<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.)
Filed by the Registrant /X/
Filed by a Party other than the Registrant
/ / Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the commission
Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
Code-Alarm, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee required.
/ / Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No. 14A:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
CODE ALARM LOGO
950 E. WHITCOMB
MADISON HEIGHTS, MI
48071-6408
248-583-9620
248-585-4799 (FAX)
April 28, 1998
To our Shareholders:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of Code-Alarm, Inc., which will be held at the Northfield Hilton, Troy, Michigan
on Tuesday, May 19, 1998 at 10:00 a.m. All holders of record of the Company's
Common Stock at the close of business on April 10, 1998 are entitled to vote at
the Annual Meeting. We hope that you will be able to attend the Annual Meeting.
If you are unable to attend, you are urged to complete, sign, date and return
the proxy card in the enclosed envelope in order to make certain that your
shares will be represented at the meeting.
Sincerely,
RAND W. MUELLER SIGNATURE
Rand W. Mueller
President
<PAGE> 3
CODE-ALARM, INC.
950 EAST WHITCOMB
MADISON HEIGHTS, MICHIGAN 48071
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of
Code-Alarm, Inc. will be held at the Northfield Hilton, Troy, Michigan, on
Tuesday, May 19, 1998, at 10:00 a.m. for the following purposes:
(1) To elect two directors;
(2) To approve and adopt an amendment to the Company's Articles of
Incorporation to increase the authorized number of shares of the
Company's Common Stock to 20 million;
(3) To approve and adopt the Company's 1998 Incentive and Non-Qualified
Stock Option Plan;
(4) To approve the appointment of Deloitte & Touche LLP as Independent
Certified Public Accountants to audit the books and records of the
Company for the year ending December 31, 1998; and
(5) To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on April 10, 1998, will be
entitled to vote at the meeting and at any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
CRAIG S. CAMALO
Craig S. Camalo
Secretary
April 28, 1998
Madison Heights, Michigan
EACH SHAREHOLDER IS URGED TO EXECUTE AND RETURN
THE ENCLOSED PROXY PROMPTLY
<PAGE> 4
CODE-ALARM, INC.
950 EAST WHITCOMB
MADISON HEIGHTS, MICHIGAN 48071
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1998
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Code-Alarm, Inc.
(the "Company") in connection with the solicitation of proxies by or on behalf
of the Board of Directors to be voted at the 1998 Annual Meeting of Shareholders
of the Company to be held at the Northfield Hilton, Troy, Michigan, on Tuesday,
May 19, 1998, at 10:00 a.m. and at any adjournment thereof. This Proxy Statement
and form of proxy were first sent or given to shareholders on or about April 28,
1998.
Shares represented by all properly executed proxies delivered pursuant to
this solicitation will be voted in accordance with the directions given, unless
previously revoked, if delivered in time to be voted at the Annual Meeting.
Shareholders who execute a proxy in the accompanying form may revoke the proxy
at any time before it is exercised by giving written notice to the Secretary
bearing a later date than the proxy, by submitting a later-dated proxy, or by
voting the shares represented by such proxy in person at the Annual Meeting.
The expense of preparing, printing and mailing this Proxy Statement will be
paid by the Company. In addition to the use of the mails, proxies may be
solicited personally or by telephone by officers, directors and regular
employees of the Company without additional compensation. The Company will
reimburse banks, brokers and other custodians, nominees and fiduciaries for
their costs in sending the proxy materials to the beneficial owners of the
Company's voting securities.
Shareholders of record at the close of business on April 10, 1998, will be
entitled to vote at the Annual Meeting. On that date, 2,320,861 shares of Common
Stock and 55,000 shares of Series A-1 Preferred Stock were issued and
outstanding. Each share of Common Stock entitles the holder to one vote and on
the proposals on which the Series A-1 Preferred Stock is entitled to vote, each
share of Series A-1 Preferred Stock entitles the holder to one vote. Shares may
not be voted cumulatively for the election of directors. For purposes of
determining the number of votes cast with respect to a particular matter, only
those votes cast "for" or "against" are included. Abstentions are counted only
for purposes of determining whether a quorum is present at the meeting, while
broker non-votes are not counted for any purposes. Presence in person or by
proxy of holders of a majority of the shares of Common Stock, and for Proposal
II (increase of Company's authorized shares of Common Stock to 20 million) and
Proposal III (approval and adoption of the Company's 1998 Incentive and
Non-Qualified Stock Option Plan), on which the holders of Series A-1 Stock are
entitled to vote as a class, a majority of the shares of Series A-1 Stock, will
constitute a quorum at the Annual Meeting. Assuming a quorum is present,
directors are elected by a plurality of all votes cast.
The Company's Annual Report to Shareholders for the year ended December 31,
1997, is enclosed herewith.
1
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 5, 1998, certain information
regarding the beneficial ownership of the Company's voting securities by each
director, executive officer, nominee for director, each person known by the
Company to own beneficially more than five percent of such outstanding voting
securities and all directors and officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------
BENEFICIAL OWNER CLASS OF STOCK NUMBER PERCENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rand W. Mueller(1)............................. Common 552,060(2) 3.7%
Kenneth M. Mueller(1).......................... Common 120,793(4) (3)
William S. Pickett............................. Common 850(4) (3)
Alan H. Foster................................. Common 850(4) (3)
Marshall J. Mueller(1)......................... Common 6,750(4) (3)
Jack D. Rutherford............................. Common 12,200(4) (3)
Peter J. Stouffer.............................. Common 7,019(5) (3)
Craig S. Camalo................................ Common 5,210(7) (3)
Series B Preferred 1(8) 100%
Michael P. Schroeder........................... Common 7,746(6) (3)
Pegasus Partners, L.P.(9)...................... Common 3,044,348(10)(11) 20.5%
99 River Road Series A-1 Preferred 15,275 27.8%
Cos Cob, CT 06807
Pegasus Related Partners, L.P.(9).............. Common 7,917,299(11)(12) 53.3%
99 River Road Series A-1 Preferred 39,725 72.2%
Cos Cob, CT 06807
All directors and officers as a group.......... Common 710,478(13) 4.8%
Series B Preferred 1(8) 100%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Rand W. Mueller and Marshall J. Mueller are brothers, and Kenneth M.
