeals and cross-appeals against the other in exchange for payment of
$10,000,000 to Directed by Code-Alarm. TSI Security Acquisition Corp. is
challenging Code-Alarm's attempt to dismiss Case No. 93-1050 BTM and is seeking
to continue that case in the place of Code-Alarm.
Intercept Security Corporation ("Intercept") v. Code-Alarm, Inc. and
Rand Mueller, Civil Action No. 95-40239, United States District Court for the
Eastern District of Michigan, Southern Division, was also settled pursuant to a
Settlement Agreement and Mutual General Release dated as of May 27, 1998,
whereby each party released any and all pending claims against the other in
exchange for, among other items, payment to Intercept by Code-Alarm of $550,000
in installments of varying amounts through January 1, 2001, and the issuance by
Code-Alarm of a warrant to acquire 100,000 shares of Code-Alarm's Common Stock
at an exercise price of $2.3125 per share until January 2, 2001, unless called
by Code-Alarm at $5 per share prior to such date.
No other reportable changes have taken place in regard to the legal
proceedings disclosed in the registrant's report on Form 10-K for the fiscal
year ended December 31, 1997, or report on Form 10-Q for the quarter ended March
31, 1998, or report on Form 10-Q for the quarter ended June 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting on May 19, 1998. The shareholders
re-elected Kenneth M. Mueller and Marshall J. Mueller to the board of directors,
each receiving at least 1,873,979 votes. Mr. Rand W. Mueller, Mr. Alan H.
Foster, Mr. William Pickett, Mr. Jack D. Rutherford, Mr. Richard Cion, Mr.
Rodney S. Cohen, and Peter J. Stouffer continue their term as directors of the
Company.
The shareholders ratified an amendment to its Articles of Incorporation
that increases the number of authorized shares of common stock to twenty
million. There were 1,835,554 votes for and 84,194 against this matter, with
9,048 abstaining.
The shareholders approved the Code-Alarm, Inc. 1998 Incentive and
Non-Qualified Stock Option Plan. This plan allows for the grant of both
incentive stock options and options that are non-qualified, the total number of
shares of Common Stock for which options may be granted are 300,000. There were
882,740 votes for and 154,176 against this matter, with 5,523 abstaining.
The shareholders ratified the appointment of Deloitte & Touche LLP as
the Company's independant certified public accountants for the year ending
December 31, 1998. There were 1,906,700
9
<PAGE> 10
votes for and 14,073 against this matter, with 8,023 abstaining.
ITEM 5. OTHER INFORMATION
On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities Exchange Act of
1934. The amendment to Rule 14a-4(c) (1) governs the Company's use of its
discretionary proxy voting authority with respect to a shareholder proposal
which the shareholder has not sought to include in the Company's proxy
statement. The new amendment provides that if a proponent of a proposal fails
to notify the company at least 45 days prior to the month and day of mailing of
the prior year's proxy statement, then the management proxies will be allowed
to use their discretionary voting authority when the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Shareholders, if
the Company is not provided notice of a shareholder proposal, which the
shareholder has not previously sought to include in the Company's proxy
statement, by December 29, 1998, the management proxies will be allowed to use
their discretionary authority as outlined above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
10.1.4 Amendment No. 3 and Waiver No. 3 to Credit Agreement and Other
Loan Documents dated April 20, 1998, by and among Company,
General Electric Capital Corporation ("GECC"), in its capacity as
a "Lender", and the other financial institutions which may from
time to time become parties to the Credit Agreement (GECC, in
such capacity, and such other financial institutions being
sometimes hereinafter referred to collectively as the "Lenders"
and individually as a "Lender"), and GECC, in its separate
capacity as agent for the Lenders.
10.1.5 Waiver No. 4 to Credit Agreement and Other Loan Documents dated
June 12, 1998, by and among Company, General Electric Capital
Corporation ("GECC"), in its capacity as a "Lender", and the
other financial institutions which may from time to time become
parties to the Credit Agreement (GECC, in such capacity, and such
other financial institutions being sometimes hereinafter
referred to collectively as the "Lenders" and individually as a
"Lender") and GECC, in its separate capacity as agent for the
Lenders.
10.1.6 Waiver No. 5 to Credit Agreement dated July 1, 1998, by and
among Company, General Electric Capital Corporation ("GECC"), in
its capacity as a "Lender" and the other financial institutions
which may from time to time become parties to the Credit
Agreement (GECC, in such capacity, and such other financial
institutions being sometimes hereinafter referred to collectively
as the "Lenders" and individually as a "Lender"), and GECC, in
its separate capacity as agent for the Lenders.
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) During the quarter ended June 30, 1998, the Company filed a
Current Report on Form 8-K dated June 1, 1998, containing Item 5
disclosures.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CODE-ALARM, INC.
----------------
(Registrant)
Date: August 14, 1998 /s/ Rand W. Mueller
--------------- ---------------------------
Rand W. Mueller
President
Date: August 14, 1998 /s/ Craig S. Camalo
--------------- ---------------------------
Craig S. Camalo
Vice President of Finance
(Chief Financial Officer)
(Principal Accounting Officer)
<PAGE> 12
EXHIBIT INDEX
10.1.4 Amendment No. 3 and Waiver No. 3 to Credit Agreement and Other
Loan Documents dated April 20, 1998, by and among Company,
General Electric Capital Corporation ("GECC"), in its capacity
as a "Lender", and the other financial institutions which may
from time to time become parties to the Credit Agreement
(GECC, in such capacity, and such other financial institutions
being sometimes hereinafter referred to collectively as the
"Lenders" and individually as a "Lender"), and GECC, in its
separate capacity as agent for the Lenders.
10.1.5 Waiver No. 4 to Credit Agreement and Other Loan Documents
dated June 12, 1998, by and among Company, General Electric
Capital Corporation ("GECC"), in its capacity as a "Lender",
and the other financial institutions which may from time to
time become parties to the Credit Agreement (GECC, in such
capacity, and such other financial institutions being
sometimes hereinafter referred to collectively as the
""Lenders" and individually as a "Lender") and GECC, in its
as agent for the Lenders.
10.1.6 Waiver No. 5 to Credit Agreement dated July 1, 1998, by and
among Company, General Electric Capital Corporation ("GECC"),
in its capacity as a "Lender", and the other financial
institutions which may from time to time become parties to the
Credit Agreement (GECC, in such capacity, and such other
financial institutions being sometimes hereinafter referred to
collectively as the "Lenders" and individually as a "Lender"),
and GECC, in its separate capacity as agent for the Lenders.