Mueller is their father. Each of them disclaims beneficial ownership of
each other's shares of Common Stock as a result of this family
relationship.
(2) Includes 11,250 shares of Common Stock as to which Rand W. Mueller has the
right to acquire beneficial ownership, by the exercise of options granted
under the Company's 1987 Stock Option Plan. Mr. Mueller holds voting rights
with respect to of 538,810 shares of Common Stock held in his wife's trust
and 1,000 shares of Common Stock held in trust for each of his two minor
children, but has no economic interest in these shares.
(3) Less than one percent.
(4) Includes 750 shares of Common Stock as to which the director has the right
to acquire beneficial ownership, by the exercise of options granted under
the Company's 1987 Stock Option Plan.
(5) Represents 7,019 shares of Common Stock as to which Peter J. Stouffer has
the right to acquire beneficial ownership, by the exercise of options
granted under the Company's 1987 Stock Option Plan.
(6) Includes 3,175 shares of Common Stock to which Michael P. Schroeder has the
right to acquire beneficial ownership, by the exercise of options granted
under the Company's 1987 Stock Option Plan.
(7) Includes 1,750 shares of Common Stock to which Craig S. Camalo has the
right to acquire beneficial ownership by the exercise of options granted
under the Company's 1987 Stock Option Plan.
(8) Pledged to General Electric Capital Corporation ("GECC") pursuant to a
Credit Agreement dated as of October 24, 1997 among the Company as
Borrower, certain of the Company's subsidiaries as other "Credit Parties",
GECC as Lender and Agent and other Lenders who may become parties thereto.
2
<PAGE> 6
(9) Pegasus Investors, L.P. ("PILP"), in its capacity as the managing general
partner of each of Pegasus Partners, L.P. ("PP") and Pegasus Related
Partners, L.P. ("PRP"), is an indirect beneficial owner of 55,000 shares of
the Company's Series A-1 Preferred Stock and warrants to purchase
10,961,647 shares of the Company's Common Stock which are held directly by
either PP or PRP. Richard Cion and Rodney S. Cohen are directors of the
Company and limited partners of PILP. Each of Messrs. Cion and Cohen
disclaim beneficial ownership of the securities owned by PP and PRP.
(10) Represents 3,044,348 shares of Common Stock to which Pegasus Partners, L.P.
has the right to acquire beneficial ownership upon exercise of warrants. At
this time only 2,267,421 shares of Common Stock have been authorized and
reserved for issuance upon exercise of the warrants held by Pegasus
Partners, L.P. and Pegasus Related Partners, L.P. Full exercise of the
warrants is subject to the approval of Proposal II herein.
(11) Assumes all Series A-1 Preferred Stock dividends are paid in cash.
(12) Represents 7,917,299 shares of Common Stock to which Pegasus Related
Partners, L.P. has the right to acquire beneficial ownership upon exercise
of warrants. At this time only 2,267,421 shares of Common Stock have been
authorized and reserved for issuance upon exercise of the warrants held by
Pegasus Partners, L.P. and Pegasus Related Partners, L.P. Full exercise of
the warrants is subject to the approval of Proposal II herein.
(13) Includes 26,944 shares of Common Stock which the directors and officers
have the right to acquire beneficial ownership, by the exercise of options
granted under the Company's 1987 Stock Option Plan.
SHAREHOLDER AGREEMENT
On October 27, 1997, in connection with the sale to Pegasus Partners, L.P.
and Pegasus Related Partners, L.P. of shares of Series A Preferred Stock and
warrants, the Robyn L. Mueller Trust, the Kenneth M. Mueller Charitable
Remainder Unitrust, and Rand W. Mueller entered into an agreement pursuant to
which the Robyn L. Mueller Trust and Rand W. Mueller agreed that he or it would
not sell or otherwise dispose of a number of shares of Common Stock in excess of
20% of the shares of Common Stock beneficially owned by him or it; provided,
that during any twelve month period, the Robyn L. Mueller Trust would 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. In addition, all of the parties
agreed to vote in favor of increasing the Company's shares of authorized Common
Stock (see Proposal II below).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In determining the compensation to be paid to the Company's executive
officers, the Compensation Committee follows compensation policies designed to
align executive compensation with the Company's overall business strategy,
values and stockholder interests. Accordingly, these policies are intended to
(i) reward executives for the long-term enhancement of shareholder value, (ii)
motivate senior executives to achieve strategic business initiatives, (iii)
foster a performance- oriented environment that rewards individual achievement
in addition to company success, (iv) recognize company performance compared to
performance levels of comparable companies in the industry, and (v) attract and
retain executives whose abilities are critical to the competitiveness of the
Company.
The key components of executive compensation and the Company's present
policies with respect to each are as follows:
- - BASE SALARIES are reviewed at least annually based on factors such as the
individual executive's level of responsibility and position in the Company as
well as informal comparisons with executives in similar positions with
comparable companies in the industry;
- - CASH BONUSES are based on the performance of both the individual, as evaluated
by the Board of Directors, and the Company, measured primarily in terms of
improvement in the Company's operating profitability; and
3
<PAGE> 7
- - STOCK OPTIONS are granted at the discretion of the Board of Directors and are
intended to increase motivation toward enhancement of the Company's long-term
success.
It has been the Company's policy to establish base salary levels for
executives that are modest by industry standards while providing the potential
for significant bonuses and stock option awards if the Company's performance so
warrants.