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
5
<PAGE> 1
EXHIBIT 10.1.4
EXECUTION COPY
AMENDMENT NO. 3 AND WAIVER NO. 3
TO
CREDIT AGREEMENT
AND
OTHER LOAN DOCUMENTS
THIS AMENDMENT NO. 3 AND WAIVER NO. 3 TO CREDIT AGREEMENT AND OTHER
LOAN DOCUMENTS ("Agreement") is being executed and delivered as of April 20,
1998 by and among Code-Alarm, Inc., a Michigan corporation (the "Borrower"), the
other "Credit Parties" from time to time party to the Credit Agreement referred
to below (together with the Borrower, collectively, the "Credit Parties"), the
financial institutions from time to time party to such Credit Agreement
(collectively, the "Lenders", and each individually, a "Lender"), and General
Electric Capital Corporation, in its individual capacity ("GECC"), and as the
"Agent" for the Lenders (the "Agent"). Undefined capitalized terms which are
used herein shall have the meanings ascribed to such terms in the Credit
Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the other Credit Parties, the Lenders and the
Agent are parties to that certain Credit Agreement dated as of October 24, 1997,
as heretofore amended (the "Credit Agreement"), pursuant to which the Lenders
have agreed to provide, subject to the terms and conditions contained therein,
certain loans and other financial accommodations to the Borrower;
WHEREAS, the Borrower intends to adopt an incentive and non-qualified
stock option plan (the "Plan") substantially in the form attached hereto as
Exhibit A, pursuant to which the administrator thereof may cause the Borrower to
issue stock options; the adoption of such Plan and the issuance and exercise of
stock options thereunder, would require the prior written consent of the Agent
and the Requisite Lenders under Sections 6.5 and 6.8 of the Credit Agreement,
and the issuance of such stock options, unless otherwise agreed by GECC, would
require certain adjustments to the exercise price under, and the number of
shares subject to, the GECC Warrants pursuant to Section 4 thereof;
WHEREAS, in connection with the issuance of the initial Litigation L/C,
Borrower entered into that certain Collateral Agreement and Receipt (the
"Bonding Agreement") dated as of March 18, 1998 with United Pacific Insurance
Company (the "Bonding Company") pursuant to which, among other things, (i) the
Borrower agreed to reimburse the Bonding Company for all liabilities, costs,
draws and expenses it incurs with respect to its issuance of the Bond subject
thereto and (ii) the Borrower pledged to, and deposited with, the Bonding
Company the initial Litigation L/C as security for such reimbursement
obligations; the incurrence of such
<PAGE> 2
reimbursement obligations and the pledge of such Litigation L/C required the
consent of the Lenders under the provisions of Sections 6.3 and 6.7,
respectively, of the Credit Agreement;
WHEREAS, the Borrower failed to disclose on Disclosure Schedules (6.2)
and (6.4) of the Credit Agreement certain loans and advances made by Borrower
prior to the Closing Date to an officer of the Borrower, which loans and
advances remain outstanding as of the date hereof and are described in Exhibit B
hereto (collectively, the "Employee Loan"); and
WHEREAS, the Borrower has requested that the Lenders and Agent, and
subject to the terms and conditions of this Agreement, the Lenders and Agent are
willing to, (i) amend the Credit Agreement to permit the adoption of the Plan
and issuance and exercise of stock options thereunder, (ii) waive application of
the antidilution provisions contained in Section 4 of the GECC Warrants with
respect to the issuance of stock options under the Plan, (iii) waive the
Borrower's incurrence of Indebtedness, and pledging of the Bond, pursuant to the
Bonding Agreement, (iv) waive the Borrower's nondisclosure of the existence of
the Employee Loan, and (v) amend the Credit Agreement and the Litigation L/C
Agreement to correct certain errors and omissions, and to clarify certain
ambiguities, contained therein.
NOW, THEREFORE, in consideration of the foregoing premises, the terms
and conditions stated herein and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Borrower, the Lenders, the
Agent and GECC, such parties hereby agree as follows:
1. Amendment. Subject to Paragraph 3 of this Agreement, and effective
as of the date of this Agreement, the Credit Agreement, the Litigation L/C
Agreement and the Term C Note are hereby amended as follows:
(a) Section 1.1(d)(ii) of the Credit Agreement is amended by adding the
word "each" to the first sentence of such section immediately following the
first reference to the word "upon" therein.
(b) Section 1.1(b) of the Litigation L/C Agreement is amended by adding
the the word "each" to the first sentence of such section immediately following
the first reference to the word "upon" therein.
(c) Section 1.1(d)(v) of the Credit Agreement is amended by adding the
reference "either (i)" immediately after the phrase "the lesser of $250,000 and"
and adding the following provision after the phrase "the aggregate original
principal amount of such Loan,":
, or (ii) in the event that multiple draws are made on the Litigation
L/C, one-twelfth (1/12) of the aggregate original principal amount of
such Loan, plus, one-twelfth (1/12) of each additional amount drawn
under the Litigation L/C,
-2-
<PAGE> 3
(d) Section 1.1(f) of the Litigation L/C Agreement is amended by adding
the reference "either (i)" immediately after the phrase "the lesser of $250,000
and" and adding the following provision after the phrase "the aggregate original
principal amount of such Loan,":
, or (ii) in the event that multiple draws are made on the Litigation
L/C, one-twelfth (1/12) of the aggregate original principal amount of
such Loan, plus, one-twelfth (1/12) of each additional amount drawn
under the Litigation L/C,
(e) Disclosure Schedules (6.2) and (6.4) to the Credit Agreement are
each amended to add to the existing information contained in such schedules the
information set forth in Exhibit B hereto.
(f) Section 6.4(b) of the Credit Agreement is amended to delete clause
(ii) therein in its entirety and to substitute the following text therefor:
(ii) stock option financing up to a maximum of $100,000 to any
employee and up to a maximum of $250,000 in the aggregate at any one
time outstanding.
(g) Section 6.8 of the Credit Agreement is amended to delete the word
"and" which appears at the end of clause (b) of such section and to add the
following provision to such section immediately following clause (c) thereof:
, and (d) as permitted under Section 6.5(b)
(h) Annex A to the Credit Agreement is amended to delete the word "and"
which appears immediately before the reference to "the Code-Alarm, Inc. 1997
Stock Option Plan dated as of October 24, 1997" in the definition of "Management
Options" set forth in such annex and to add the following provision to the end
of such definition:
, the Code-Alarm, Inc. 1998 Incentive and Non-Qualified Stock Option
Plan, and any other stock option plan approved in writing by the
Agent.
(i) Annex A to the Credit Agreement is further amended to add the
following provision to the end of the definition of "Restricted Payment" set
forth in such annex:
; provided, however, that in no event shall the payment by such Person
of salaries, bonuses, employee benefits or director's fees in the
ordinary course of business to employees or directors who are also
shareholders of such Person constitute Restricted Payments hereunder.
-3-
<PAGE> 4
(j) Paragraph 3 of the Term C Note is amended by deleting the reference
"(i)" appearing immediately after the phrase "equal to the lesser of", adding
the reference "either (i)" immediately after the phrase "the lesser of $250,000
and" and adding the following provision after the phrase "the aggregate original
principal amount of such Loan,":
, or (ii) in the event that multiple draws are made on the Litigation
L/C, one-twelfth (1/12) of the aggregate original principal amount of
such Loan, plus, one-twelfth (1/12) of each additional amount drawn
under the Litigation L/C,
(k) Sections 4(d) of each of the Security Agreement and the Litigation
Security Agreement are amended by deleting the references therein to the number
"$5,000" and substituting the number "$25,000" therefor, and deleting the
references therein to the number "$10,000" and substituting the number
"$100,000" therefor.
2. Waiver. Subject to Paragraph 3 of this Agreement and effective as of
the date of this Agreement, each of the Lenders, the Agent and GECC hereby
waives:
(a) the application of the antidilution provisions contained in Section
4 of the GECC Warrants which would otherwise be applicable to the issuance of
options to purchase up to 300,000 shares of "Common Stock" (as defined therein)
under the Plan as if such issuances were excluded from the definition of
"Subsequent Issuance" as used therein, provided however, that, (i) if, at any
time, the sum of the total number of shares of Common Stock of the Borrower
which may be purchased upon exercise of all stock options issued under the Plan
and the Code- Alarm, Inc. 1987 Stock Option Plan, as amended (hereinafter, the
"1987 Plan") whether or not such stock options are presently exercisable, plus
the total number of shares of Common Stock of the Borrower theretofore issued
upon exercise of such stock options exceeds 300,000, then the antidilution
provisions contained in Section 4 of the GECC Warrants shall be applied in full
force to the issuance of such stock options to the extent that the number of
shares of Common Stock subject to such stock options exceeds 300,000 and (ii)
such waiver is not applicable to any stock option issued pursuant to the Plan if
such option has an exercise price which is less than "Fair Market Value" (as
defined in such Plan) as of the date such option was issued;
(b) the Borrower's compliance with Sections 6.3 and 6.7 of the Credit
Agreement, and Sections 4(d) of each of the Security Agreement and the
Litigation Security Agreement, with respect to the Borrower's incurrence of
reimbursement Indebtedness, and granting of a pledge, pursuant to the terms of
the Bonding Agreement or any substantially similar agreement hereafter entered
into by the Borrower in connection with the issuance of any amended or
supplementary Bond secured by any amended or supplementary Litigation L/C; and
(c) the Borrower's nondisclosure of the existence of the Employee Loan
in Disclosure Schedules (6.2) and (6.4) of the Credit Agreement.
-4-
<PAGE> 5
3. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraphs 1 and 2 shall be deemed to have become effective as of
the date of this Agreement, but such effectiveness shall be expressly
conditioned upon the Agent's receipt on or before May 31, 1998 of each of the
following:
(a) an originally-executed counterpart of this Agreement executed by a
duly authorized officer of the Borrower, each other Credit Party, and each of
the Requisite Lenders;
(b) originally-executed counterparts to a Reaffirmation of Guaranties
duly executed by the Pegasus Funds substantially in the form attached hereto;
and
(c) an originally-executed certificate of the Borrower's chief
financial officer with respect to the antidilution adjustments to the GECC
Warrants resulting from the issuance of the "Litigation Warrants" (as defined in
the Series A Preferred Stock Documents) issued by the Borrower to the Pegasus
Funds simultaneously with the issuance of the initial Litigation L/C.
4. Representations, Warranties and Covenants. (a) The Borrower and each
other Credit Party hereby represents and warrants that this Agreement
constitutes the legal, valid and binding obligation of the Borrower and such
other Credit Party enforceable against the Borrower and each other Credit Party
in accordance with its terms.
(b) The Borrower and each other Credit Party hereby represents and
warrants that its execution and delivery of this Agreement, and its performance
hereafter of the Credit Agreement as modified by this Agreement, have been duly
authorized by all necessary corporate action, do not violate any provision of
its articles of incorporation, bylaws or other charter documents, will not
violate any law, regulation, court order or writ applicable to it, will not
require the approval or consent of any governmental agency, and do not require
the approval or consent of any third party under the terms of any contract or
agreement to which the Borrower, any other Credit Party, Parent or any
Subsidiary of the Borrower or any other Credit Party is bound.
(c) The Borrower hereby represents and warrants that, after giving
effect to this Agreement, (i) no Default or Event of Default has occurred and is
continuing or will have occurred and be continuing and (ii) all of the
representations and warranties of the Borrower and each other Credit Party
contained in the Credit Agreement (other than representations and warranties
which, in accordance with their express terms, are made only as of a specified
date) are, and will be, true and correct as of the date of the Borrower's and
such other Credit Parties' execution hereof in all material respects as though
made on and as of such date.
(d) The Borrower hereby further represents and warrants that its
proposed amendment to its Articles of Incorporation (which it intends to present
to its shareholders at its next shareholders' meeting) would authorize an
increase in the number of authorized shares of its Common Stock to twenty
million shares, and that such increase would be sufficient, after giving effect
to all shares of Common Stock of the Borrower which are issued and outstanding
as of the
-5-
<PAGE> 6
date hereof, to permit (regardless of any unsatisfied conditions to exercise)
(i) the exercise of all outstanding warrants heretofore issued by the
Borrower, including, without limitation, all outstanding Series A Warrants and
GECC Warrants, (ii) the exercise of all Management Options (as defined in the
Credit Agreement after giving effect to this Agreement), and (iii) the exercise
of all additional Litigation Warrants which would be required to be issued by
the Borrower pursuant to the Series A Preferred Stock Documents in the event
that the Lower Court Judgment is hereafter amended by the Lower Court to an
amount equal to $12,000,000 and the existing Bond is amended or supplemented to
secure an aggregate liability of $12,000,000.
(e) The Borrower hereby covenants that it shall undertake to deliver to
the Agent, promptly following its receipt from the Michigan Department of
Consumer and Industry Services, a file-stamped copy of the amendment to its
Articles of Incorporation described in Paragraph 5(d) above.
6. Reference to and Effect on Loan Documents. Each of the Loan
Documents shall remain in full force and effect and is hereby ratified and
confirmed. Except as is expressly set forth in Paragraph 2 of this Agreement,
neither the execution, delivery nor effectiveness of this Agreement shall
operate as a waiver of any right, power or remedy of the Agent or any Lender of
any Default or Event of Default under the Credit Agreement, all of which the
Agent and the Lenders hereby expressly reserve. The Borrower, each other Credit
Party, the Lenders and the Agent agree and acknowledge that this Agreement
constitutes a "Loan Document" under and as defined in the Credit Agreement.
7. Reaffirmation. Each of the Borrower and the other Credit Parties
hereby (a) ratifies and reaffirms all of its payment and performance
obligations, contingent or otherwise, under each Loan Document to which it is a
party, (b) agrees and acknowledges that such ratification and reaffirmation is
not a condition to the continued effectiveness of such Loan Documents and (c)
agrees that neither such ratification and reaffirmation, nor the Agent's and the
Lenders' solicitation of such ratification and reaffirmation, constitutes a
course of dealing giving rise to any obligation or condition requiring a
ratification or reaffirmation of the Borrower's or the other Credit Parties'
obligations under the Loan Documents with respect to any subsequent
modifications to the Credit Agreement or other Loan Documents.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws and decisions of the State of Illinois (including
S.H.A. 735 ILCS 105/5- 1, et. seq., but without giving effect to any other
conflicts of law provisions).