The Compensation Committee based the 1997 compensation of the Company's
executives officers on the policies described above. In particular, the salary
of the Company's Chief Executive Officer, Mr. Rand W. Mueller, in 1997 was based
on a variety of factors including an informal comparison with salaries of chief
executive officers of comparable companies in the industry, Mr. Mueller's base
salary levels in prior years, as well as the terms of the Company's employment
agreement with Mr. Mueller. As a result, Mr. Mueller's compensation package was
revised as of October 1, 1997, through an amendment to his employment agreement.
Mr. Mueller's base salary was increased to $500,000 per year, and Mr. Mueller's
bonus formula was decreased. Prior to October 1, 1997, Mr. Mueller was entitled
to a bonus in the amount of 6% of the first $1,000,000 of operating income, and
5% on each dollar of operating income beyond $1,000,000. The amendment provides
for a bonus in the amount of 5% of operating income beyond $5,000,000.
Jack D. Rutherford, Chairman
Kenneth M. Mueller
Marshall J. Mueller
Peter J. Stouffer
EXECUTIVE COMPENSATION
The following tables set forth certain information concerning compensation
paid to Rand W. Mueller, the Company's President and Chief Executive Officer,
Peter J. Stouffer, the Company's Vice President of Manufacturing and
Engineering, Craig S. Camalo, the Company's Vice President of Finance and Chief
Financial Officer, and Michael P. Schroeder, the Company's Vice President of
Sales. Mr. Mueller and Mr. Stouffer are also Directors of the Company. No other
executive officer of the Company was paid in excess of $100,000 for services
rendered to the Company during the fiscal year ended December 31, 1997.
The Company did not make any payments to Mr. Mueller or any other executive
officer under long-term compensation plans during the years presented.
4
<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------- --------------------------
AWARDS
----------------
NAME AND OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD SAR (#) PAYOUTS COMPENSATION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rand W. Mueller(2)....... 1997 $266,925 $78,282 (1) -- 790,306 -- --
President and CEO 1996 $200,000 $62,184 (1) -- -- -- --
1995 $170,833 $88,015 (1) -- 25,000 -- --
Peter J. Stouffer(2)..... 1997 $105,000 $18,656 (1) -- 200,624 -- --
Vice President of 1996 $105,000 -- (1) -- -- -- --
Manufacturing and 1995 $105,000 $12,584 (1) -- 3,000 -- --
Engineering
Craig S. Camalo(2)....... 1997 $ 91,923 $13,982 (1) -- 145,624 -- --
Vice President of
Finance and CFO
Michael P. Schroeder(2).. 1997 $ 86,769 $14,334 (1) -- 210,624 -- --
Vice President of Sales
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes fringe benefits which did not exceed the lesser of $50,000 or ten
percent of total salary and bonus.
(2) The Company has an employment agreement with Rand W. Mueller that provides
for a minimum salary of $500,000 per year effective October 1, 1997. The
agreement, as amended, expires May 31, 2001. Mr. Mueller's employment can be
terminated only for cause. The Company has employment agreements with Peter
J. Stouffer, Craig S. Camalo and Michael P. Schroeder that provide for a
minimum salary of $105,000, $100,000, and $90,000 per year respectively,
effective May 20, 1997. Each of the agreements expires May 31, 2001, and
each can be terminated only for cause.
AGGREGATED OPTIONS/SARS EXERCISED DURING LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rand W. Mueller........... 0 0 11,250 854,056 0 0
Peter J. Stouffer......... 0 0 7,019 221,981 0 0
Craig S. Camalo........... 0 0 1,750 148,874 0 0
Michael P. Schroeder...... 0 0 3,175 213,949 0 0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 9
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL ALTERNATIVE
RATES OF STOCK PRICE TO (F) AND (G):
APPRECIATION GRANT DATE
INDIVIDUAL GRANTS FOR OPTION TERM VALUE
-------------------------------------- ----------------------- ---------------
(A) (B) (C) (E) (F) (G) (H)
NUMBER OF % OF TOTAL (D)
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR
OPTIONS/SARS EMPLOYEES BASE GRANT DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($) VALUE ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rand W. Mueller....... 790,306(1) 58.7% $1.88 October 31, 2007 $2,378,821 $4,662,805 $885,143
Craig S. Camalo....... 20,000 1.5% $2.75 March 31, 2007 $ 34,600 $ 87,600 --
Craig S. Camalo....... 125,624(1) 9.3% $1.88 October 31, 2007 $ 376,872 $ 741,182 $140,699
Peter J. Stouffer..... 200,624(1) 14.9% $1.88 October 31, 2007 $ 601,872 $1,183,682 $224,699
Michael P. Schroeder.. 10,000 0.7% $2.75 March 31, 2007 $ 17,300 $ 43,800 --
Michael P. Schroeder.. 200,624(1) 14.9% $1.88 October 31, 2007 $ 601,872 $1,183,682 $224,699
</TABLE>
- --------------------------------------------------------------------------------
(1) Represents option shares granted pursuant to the Company's 1997 Stock Option
Plan, which can be exercised only upon the approval of Proposal II herein.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Peter J. Stouffer served on the Company's Compensation
Committee. Mr. Stouffer also serves as Vice President of Manufacturing and
Engineering.
6
<PAGE> 10
PERFORMANCE GRAPH
The following graph sets forth a yearly comparison of the cumulative total
shareholder return on the Company's Common Stock against the cumulative total
return of the NASDAQ Stock Market and an index of NASDAQ Electronic Components
Stocks for the five year period ended December 31, 1997. The graph assumes $100
invested on December 31, 1992, in Code-Alarm, Inc. Common Stock, the NASDAQ
Stock Market index and the industry index, with all dividends reinvested.
<TABLE>
<CAPTION>
Measurement Period Code-Alarm, NASDAQ Industry
(Fiscal Year Covered) Inc. Market Index Index
<S> <C> <C> <C>
1992 100 100 100
1993 200 115 137
1994 146 112 152
1995 104 159 251
1996 58 195 435
1997 20 240 456
</TABLE>
CERTAIN TRANSACTIONS
On May 27, 1992, the Company loaned $65,000 to Rand W. Mueller, the
Company's President and Chief Executive Officer, on a two-year mortgage note at
7.5 percent interest per annum collateralized by a second lien on Mr. Mueller's
residence. On May 15, 1997, the Company extended the loan by an additional year.