9. Agent's Expenses. The Borrower hereby agrees to promptly reimburse
the Agent for all of the reasonable out-of-pocket expenses, including, without
limitation, attorneys' and paralegals' fees, it has heretofore or hereafter
incurred or incurs in connection with the preparation, negotiation and execution
of this Agreement.
-6-
<PAGE> 7
10. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original and all of which together shall constitute one and
the same agreement among the parties.
* * * *
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
CODE-ALARM, INC.
By:
-----------------------------------
Name: Craig S. Camalo
-------------------------------
Title: Vice President
------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender,
and as holder of the GECC Warrants
By:
-----------------------------------
Name: Catherine L. Midkiff
------------------------------
Title: Duly Authorized Signatory
-----------------------------
TESSCO GROUP, INC.
By:
-----------------------------------
Name: Craig S. Camalo
------------------------------
Title: Secretary
-----------------------------
CHAPMAN SECURITY SYSTEMS, INC.
By:
-----------------------------------
Name: Craig S. Camalo
------------------------------
Title: Secretary
-----------------------------
-8-
<PAGE> 9
INTERCEPT SYSTEMS, INC.
By:
-------------------------------------
Name: Craig S. Camalo
---------------------------------
Title: Secretary
--------------------------------
ANES, INC.
By:
-------------------------------------
Name: Craig S. Camalo
---------------------------------
Title: Secretary
--------------------------------
-9-
<PAGE> 10
REAFFIRMATION OF GUARANTIES
Reference is hereby made to (i) that certain Limited Supplemental
Guaranty dated as of October 24, 1997 (the "Supplemental Guaranty") among
Pegasus Partners, L.P., a Delaware limited partnership, and Pegasus Related
Partners, L.P., a Delaware limited partnership (collectively, the "Guarantors"),
and General Electric Capital Corporation, a New York corporation, individually
and as agent (the "Agent"), (ii) that certain Limited Litigation Guaranty dated
as of October 24, 1997 (the "Litigation Guaranty") among the Guarantors and the
Agent, (iii) that certain Credit Agreement dated as of October 24, 1997, as
heretofore amended (the "Credit Agreement"), among Code-Alarm, Inc., a Michigan
corporation (the "Borrower"), certain other "Credit Parties" referred to and as
defined therein (the "Credit Parties"), certain "Lenders" from time to time
party thereto (the "Lenders"), and the Agent, and (iv) that certain Amendment
No. 3 and Waiver No. 3 to Credit Agreement and Other Loan Documents of even date
herewith (the "Amendment") among the Borrower, the Credit Parties, the Lenders
and the Agent.
Each of the Guarantors hereby (a) acknowledges having received and
reviewed a copy of the Amendment, (b) ratifies and reaffirms all of its payment
and performance obligations, contingent or otherwise, under the Supplemental
Guaranty and the Litigation Guaranty (collectively, the "Guaranties"), (c)
agrees and acknowledges that such ratification and reaffirmation is not a
condition to the continued effectiveness of such Guaranties and (d) agrees that,
without limiting any of the express provisions of the Guaranties, neither such
ratification and reaffirmation, nor the Agent's and the Lenders' solicitation of
such ratification and reaffirmation, constitutes a course of dealing giving rise
to any obligation or condition requiring a ratification or reaffirmation of the
Guarantors' obligations under the Guaranties with respect to any subsequent
modifications to the Credit Agreement or other Loan Documents.
IN WITNESS WHEREOF, this instrument has been executed and delivered as
of this 20th day of April, 1998.
PEGASUS PARTNERS, L.P. PEGASUS RELATED PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P., By: PEGASUS INVESTORS, L.P.,
as Managing General Partner as Managing General Partner
By: PEGASUS INVESTORS GP, INC., By: PEGASUS INVESTORS GP, INC.,
as General Partner as General Partner
By: By:
------------------------------ -------------------------------
Name: Richard Cion Name: Richard Cion
----------------------- ------------------------
Title: Vice President Title: Vice President
---------------------- -----------------------
<PAGE> 11
EXHIBIT A
to
Amendment No. 3 and Waiver No. 3 to Credit Agreement
and Other Loan Documents
Dated as of April 20, 1998
Code-Alarm, Inc. 1998 Incentive and Non-Qualified Stock Option Plan
Attached.
<PAGE> 12
EXHIBIT B
to
Amendment No. 3 and Waiver No. 3 to Credit Agreement
and Other Loan Documents
Dated as of April 20, 1998
Employee Loan
Attached.
<PAGE> 1
EXHIBIT 10.1.5
EXECUTION COPY
WAIVER NO. 4
TO
CREDIT AGREEMENT
AND
OTHER LOAN DOCUMENTS
THIS WAIVER NO. 4 TO CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
("Agreement") is being executed and delivered as of June 12, 1998 by and among
Code-Alarm, Inc., a Michigan corporation (the "Borrower"), the other "Credit
Parties" from time to time party to the Credit Agreement referred to below
(together with the Borrower, collectively, the "Credit Parties"), the financial
institutions from time to time party to such Credit Agreement (collectively, the
"Lenders", and each individually, a "Lender"), and General Electric Capital
Corporation, in its individual capacity, and as the "Agent" for the Lenders (the
"Agent"). Undefined capitalized terms which are used herein shall have the
meanings ascribed to such terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the other Credit Parties, the Lenders
and the Agent are parties to that certain Credit Agreement dated as of October
24, 1997, as heretofore amended (the "Credit Agreement"), pursuant to which the
Lenders have agreed to provide, subject to the terms and conditions contained
therein, certain loans and other financial accommodations to the Borrower;
WHEREAS, the Credit Agreement and Litigation L/C Agreement
provide, among other things, that (i) if the Bond and the Litigation L/C are
drawn, the Borrower's reimbursement obligations to the Lenders with respect to
the Litigation L/C would constitute Term Loan C or, alternatively, (ii) if the
DEI Litigation is settled or a Final Judgment is otherwise entered and payable
by the Borrower, then, upon request by the Borrower, the Lenders would directly
fund Term Loan C in an amount sufficient to satisfy such settlement or other
Final Judgment;
WHEREAS, the Borrower has entered into a settlement agreement
with Directed Electronics, Inc. ("Directed") with respect to the DEI Litigation,
a true and complete copy of which is attached as Exhibit A hereto (the
"Settlement Agreement"), pursuant to which, among other things, the Borrower is
obligated to pay $10,000,000 to Directed (the "Settlement Amount"),
$9,341,030.00 of which through a drawing by Directed of the Bond (the "Drawn
Portion") and the remaining $658,970.00 of which in cash directly to Directed
(the "Funded Portion"); and
<PAGE> 2
WHEREAS, the Borrower has requested that the Lenders and
Agent, and subject to the terms and conditions of this Agreement, the Lenders
and Agent are willing to (i) permit the Borrower to utilize the Term Loan C
Commitment to pay the entire Settlement Amount in accordance with the payment
terms of the Settlement Agreement notwithstanding the provisions of the Credit
Agreement and Litigation L/C Agreement which currently permit the Borrower to
pay settlement consideration with respect to the DEI Litigation through a draw
of the Bond and Litigation L/C or through a direct funding under the Term Loan C
Commitment, but not through a combination of both means as is required under the
Settlement Agreement and (ii) waive certain other provisions of the Credit
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions stated herein and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the Borrower, the
Lenders, the Agent, such parties hereby agree as follows:
1. Waiver. Subject to Paragraph 3 of this Agreement and
effective as of the date of this Agreement, each of the Lenders and the Agent
hereby waives:
(a) the requirement set forth in Section 1.1(d)(iii) of the
Credit Agreement and Section 1.1(c) of the Litigation L/C Agreement
that, in order for the Borrower to obtain a direct loan pursuant to the
Term Loan C Commitment to fund the Funded Portion, either no Litigation
L/C Obligations shall have been then previously incurred, or the
Litigation L/C shall have been then previously terminated, provided,
that, for all purposes under the Credit Agreement, Litigation L/C
Agreement and the other Loan Documents, (i) the Lenders shall be deemed
to have funded Term Loan C for the account of the Borrower in an
aggregate original principal amount equal to the Settlement Amount upon
the drawing of the Litigation L/C in an amount equal to the Drawn
Portion and the Lenders' funding of the Funded Portion otherwise in
accordance with the terms and conditions of such sections of the Credit
Agreement and Litigation L/C Agreement, (ii) from and after such
drawing and funding, the Lenders shall have no further obligation or
commitment to provide Loans or Letters of Credit with respect to the
Term Loan C Commitment or Term Loan B Commitment and (iii) Term Loan C
shall be evidenced by the Term C Note, governed by and repayable in
accordance with the terms and conditions of the Credit Agreement, the
Litigation L/C Agreement and the other Loan Documents, secured by the
Collateral pursuant to the Litigation Collateral Documents, and
guaranteed pursuant to the Litigation Guaranty;
(b) the requirement set forth in Section 1.1(d)(iii) of the
Credit Agreement that a Notice of Term C Advance be given no later than
11:00 a.m. (Chicago time) on a date which is three (3) Business Days
prior to the Term Loan C Funding Date, provided, that, (i) this
Agreement shall constitute a Notice of Term C Advance (as more
particularly set forth in Paragraph 2 below) and (ii) Term Loan C shall
initially be an Index Rate Loan (which may be later converted by the
Borrower to a LIBOR Loan pursuant to Section 1.5(e) of the Credit
Agreement); and
-2-
<PAGE> 3
(c) the representations and warranties set forth in Section
3.11 with respect to extensions by the Borrower and the IRS of the
IRS's continuing examination of the Borrower's tax returns for 1994.
2. Request for Term C Advance. The Borrower hereby irrevocable
requests the Term Lenders to directly advance the Funded Portion to Directed
pursuant to the wire transfer instructions attached as Exhibit B hereto on the
first Business Day after the date hereof on which all of the conditions
precedent set forth in Paragraph 3 of this Agreement, Section 2.3(II) of the
Credit Agreement and Section 2.4 of the Credit Agreement, have been satisfied
(other than the condition set forth in Section 2.3(II)(e)); provided, however,
that if such conditions are satisfied after 11:00 a.m. (Chicago time) on a
Business Day, such funding may be made on the next succeeding Business Day.
Notwithstanding anything in the Loan Documents to the contrary, this Agreement
hereby constitutes the Borrower's Notice of Term C Advance, and the date on
which Term Loan C is made pursuant to this Agreement shall constitute the Term
Loan C Funding Date.
3. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraph 1 shall be deemed to have become effective as of the
date of this Agreement, but such effectiveness shall be expressly conditioned
upon the Agent's receipt on or before June 30, 1998 of each of the following:
(a) an originally-executed counterpart of this Agreement
executed by a duly authorized officer of the Borrower, each other Credit Party,
and each of the Requisite Lenders;
(b) originally-executed counterparts to a Reaffirmation of
Guaranties duly executed by the Pegasus Funds substantially in the form attached
hereto;
(c) copies of court orders and other evidence satisfactory to
the Agent indicating that the Lower Court has approved the Settlement Agreement
and the payment of the Drawn Portion to Directed pursuant to the terms and
conditions of the Settlement Agreement;
(d) evidence satisfactory to the Agent that the Drawn Portion
has been paid to Directed pursuant to the terms and conditions of the Settlement
Agreement; and
(e) an originally-executed certificate of Borrower's chief
financial officer with respect to the anti-dilution adjustments to the GECC
Warrants resulting from the issuance of the additional "Litigation Warrants" (as
defined in the Series A Preferred Stock Documents) to be issued by Borrower to
the Pegasus Funds simultaneously with the Lenders' funding of the Funded Portion
of Term Loan C as contemplated by this Agreement, together with certified copies
of the fully-executed Litigation Warrants so issued or to be issued.
4. Representations, Warranties and Covenants. (a) The Borrower
and each other Credit Party hereby represents and warrants that this Agreement
constitutes the legal, valid and
-3-
<PAGE> 4
binding obligation of the Borrower and such other Credit Party enforceable
against the Borrower and each other Credit Party in accordance with its terms.
(b) The Borrower and each other Credit Party hereby represents
and warrants that its execution and delivery of this Agreement, and its
performance hereafter of the Credit Agreement as modified by this Agreement,
have been duly authorized by all necessary corporate action, do not violate any
provision of its articles of incorporation, bylaws or other charter documents,
will not violate any law, regulation, court order or writ applicable to it, will
not require the approval or consent of any governmental agency, and (except as
provided in this Agreement) do not require the approval or consent of any third
party under the terms of any contract or agreement to which the Borrower, any
other Credit Party, Parent or any Subsidiary of the Borrower or any other Credit
Party is bound.
(c) The Borrower hereby represents and warrants that, as of
the date hereof, and on the Term Loan C Funding Date both before and after
giving effect to the making and application of Term Loan C pursuant to the terms
of this Agreement, (i) no Default or Event of Default has occurred and is
continuing or will have occurred and be continuing, (ii) all of the
representations and warranties of the Borrower and each other Credit Party
contained in the Credit Agreement (other than representations and warranties
which, in accordance with their express terms, are made only as of a specified
date) are, and will be, true and correct, (iii) the Borrower is and, to the best
of the Borrower's knowledge Directed is, in full compliance with the terms and
conditions of the Settlement Agreement, (iv) all representations and warranties
made by the Borrower, and, to the best of the Borrower's knowledge, all of the
representations and warranties of Directed, to the extent set forth in the
Settlement Agreement, are true and complete in all respects, and (v) all of the
conditions set forth in Sections 2.3(II) and 2.4 of the Credit Agreement, have
been satisfied (other than the condition set forth in Section 2.3(II)(e) of the
Credit Agreement).