The largest aggregate balance owing on the loan during 1997 was $78,397,
including accrued interest; as of March 31, 1998, the balance outstanding on the
loan was $79,616, including accrued interest.
Except as described in the previous paragraph, the Company did not make
loans to its officers, directors, employees or principal shareholders during
1997, except for loans made in the ordinary course of business, such as travel
advances, expense account advances, relocation advances or reasonable salary
advances.
7
<PAGE> 11
PROPOSAL I -- ELECTION OF DIRECTORS
The Company's Board of Directors is currently composed of nine directors.
Seven directors are elected by the holders of the Company's Common Stock, and
two directors are elected by the holders of the Company's Series A Preferred
Stock. The Company's Bylaws provide that the directors elected by the holders of
the Common Stock shall be divided into three classes as nearly equal in size as
possible. At each Annual Meeting of the Shareholders of the Company, one class
of directors is elected to serve for a three-year term.
Two directors are to be elected by the holders of the Common Stock at the
1998 Annual Meeting, each of whom will hold office until the 2001 Annual Meeting
or until his successor is elected. The Board of Directors has recommended the
election of and has nominated the following persons:
Kenneth M. Mueller
Marshall J. Mueller
MESSRS. KENNETH M. MUELLER AND MARSHALL J. MUELLER ARE PRESENTLY DIRECTORS
OF THE COMPANY.
A brief biography of each of the nominees and other directors whose term of
office will continue after the Annual Meeting is presented below under the
caption "Directors, Nominees and Executive Officers." In the event that any of
the above-named nominees are unable to serve as a director, the Board of
Directors may designate a substitute nominee, in which event the shares
represented by the proxies will be voted for such substitute nominee.
DIRECTOR'S COMPENSATION
In 1997, directors who were not employees or consultants of the Company
were paid an annual fee of $2,000, as well as $1,000 for each Board of Directors
meeting and $1,000 for each committee meeting attended.
In lieu of the standard arrangement described above, Kenneth M. Mueller is
compensated pursuant to a Consulting Agreement with the Company dated October 1,
1997. Under this agreement, Mr. Mueller is paid $14,000 per year for both his
consulting services and his services as a member of the Company's Board of
Directors. The agreement expires September 30, 2000, however, either party may
terminate the agreement at any time upon 90 days written notice.
MEETINGS AND COMMITTEES
The Company's Board of Directors had the following standing committees in
1997, whose responsibilities and 1997 members were as follows:
COMPENSATION COMMITTEE -- The Compensation Committee, which met once in
1997, has responsibility for reviewing the compensation of the directors and
officers of the Company and administering the Company's stock option and
incentive compensation plans. Messrs. Rutherford, Kenneth M. Mueller, Marshall
J. Mueller and Stouffer are members of the Compensation Committee.
AUDIT COMMITTEE -- The Audit Committee, which met twice in 1997, is
responsible for recommending to the full Board of Directors the selection of
independent accountants; reviewing the engagement of the auditors (including the
fee, scope and timing of the audit); reviewing with the auditors and management
the Company's policies and procedures with respect to accounting and financial
controls; reviewing with the independent auditors, upon completion of their
audit, their report or opinion, their perception of the Company's financial and
accounting personnel, any significant transactions which are not a normal part
of the Company's business, any changes in accounting principles and practices,
all significant proposed adjustments and any recommendations they may have for
improving internal accounting controls, choice of accounting principles or
management systems; and meeting with the Company's accounting staff to discuss
internal accounting and financial controls and the extent to which
recommendations made by the independent auditors have been implemented. Messrs.
Rutherford, Pickett and Foster are members of the Audit Committee. Mr. Rand W.
Mueller is a non-voting member of the Audit Committee.
8
<PAGE> 12
NOMINATING COMMITTEE -- The Nominating Committee, which met once in 1997,
has responsibility for researching and reviewing the qualifications of
prospective nominees for seats on the Company's Board of Directors. In carrying
out its responsibilities, the Nominating Committee will consider candidates
suggested by other directors, employees and shareholders of the Company.
Suggestions for candidates, accompanied by biographical material for evaluation,
may be sent to the Secretary of the Company at the Company's principal executive
offices. Messrs. Pickett, Foster, Kenneth M. Mueller and Rand W. Mueller are
members of the Nominating Committee.
The Company's Board of Directors held seven meetings in 1997. Various
additional action was taken by the directors by unanimous written consent.
During the 1997 fiscal year, all of the directors attended 75% or more of the
meetings of the Board of Directors and Committees on which they served.
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The Company's Bylaws provide that the Board of Directors shall consist of
nine directors. Seven Directors are elected by the holders of the Company's
Common Stock and two directors are elected by the holders of the Company's
Series A Preferred Stock. The directors elected by the holders of the Company's
Common Stock are divided into three classes as nearly equal in size as possible.
At each annual meeting of the shareholders of the Company, one class of
directors is elected by the common shareholders to serve for a three-year term.
Except for executive officers who have entered into employment agreements with
the Company, officers serve at the discretion of the Board of Directors (see
"Executive Compensation").
The Directors and Executive Officers of the Company and its wholly-owned
subsidiaries, Tessco Group, Inc. ("Tessco"), Anes, Inc. d.b.a. Anes Security,
Inc. ("Anes"), Chapman Security Systems, Inc. ("Chapman") and Intercept Systems,
Inc. ("Intercept Systems"), and their respective positions and ages are as
follows:
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE SINCE EXPIRES POSITION(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rand W. Mueller(2)................... 48 1985 1999 President, Director and Chairman of the
Board (Company); Director, President and
Chairman of each of Tessco, Anes,
Chapman and Intercept
Alan H. Foster....................... 72 1988 1999 Director
Kenneth M. Mueller(2)................ 75 1979 1998 Consultant and Director
William S. Pickett................... 78 1987 2000 Director
Marshall J. Mueller(2)............... 50 1991 1998 Director
Jack D. Rutherford................... 64 1991 2000 Director
Richard Cion(3)...................... 54 1997 2000 Director
Rodney S. Cohen(3)................... 32 1997 2000 Director
Peter J. Stouffer.................... 35 1995 1999 Director, and Vice President of
Manufacturing and Engineering
Craig S. Camalo...................... 48 -- -- Secretary, Treasurer, Vice President of
Finance and CFO (Company); Director,
Secretary and Treasurer of each of
Tessco, Anes, Chapman and Intercept
Michael P. Schroeder................. 35 -- -- Vice President of Sales
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All positions are with the Company except as otherwise indicated.
(2) Rand W. Mueller and Marshall J. Mueller are brothers, and Kenneth M. Mueller
is their father.
(3) Richard Cion and Rodney S. Cohen were elected as Directors effective October
28, 1997, by the holders of the Company's Series A-1 Preferred Stock.
9
<PAGE> 13
Rand W. Mueller has been a full-time employee of the Company since January
1985 and has been the President since May 1986.
Alan H. Foster has been an independent consultant to various governmental
bodies, corporations and financial institutions for the last five years. He is
also an adjunct professor at the School of Business Administration of the
University of Michigan. From 1967 to 1978, Mr. Foster served as Vice President
and Treasurer of American Motors Corporation.
Kenneth M. Mueller is retired. He has been a consultant to the Company
since August 1987. Mr. Mueller was a New York-based consultant to the Ministry
of Agriculture and Food, Government of Ontario, Canada from August 1985 to June
1987. Prior to that time, he was President of Agribusiness Council, Inc., a New
York-based not-for-profit corporation assisting lesser-developed countries in
developing profitable agricultural ventures.
William S. Pickett is retired. He was the President and General Manager of
American Motors (Canada) Inc. prior to his retirement in 1982.
Marshall J. Mueller is a former executive officer of the Company. From May
1980 to January 1990, Mr. Mueller held various senior management positions with
the Company, including President and Executive Vice President. Mr. Mueller
resigned from his office as Executive Vice President and director in January
1990. Mr. Mueller was re-elected to the Company's Board of Directors on May 21,
1991, and has served continuously since that date. As of January 1, 1997, Mr.
Mueller has been associated with Growth Funding, Inc., an investment firm.
Jack D. Rutherford is Chairman and Chief Executive Officer of ICM
Industries, Inc., a private company that owns and controls various operating
subsidiaries in basic manufacturing industries serving the automotive,
construction equipment and capital good industries.
Richard Cion is a partner in Pegasus Investors, L.P., an investment fund.
From July 1996 through April 1997 Mr. Cion was the managing director of Zanbak
Group. From 1990 through July 1996 Mr. Cion served as the Senior Executive Vice
President -- Corporate Development of Fruit of the Loom, Inc.
Rodney S. Cohen is a partner in Pegasus Investors, L.P., an investment
fund. From November 1995 through July 1996 Mr. Cohen was a vice-president of
Fresh Picks, Inc., a retail music distribution company. From February 1993 to
November 1995 Mr. Cohen served as the Executive Vice President of Stephan J.
Feron's, Inc., a sales and marketing and concession company. From August 1990 to
February 1993 Mr. Cohen was an associate attorney at Anderson, Kill, Olick &
Oshinsky, P.C.
Peter J. Stouffer was appointed Vice President of Engineering for the
Company in January 1993 pursuant to a management reorganization which
effectively eliminated the Company's previously separate operating divisions. In
December 1995, Mr. Stouffer was appointed to the Board of Directors of
Code-Alarm, Inc. and was given the additional responsibility of world wide
manufacturing. Previously, Mr. Stouffer served as Executive Vice President and
General Manager of the Company's Intercept Systems, Inc. subsidiary from August
1990 through December 1992, and served as the Company's Vice President of
Engineering from May 1989 through September 1990. From December 1986 to May
1989, Mr. Stouffer was the manager of engineering for the Company. Prior to
December 1986, he was an engineer at the Pontiac Motors Division of General
Motors Corporation.
Craig S. Camalo joined the Company as Corporate Controller and Chief
Accounting Officer in April of 1996, and was elected by the Company's Board of
Directors as Vice President of Finance and Chief Financial Officer, Secretary
and Treasurer in January of 1997. Prior to joining the Company, Mr. Camalo held
a similar position with Letts Industries, Inc. and was Chief Financial Officer
of Hydro Aluminum. From 1975 to 1982, Mr. Camalo was employed by Deloitte and
Touche LLP where he earned the designation as a Certified Public Accountant.
Michael P. Schroeder joined the Company in March 1984 as Engineering
Technician. Mr. Schroeder was promoted to Vice President of Sales in March 1995.
From December 1992 to March 1995, Mr. Schroeder was the Company's Director of
Sales in the U.K.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES.
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PROPOSAL II -- INCREASE IN NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
Five million shares of Common Stock are currently authorized by the
Company's Articles of Incorporation. This number is insufficient to permit
exercise of outstanding warrants and options which the Company has issued in
connection with (i) its recent senior debt and equity financings, (ii) its
bonding of the judgment in the "Detroit Litigation" (as defined below) and (iii)
the 1997 Stock Option Plan and will be insufficient to permit exercise of
options to be issued pursuant to the proposed 1998 Incentive and Non-Qualified
Stock Option Plan (see Proposal III). The Company is, therefore, seeking to
increase the number of authorized shares of its Common Stock to twenty million
by amending its Articles of Incorporation (the "Charter Amendment"). The Charter
Amendment has been approved by the vote or written consent of persons holding a
majority of the outstanding shares of Series A-1 Preferred Stock voting as a
class and must be approved by the vote of persons holding a majority of the
outstanding shares of Common Stock voting as a class. Section E below discusses
the effects of the shareholders not approving the Charter Amendment.