(d) The Borrower hereby covenants to (i) provide the Agent,
promptly upon its filing or receipt thereof, true and complete copies of all
pleadings and orders relating to any of the dismissals described in Sections 3
or 12 of the Settlement Agreement, or any of the satisfactions described in
Section 4 of the Settlement Agreement, (ii) provide the Agent, promptly upon its
obtaining knowledge thereof, notice of the Borrower's or Directed's breach or
other noncompliance, or alleged breach or noncompliance, with any provision,
representation or warranty set forth in the Settlement Agreement and (iii) not
to amend, waive or otherwise modify any term or provision of the Settlement
Agreement without the prior written consent of the Requisite Lenders.
(e) The Borrower, the Lenders and the Agent hereby agree that,
notwithstanding anything in the Loan Documents to the contrary, any material
breach by the Borrower or Directed of any representation, warranty, term or
condition of the Settlement Agreement shall thereupon constitute an immediate
Event of Default under and as used in the Credit Agreement.
6. Reference to and Effect on Loan Documents. Each of the Loan
Documents shall remain in full force and effect and is hereby ratified and
confirmed. Without limiting the
-4-
<PAGE> 5
foregoing, the Borrower hereby reaffirms the Borrower's grant to the Agent of
each of the Agent's Liens, on behalf of itself and the Lenders, pursuant to the
Collateral Documents and the Litigation Collateral Documents. Neither the
execution, delivery nor effectiveness of this Agreement shall operate as a
waiver of any right, power or remedy of the Agent or any Lender of any Default
or Event of Default under the Credit Agreement, all of which the Agent and the
Lenders hereby expressly reserve. The Borrower, each other Credit Party, the
Lenders and the Agent agree and acknowledge that this Agreement constitutes a
"Loan Document" under and as defined in the Credit Agreement.
7. Reaffirmation. Each of the Borrower and the other Credit
Parties hereby (a) ratifies and reaffirms all of its payment and performance
obligations, contingent or otherwise, under each Loan Document to which it is a
party, (b) agrees and acknowledges that such ratification and reaffirmation is
not a condition to the continued effectiveness of such Loan Documents and (c)
agrees that neither such ratification and reaffirmation, nor the Agent's and the
Lenders' solicitation of such ratification and reaffirmation, constitutes a
course of dealing giving rise to any obligation or condition requiring a
ratification or reaffirmation of the Borrower's or the other Credit Parties'
obligations under the Loan Documents with respect to any subsequent
modifications to the Credit Agreement or other Loan Documents.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and decisions of the State of Illinois
(including S.H.A. 735 ILCS 105/5-1, et. seq., but without giving effect to any
other conflicts of law provisions).
9. Agent's Expenses. The Borrower hereby agrees to promptly
reimburse the Agent for all of the reasonable out-of-pocket expenses, including,
without limitation, attorneys' and paralegals' fees, it has heretofore or
hereafter incurred or incurs in connection with the preparation, negotiation and
execution of this Agreement.
10. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original and all of which together shall
constitute one and the same agreement among the parties.
* * * *
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
CODE-ALARM, INC.
By:
-----------------------------------
Name: Craig S. Camalo
-----------------------------
Title: Vice President
----------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender,
and as holder of the GECC Warrants
By:
-----------------------------------
Name: Catharine L. Midkiff
-----------------------------
Title: Duly Authorized Signatory
----------------------------
TESSCO GROUP, INC.
By:
-----------------------------------
Name: Craig S. Camalo
-----------------------------
Title: Secretary
----------------------------
CHAPMAN SECURITY SYSTEMS, INC.
By:
-----------------------------------
Name: Craig S. Camalo
-----------------------------
Title: Secretary
----------------------------
-6-
<PAGE> 7
INTERCEPT SYSTEMS, INC.
By:
-----------------------------
Name: Craig S. Camalo
----------------------
Title: Secretary
---------------------
ANES, INC.
By:
-----------------------------
Name: Craig S. Camalo
----------------------
Title: Secretary
---------------------
-7-
<PAGE> 8
REAFFIRMATION OF GUARANTIES
Reference is hereby made to (i) that certain Limited
Supplemental Guaranty dated as of October 24, 1997 (the "Supplemental Guaranty")
among Pegasus Partners, L.P., a Delaware limited partnership, and Pegasus
Related Partners, L.P., a Delaware limited partnership (collectively, the
"Guarantors"), and General Electric Capital Corporation, a New York corporation,
individually and as agent (the "Agent"), (ii) that certain Limited Litigation
Guaranty dated as of October 24, 1997 (the "Litigation Guaranty") among the
Guarantors and the Agent, (iii) that certain Credit Agreement dated as of
October 24, 1997, as heretofore amended (the "Credit Agreement"), among
Code-Alarm, Inc., a Michigan corporation (the "Borrower"), certain other "Credit
Parties" referred to and as defined therein (the "Credit Parties"), certain
"Lenders" from time to time party thereto (the "Lenders"), and the Agent, and
(iv) that certain Waiver No. 4 to Credit Agreement and Other Loan Documents of
even date herewith (the "Waiver") among the Borrower, the Credit Parties, the
Lenders and the Agent.
Each of the Guarantors hereby:
(a) acknowledges having received and reviewed a copy of the
Waiver and hereby consent to its terms and provisions;
(b) subject to clause (c) below, ratifies and reaffirms all of
its payment and performance obligations, contingent or otherwise, under the
Supplemental Guaranty and the Litigation Guaranty (collectively, the
"Guaranties");
(c) confirms and agrees that, notwithstanding anything in the
Litigation Guaranty or any other Loan Document to the contrary, upon the funding
by the Lenders of the "Funded Portion" pursuant to and as defined in the Waiver,
the "Limitation Amount" (as referred to and as defined in the Litigation
Guaranty) shall equal $10,000,000 and the "Termination Date" (as referred to and
used in the Litigation Guaranty) shall be the date on which Term Loan C is
repaid in full (subject to the proviso at the end of the second to last sentence
of Section 2.1 of the Litigation Guaranty);
(d) confirms that it has received additional Litigation
Warrants in sufficient form and amount, together with all related opinions,
certificates, documents and instruments, as may be required by the Litigation
Guaranty and by that certain Unit Purchase Agreement dated as of October 24,
1997 among the Borrower and the Guarantors;
(e) certifies that together herewith it has delivered a
calculation of the Net Assets and Unpaid Capital Obligations of each Guarantor
as of the date hereof, and a calculation of the Aggregate Net Capital and
Aggregate Portfolio Cash Flow as of the date hereof (in each case as defined in
the Litigation Guaranty);
(f) confirms that each of the representations and warranties
set forth in Section 4 of the Litigation Guaranty are true and correct as of the
date hereof; and
<PAGE> 9
(g) agrees and acknowledges that each of the Effectiveness
Conditions have been previously satisfied and the Effective Date has previously
occurred (as such capitalized terms are defined in the Litigation Guaranty).