A. WARRANTS OUTSTANDING
Attached Warrants. On October 27, 1997, pursuant to a Unit Purchase
Agreement (the "Purchase Agreement") the Company sold to Pegasus Partners, L.P.
("PP") and Pegasus Related Partners, L.P. ("PRP"; PP and PRP are collectively
referred to as "Pegasus") in a private placement under the Securities Act of
1933, as amended, 55,000 units (the "Units") for $6,999,850 ($127.27 per Unit).
Each Unit consists of one share of Series A-1 Preferred Stock and warrants
("Attached Warrants") to purchase Common Stock. The rights, preferences and
privileges of the Series A Preferred Stock are set forth on the Certificate of
Designation (the "Series A Certificate"), which Series A Certificate was
approved by the Company's Board of Directors, and, having been filed with the
State of Michigan, constitutes an amendment to the Company's Articles of
Incorporation. Dividends on the Series A Preferred Stock are payable
semi-annually in cash or additional Units, as the Company's Board of Directors
determines.
The Attached Warrants entitle Pegasus to purchase 3,731,431 shares of
Common Stock (assuming dividends on the Series A Preferred Stock are paid in
cash). The exercise price per share of each Attached Warrant is $1.8759559. The
Attached Warrants have antidilution protection. The Attached Warrants have no
expiration date; however, if the Charter Amendment becomes effective and the
Company exercises its right to repurchase all Series A Preferred Stock and
one-half of the Attached Warrants outstanding prior to October 19, 1998, then
the remaining Attached Warrants will have a term of seven years.
Shortfall Warrants. In connection with the Company's senior debt
refinancing, Pegasus and General Electric Capital Corporation ("GECC") entered
into a Limited Supplemental Guaranty dated as of October 24, 1997, pursuant to
which Pegasus guaranteed up to $4 million of the indebtedness of the Company and
its subsidiaries to GECC (other than that covered by the Litigation Guaranty
discussed below) under the Credit Agreement dated as of October 24, 1997, among
the Company as Borrower, certain of the Company's subsidiaries as other "Credit
Parties", GECC as Lender and Agent and other Lenders who may become parties
thereto (the "Credit Agreement"). In exchange for the guaranty, Pegasus received
warrants to purchase 1 million shares of Common Stock (the "Shortfall
Warrants"). The Shortfall Warrants have a term of seven years and an exercise
price of $1.8759559 per share. The Shortfall Warrants have antidilution
protection.
GECC Warrants. In connection with the Credit Agreement, the Company issued
to GECC warrants (the "GECC Warrants") to purchase 131,718 shares of Common
Stock at an exercise price per share of $1.8759559. The antidilution provisions
in these warrants caused an increase in the number of shares to 226,594 and a
decrease in the exercise price to approximately $1.10 as a result of the
issuance of the Litigation Warrants discussed below. The GECC Warrants have a
term of seven years.
Litigation Warrants. Pegasus and GECC entered into a Limited Litigation
Guaranty dated as of October 24, 1997 (the "Litigation Guaranty") pursuant to
which Pegasus agreed to guarantee up to $12 million of either the obligations of
GECC which bond the lower court judgment in the case of Code-Alarm, Inc. v.
Directed Electronics, Inc., Case No. 87-CV-74022-DT (the "Detroit Litigation")
or the loan of GECC which pays that judgment. In order to permit bonding of a
judgment in the amount of
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<PAGE> 15
$9,341,031 in the Detroit Litigation, GECC issued a letter of credit to the
surety company in this amount. In exchange for Pegasus's guaranty of this letter
of credit, on March 5, 1998, the Company issued to Pegasus warrants to purchase
6,230,216 shares of the Company's Common Stock (the "Litigation Warrants"). The
exercise price per share of each Litigation Warrant is $0.49397. The Litigation
Warrants are subject to antidilution protection, and have a seven year term. The
amount of the lower court judgment will be increased to cover additional
interest and certain attorneys fees. The Company anticipates that GECC will be
asked to issue an additional letter of credit, which Pegasus will be required to
guarantee. In return for this guaranty, the Company would issue to Pegasus
additional Litigation Warrants. For each additional $1 million financed, the
Company will issue to Pegasus Litigation Warrants which will increase Pegasus'
aggregate ownership interest in the Company by 2%, on a fully diluted basis.
B. SHARES RESERVED FOR EXERCISE OF WARRANTS
The Board of Directors has reserved 131,718 shares of authorized but
unissued Common Stock for issuance upon exercise of the GECC Warrants and
2,267,421 shares of authorized but unissued Common Stock for issuance upon
exercise of the Attached Warrants and the Shortfall Warrants. These reservations
are insufficient to permit exercise in full of the GECC Warrants, the Attached
Warrants and the Shortfall Warrants. No shares of Common Stock have been
reserved for exercise of the Litigation Warrants. The Board has been unable to
reserve additional shares of Common Stock because all five million authorized
shares of Common Stock are either issued and outstanding or reserved for
exercise of certain outstanding 1987 stock options. As a consequence, the
Company has agreed with both Pegasus and GECC to seek approval of the Charter
Amendment. The authorization of these additional shares will allow the warrants
discussed above and the stock options discussed below to be exercised in full,
which will result in a substantial dilution of the ownership of the current
stockholders.
C. STOCK OPTION PLANS
The 1997 Stock Option Plan adopted by the Company's Board provides for the
issuance of options to purchase 1,317,178 shares of Common Stock. The options
are non-qualified stock options (see the discussion below under the proposal to
approve the 1998 Stock Option Plan). The Board granted options under the 1997
Plan to purchase 790,306 shares, 125,624 shares, 200,624 shares and 200,624
shares to Rand W. Mueller, Craig S. Camalo, Peter J. Stouffer and Michael P.
Schroeder, respectively, at an exercise price of $1.88 per share. These options
begin vesting at the rate of one-third per year on the third anniversary of
their grant. These options are only exercisable if the fair market value of the
Common Stock reaches or exceeds increasing amounts over time starting with
$2.375 in the first year and increasing to $11.50 in the seventh year. These
options may not be exercised until the Charter Amendment is effective. Thus,
until the Charter Amendment becomes effective, the option holders have options
which cannot be exercised.
The 1998 Stock Option Plan (discussed below) will provide for the issuance
of options to purchase 300,000 shares of Common Stock. No options granted under
this plan may be exercised until the Charter Amendment becomes effective.
D. AGREEMENT OF CERTAIN SHAREHOLDERS TO VOTE IN FAVOR OF INCREASE IN AUTHORIZED
SHARES
The Robyn L. Mueller Trust, the Kenneth M. Mueller Charitable Remainder
Unitrust and Rand W. Mueller, who together hold approximately 28.4% of the
outstanding Common Stock of the Company, have entered into an agreement whereby
each has agreed to vote in favor of the Charter Amendment. Their agreement was a
condition to Pegasus' equity investment in the Company.
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<PAGE> 16
E. EFFECT OF FAILURE OF SHAREHOLDERS TO APPROVE INCREASE IN AUTHORIZED SHARES
A failure of shareholders to approve this Proposal II and the failure of
the Charter Amendment to be effective by May 31, 1998, will constitute a
"Triggering Event" under the Series A Certificate. Upon the occurrence and
during the continuance of this Triggering Event, the following occur:
(a) the dividend rate on each outstanding share of Series A Preferred
Stock will be increased from $12.727 per annum to $16.5451 per annum;
(b) each holder of Series A Preferred Stock shall be entitled to
receive all cash and other dividends, distributions and 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 that
time;
(c) all dividends on Series A Preferred Stock shall be paid in cash
and not in Units, to the extent such cash payments are permitted under any
applicable indenture or credit agreement to which the Company is a party
and by law;
(d) the holders of the Series A Preferred Stock shall have the right
to vote on all matters requiring action of the stockholders of the Company,
voting together as a single class with the holders of the Common Stock
(with each holder of Series A Preferred Stock being entitled to that number
of votes equal to the number of shares of Common Stock which such holder
would receive upon exercise of such holder's Attached Warrants multiplied
by three); and
(e) the Company shall no longer be entitled to a right of first
refusal on transfers of Units to third parties who are not affiliates or
associates of the Company.
Pursuant to the terms of the Unit Purchase Agreement, the Company has a
right, prior to October 19, 1998, to repurchase all outstanding Series A
Preferred Stock and one-half of the related Attached Warrants (the "Year One
Repurchase"). The Company may only exercise this right, however, if the Charter
Amendment has been approved by the Company's shareholders and is effective. The
purchase price for each share of Series A Preferred and one-half of the related
Attached Warrants is approximately $149.54, less cash dividends paid on the
Series A Preferred Stock. The Company may not make any repurchase within six
months of the last issuance of any Litigation Warrants. Regardless of whether
the Charter Amendment is approved, the Company may repurchase Units after
October 27, 1999, but the purchase price would be considerably higher.
Until the Charter Amendment becomes effective, if the Company pays a
dividend or makes a distribution on the Common Stock, then the Company will pay
to the holders of the Attached Warrants, the Shortfall Warrants and the
Litigation Warrants an amount in cash equal to the number of shares of Common
Stock issuable upon exercise of these warrants multiplied by the amount of the
dividend per share or the fair market value of the property distributed.
The failure of the Charter Amendment to become effective by May 31, 1998,
is an event of default under the Credit Agreement, which would permit GECC to
exercise all remedies provided for in that agreement, including termination of
the senior debt facility and declaration that all or a portion of the
obligations issued thereunder are immediately due and payable.
F. REASONS FOR RECOMMENDED APPROVAL OF PROPOSAL II
The Board of Directors approved the equity financing with Pegasus and the
senior debit refinancing with GECC as the best options then available to the
Company. As explained above, the Company agreed to seek approval of Proposal II
at the 1998 Annual Meeting in order to ensure that the Attached Warrants,
Shortfall Warrants, Litigation Warrants and GECC Warrants have sufficient shares
available for their exercise. The authorization of these additional shares will
allow the warrants and stock options discussed above to be exercised in full. If
Proposal II is not effective by May 31, 1998, it would create an event of
default under the Company's senior debt facility with GECC and give GECC the
right to cancel the facility and accelerate all indebtedness thereunder. The
failure to adopt Proposal II will result, among other things, in a "Trigger
Event" which will also severely dilute the voting rights of holders of Common
Stock and increase the dividend on the
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Series A Preferred Stock. The failure will also result in a loss by the Company
of its right to repurchase, prior to October 27, 1999, Series A Preferred Stock
and half the Attached Warrants related thereto. In addition, the Board believes
that the 1997 and 1998 stock option plans are important incentives for the
Company's management and employees, and in the absence of adoption of Proposal
II, no options granted under either plan can be exercised.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL II WHICH AMENDS THE
COMPANY'S RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK TO 20 MILLION.
PROPOSAL III -- APPROVAL OF 1998 STOCK OPTION PLAN
At the Annual Meeting, the shareholders will be asked to approve the
Code-Alarm, Inc. 1998 Incentive and Non-Qualified Stock Option Plan (the "Stock
Option Plan"). Such approval will require (a) the affirmative vote of a majority
of the voting power of all outstanding shares of the Company's Common Stock
present or represented and entitled to vote at the Annual Meeting and (b) the
affirmative vote or written consent of a majority of the outstanding shares of
the Company's Series A-1 Preferred Stock, voting as a single class, which has
been obtained by the Company. On March 26, 1998, the Board of Directors (the
"Board") adopted the Stock Option Plan, subject to shareholder and other
approvals described herein. The terms of the Stock Option Plan and information
regarding options granted thereunder is summarized below, but these descriptions
are subject to and are qualified in their entirety by the full text of the Stock
Option Plan, which is attached as Appendix I to this Proxy Statement.