IN WITNESS WHEREOF, this instrument has been executed and
delivered as of this 12th day of June, 1998.
PEGASUS PARTNERS, L.P. PEGASUS RELATED PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P., By: PEGASUS INVESTORS, L.P.,
as Managing General Partner as Managing General Partner
By: PEGASUS INVESTORS GP, INC., By: PEGASUS INVESTORS GP, INC.,
as General Partner as General Partner
By: By:
------------------------------ ------------------------------
Name: Richard Cion Name: Richard Cion
----------------------- ------------------------
Title: Vice President Title: Vice President
----------------------- ------------------------
<PAGE> 10
EXHIBIT A
to
Waiver No. 4 to Credit Agreement
and Other Loan Documents
Dated as of June 12, 1998
Settlement Agreement
Attached.
<PAGE> 11
EXHIBIT B
to
Waiver No. 4 to Credit Agreement
and Other Loan Documents
Dated as of June 12, 1998
Wire Transfer Instructions
Wells Fargo Bank, N.A.
San Francisco, California 94163
Fedwire ABA: 121000248
For the account of:
Directed Electronics, Inc.
Vista, California 92083
Account No.: 4159294156
<PAGE> 1
EXHIBIT 10.1.6
EXECUTION COPY
WAIVER NO. 5
TO
CREDIT AGREEMENT
THIS WAIVER NO. 5 TO CREDIT AGREEMENT ("Agreement") is being executed
and delivered as of July 1, 1998 by and among Code-Alarm, Inc., a Michigan
corporation (the "Borrower"), the other "Credit Parties" from time to time party
to the Credit Agreement referred to below (together with the Borrower,
collectively, the "Credit Parties"), the financial institutions from time to
time party to such Credit Agreement (collectively, the "Lenders", and each
individually, a "Lender"), and General Electric Capital Corporation, in its
individual capacity, and as the "Agent" for the Lenders (the "Agent"). Undefined
capitalized terms which are used herein shall have the meanings ascribed to such
terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the other Credit Parties, the Lenders and the
Agent are parties to that certain Credit Agreement dated as of October 24, 1997,
as heretofore amended (the "Credit Agreement"), pursuant to which the Lenders
have agreed to provide, subject to the terms and conditions contained therein,
certain loans and other financial accommodations to the Borrower;
WHEREAS, the Borrower has entered into a settlement agreement with
Intercept Security Corporation ("Intercept") with respect to certain pending
litigation, a true and complete copy of which is attached as Exhibit A hereto
(the "Settlement Agreement"), pursuant to which, among other things, the
Borrower would issue a warrant in favor of Brooks & Kushman, P.C. for 100,000
shares of its common stock and having an initial exercise price equal to the
price per share at which such common stock was being publicly traded at 5:00
p.m. on May 27, 1998 (the "Settlement Warrant").
WHEREAS, the Borrower has requested that the Lenders and Agent, and
subject to the terms and conditions of this Agreement, the Lenders and Agent are
willing to waive certain provisions of the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the terms
and conditions stated herein and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Borrower, the Lenders, the
Agent, such parties hereby agree as follows:
1. Waiver. Subject to Paragraph 2 of this Agreement and effective as of
the date of this Agreement, each of the Lenders and the Agent hereby waives the
Borrower's compliance
<PAGE> 2
with Section 6.5 the Credit Agreement with respect to the Borrower's issuance
of the Settlement Warrant pursuant to the Settlement Agreement.
2. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraph 1 shall be deemed to have become effective as of the
date of this Agreement, but such effectiveness shall be expressly conditioned
upon the Agent's receipt on or before July 31, 1998 of each of the following:
(a) an originally-executed counterpart of this Agreement executed by a
duly authorized officer of the Borrower, each other Credit Party, and each of
the Requisite Lenders;
(b) originally-executed counterparts to a Reaffirmation of Guaranty
duly executed by the Pegasus Funds in substantially the form attached hereto;
(c) copies of court orders and other evidence satisfactory to the Agent
indicating that the United States District Court, Eastern District of Michigan,
Southern Division has approved the Settlement Agreement and the issuance of the
Settlement Warrant to Brooks & Kushman, P.C. pursuant to the terms and
conditions of the Settlement Agreement;
(d) a complete copy of the executed Settlement Agreement;
(e) a complete copy of the executed Settlement Warrant; and
(f) an originally-executed certificate of the Borrower's chief
financial officer with respect to the antidilution adjustments to the GECC
Warrants resulting from the issuance by the Borrower of the Settlement Warrant.
3. Representations, Warranties and Covenants. (a) The Borrower and each
other Credit Party hereby represents and warrants that this Agreement
constitutes the legal, valid and binding obligation of the Borrower and such
other Credit Party enforceable against the Borrower and each other Credit Party
in accordance with its terms.
(b) The Borrower and each other Credit Party hereby represents and
warrants that its execution and delivery of this Agreement, and its performance
hereafter of the Credit Agreement as modified by this Agreement, have been duly
authorized by all necessary corporate action, do not violate any provision of
its articles of incorporation, bylaws or other charter documents, will not
violate any law, regulation, court order or writ applicable to it, will not
require the approval or consent of any governmental agency, and (except as
provided in this Agreement) do not require the approval or consent of any third
party under the terms of any contract or agreement to which the Borrower, any
other Credit Party, Parent or any Subsidiary of the Borrower or any other Credit
Party is bound.
(c) The Borrower hereby represents and warrants that, as of the date
hereof, (i) no Default or Event of Default has occurred and is continuing or
will have occurred and be
-2-
<PAGE> 3
continuing, except as described more particularly on Schedule I hereto, and (ii)
all of the representations and warranties of the Borrower and each other Credit
Party contained in the Credit Agreement (other than representations and
warranties which, in accordance with their express terms, are made only as of a
specified date) are, and will be, true and correct.
(d) The Borrower hereby covenants to (i) provide the Agent, promptly
upon its filing or receipt thereof, true and complete copies of all pleadings
and orders relating to any of the dismissals described in Sections 8 of the
Settlement Agreement, or any of the satisfactions described in Sections 6 and 7
of the Settlement Agreement, and (ii) provide the Agent, promptly upon its
obtaining knowledge thereof, notice of the Borrower's breach or other
noncompliance, or alleged breach or noncompliance, with any provision,
representation or warranty set forth in the Settlement Agreement.
6. Reference to and Effect on Loan Documents. Each of the Loan
Documents shall remain in full force and effect and is hereby ratified and
confirmed. Without limiting the foregoing, the Borrower hereby reaffirms the
Borrower's grant to the Agent of each of the Agent's Liens, on behalf of itself
and the Lenders, pursuant to the Collateral Documents and the Litigation
Collateral Documents. Neither the execution, delivery nor effectiveness of this
Agreement shall operate as a waiver of any right, power or remedy of the Agent
or any Lender of any Default or Event of Default under the Credit Agreement, all
of which the Agent and the Lenders hereby expressly reserve. The Borrower, each
other Credit Party, the Lenders and the Agent agree and acknowledge that this
Agreement constitutes a "Loan Document" under and as defined in the Credit
Agreement.
7. Reaffirmation. Each of the Borrower and the other Credit Parties
hereby (a) ratifies and reaffirms all of its payment and performance
obligations, contingent or otherwise, under each Loan Document to which it is a
party, (b) agrees and acknowledges that such ratification and reaffirmation is
not a condition to the continued effectiveness of such Loan Documents and (c)
agrees that neither such ratification and reaffirmation, nor the Agent's and the
Lenders' solicitation of such ratification and reaffirmation, constitutes a
course of dealing giving rise to any obligation or condition requiring a
ratification or reaffirmation of the Borrower's or the other Credit Parties'
obligations under the Loan Documents with respect to any subsequent
modifications to the Credit Agreement or other Loan Documents.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws and decisions of the State of Illinois (including
S.H.A. 735 ILCS 105/5-1, et. seq., but without giving effect to any other
conflicts of law provisions).
9. Agent's Expenses. The Borrower hereby agrees to promptly reimburse
the Agent for all of the reasonable out-of-pocket expenses, including, without
limitation, attorneys' and paralegals' fees, it has heretofore or hereafter
incurred or incurs in connection with the preparation, negotiation and execution
of this Agreement.
-3-
<PAGE> 4
10. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original and all of which together shall constitute one and
the same agreement among the parties.
* * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
CODE-ALARM, INC.
By:
-------------------------------
Name: Craig S. Camalo
--------------------------
Title: Vice President
-------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender,
and as holder of the GECC Warrants
By:
-------------------------------
Name:
--------------------------
Title: Duly Authorized Signatory
-------------------------
TESSCO GROUP, INC.
By:
-------------------------------
Name: Craig S. Camalo
--------------------------
Title: Secretary
-------------------------
CHAPMAN SECURITY SYSTEMS, INC.
By:
-------------------------------
Name: Craig S. Camalo
--------------------------
Title: Secretary
-------------------------
-5-
<PAGE> 6
INTERCEPT SYSTEMS, INC.
By:
--------------------------------
Name: Craig S. Camalo
---------------------------
Title: Secretary
--------------------------
ANES, INC.
By:
--------------------------------
Name: Craig S. Camalo
---------------------------
Title: Secretary
--------------------------
-6-
<PAGE> 7
REAFFIRMATION OF GUARANTIES
Reference is hereby made to (i) that certain Limited Supplemental
Guaranty dated as of October 24, 1997 (the "Supplemental Guaranty") among
Pegasus Partners, L.P., a Delaware limited partnership, and Pegasus Related
Partners, L.P., a Delaware limited partnership (collectively, the "Guarantors"),
and General Electric Capital Corporation, a New York corporation, individually
and as agent (the "Agent"), (ii) that certain Limited Litigation Guaranty dated
as of October 24, 1997 (the "Litigation Guaranty") among the Guarantors and the
Agent, (iii) that certain Credit Agreement dated as of October 24, 1997, as
heretofore amended (the "Credit Agreement"), among Code-Alarm, Inc., a Michigan
corporation (the "Borrower"), certain other "Credit Parties" referred to and as
defined therein (the "Credit Parties"), certain "Lenders" from time to time
party thereto (the "Lenders"), and the Agent, and (iv) that certain Waiver No. 5
to Credit Agreement and Other Loan Documents of even date herewith (the
"Waiver") among the Borrower, the Credit Parties, the Lenders and the Agent.
Each of the Guarantors hereby (a) acknowledges having received and
reviewed a copy of the Waiver and hereby consent to its terms and provisions;
(b) ratifies and reaffirms all of its payment and performance obligations,
contingent or otherwise, under the Supplemental Guaranty and the Litigation
Guaranty (collectively, the "Guaranties"); (c) agrees and acknowledges that such
ratification and reaffirmation is not a condition to the continued effectiveness
of such Guaranties; and (d) agrees that, without limiting any of the express
provisions of the Guaranties, neither such ratification and reaffirmation, nor
the Agent's and the Lender's solicitation of such ratification and reaffirmation
constitutes a course of dealing giving rise to any obligation or condition
requiring a ratification or a reaffirmation of the Guarantor's obligations under
the Guaranties with respect to any subsequent modifications tot the Credit
Agreement or other Loan Documents.
IN WITNESS WHEREOF, this instrument has been executed and delivered as
of this first day of July, 1998.
PEGASUS PARTNERS, L.P. PEGASUS RELATED PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P., By: PEGASUS INVESTORS, L.P.,
as Managing General Partner as Managing General Partner
By: PEGASUS INVESTORS GP, INC., By: PEGASUS INVESTORS GP, INC.,
as General Partner as General Partner
By: By:
---------------------------- -------------------------------
Name: Richard Cion Name: Richard Cion
------------------ --------------------------
Title: Vice President Title: Vice President
----------------- -------------------------
<PAGE> 8
EXHIBIT A
to
Waiver No. 5 to Credit Agreement
Dated as of July 1, 1998
Settlement Agreement
Attached.
<PAGE> 9
SCHEDULE I
to
Waiver No. 5 to Credit Agreement
Dated as of July 1, 1998
The Borrower may not be in compliance with the financial covenants
contained in paragraphs (b) and (d) of Annex G to the Credit Agreement with
respect to the period ended June 30, 1998, and paragraph (e) of Annex G to
the Credit Agreement as of June 30, 1998.
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------- -----------------------------
1998 1997 1998 1997
--------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding A 2,320,861 2,320,861 2,320,861 2,320,861
Weighted average dilutive
warrants outstanding -- --
Weighted average common
------------ --------- ----------- -----------
and dilutive shares outstanding B 2,320,861 2,320,861 2,320,861 2,320,861
============ ========= =========== ===========
Net income (loss) applicable to common stock C $ (1,479,000) $ 286,000 $ (889,000) $ 399,000
============ ========= =========== ===========
Basic earnings (loss) per share C/A $ (0.64) $ 0.12 $ (0.38) $ 0.17
============ ========= =========== ===========
Diluted earnings (loss) per share C/B $ (0.64) $ 0.12 $ (0.38) $ 0.17
============ ========= =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 52
<SECURITIES> 0
<RECEIVABLES> 7471
<ALLOWANCES> 1514
<INVENTORY> 4417
<CURRENT-ASSETS> 11956
<PP&E> 10270
<DEPRECIATION> 7874
<TOTAL-ASSETS> 16215
<CURRENT-LIABILITIES> 9117
<BONDS> 0
0
7000
<COMMON> 12213
<OTHER-SE> (28996)
<TOTAL-LIABILITY-AND-EQUITY> 16215
<SALES> 24407
<TOTAL-REVENUES> 24407
<CGS> 15925
<TOTAL-COSTS> 7082
<OTHER-EXPENSES> 1026
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 913
<INCOME-PRETAX> (539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (889)
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