SUMMARY OF THE STOCK OPTION PLAN
The Stock Option Plan provides for the grant of stock options to selected
employees, consultants and independent contractors of the Company and its
subsidiaries, as well as to outside directors of the Company, to enable such
individuals to share in the capital appreciation of the Common Stock of the
Company. The Stock Option Plan provides for the grant of both "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
(the "Code") and options that are non-qualified for Federal income tax purposes
("NQSOs"). Only individuals who are employees are eligible to receive ISOs. The
total number of shares of Common Stock for which options may be granted pursuant
to the Stock Option Plan is 300,000, subject to certain adjustments reflecting
changes in the Company's capitalization. No individual may receive, over the
term of the Stock Option Plan, options for more than an aggregate of 100,000
shares authorized for grant under the Stock Option Plan.
The Stock Option Plan may be administered by the Board or by a Committee of
the Board comprised of directors who are not also employees of the Company.
Currently, the Stock Option Plan is administered by the Board. The Board
determines, among other things, which individuals will receive options under the
Stock Option Plan; the time when options will be granted; the type of option
(ISO or NQSO, or both) to be granted, the number of shares subject to each
option, the time or times when the options will become exercisable and expire,
and, subject to certain conditions discussed below, the option price and
duration of the option. Board members administering the Stock Option Plan may
vote on any matters affecting the administration of the Plan, except that no
member may act upon the granting of an option to himself or herself.
The exercise price of the options granted under the Stock Option Plan is
determined by the Board, but, with respect to ISOs, may not be less than the
fair market value per share of the Common Stock on the date the option is
granted. GECC's approval of the Stock Option Plan was conditioned on the
exercise price of all options granted under the Stock Option Plan being not less
than the fair market value per share of the Common Stock at the date the option
is granted. If, however, an ISO is granted to any person who, at the time of the
grant, owns capital stock possessing more than 10% of the total combined voting
power of all classes of the Company's capital stock, then the exercise price for
such ISO may not be less than 110% of the fair market value per share of the
Common Stock on the date the option is granted. The Board also determines the
method of payment for the exercise of options under the Stock Option Plan, which
may consist entirely of cash, check or promissory notes, or, at the discretion
of the Board, surrender of shares of Common Stock.
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<PAGE> 18
As a general matter, and unless provided otherwise in the terms of an
option agreement, an option vests and becomes exercisable over a four-year
period, commencing on the six-month anniversary of the date of grant, provided
the optionee's employment or association with the Company or a subsidiary has
been continuous since the date of grant. In addition, no options can be
exercised until the Charter Amendment (as defined in Proposal II) providing for
an increase in the number of authorized shares is approved by the shareholders.
Further, the Board is authorized to permit and has expressed its intention to
permit the exchange of options issued under the 1987 Stock Option Plan for
options under the Stock Option Plan. Any option so exchanged shall permit the
optionee to purchase the same number of shares as under the former option but
vesting credit earned under the former option shall not be applicable to the new
options granted under the Stock Option Plan.
There are currently outstanding options to purchase approximately 182,000
shares of Common Stock under the 1987 stock option plan. Most of these
outstanding options granted under the 1987 stock option plan have an exercise
price of $5.00 and remaining terms for exercise of approximately eight years.
The consequence of any such exchange would be to lower the exercise price of the
options.
Options are not assignable or transferrable other than by will or the laws
of descent and distribution. In general, if an optionee's employment or service
with the Company or a subsidiary is terminated other than due to death or
disability, such optionee's options exercisable on the date of termination are
exercisable for three months following the date of termination. If the Board of
Directors makes a determination that a terminated optionee engaged in disloyalty
to the Company or a subsidiary, disclosed proprietary information, was convicted
of a felony, or breached the terms of a written confidentiality agreement or
non-competition agreement, all unexercised options held by such optionee
terminate upon the earlier of the date of such determination or the date of
termination. If an optionee terminates service because of disability or death,
such optionee's outstanding options on the date of disability or death may be
exercised for up to six months after termination due to disability and 12 months
after termination due to death. Further, if an optionee has been in service for
at least six months from the date of grant, and retires or otherwise terminates
service after attaining age 60, all outstanding options may be exercised for up
to three months following termination.
The Board has the authority to accelerate the vesting of all unmatured
options issued pursuant to the Stock Option Plan outstanding on the date of a
"change in control" of the Company. A change in control for purposes of the
Stock Option Plan includes the approval by the Company's shareholders of a plan
of liquidation, the acquisition by any person or entity (other than the Company,
its subsidiaries, a holder of common Stock on the date the Stock Option Plan was
adopted by the Board, any employee benefit plan sponsored or maintained by the
Company or any of its subsidiaries, or any affiliate of any of the foregoing) of
the beneficial ownership of 50% or more of the voting power of the Company's
stock, the approval by the Company's shareholders of a merger, reorganization or
consolidation of the Company in which the Company's shareholders do not own 50%
or more of the voting power of the stock of the entity surviving such a
transaction, the approval of the Company's shareholders of an agreement of sale
of all or substantially all of the Company's assets, and the acceptance by the
Company's shareholders of a share exchange in which the Company's shareholders
do not own 50% or more of the voting power of the stock of the entity surviving
such exchange.
The antidilution provisions contained in the warrants issued to Pegasus and
GECC (discussed above under Section A of Proposal II) do not apply to options to
purchase up to 300,000 shares of Common Stock issued pursuant to the 1987 stock
option plan and the Stock Option Plan. If, however, at any time the total number
of shares which can be purchased upon exercise of outstanding options granted
under these plans plus the total number of shares of Common Stock issued from
exercise of options granted under these plans exceed 300,000, then the
antidilution provisions of the warrants issued to Pegasus and GECC may apply to
each issuance of additional options under the Stock Option Plan, depending on
the exercise price of the option.
There are no Federal income tax consequences to the Company on the grant or
exercise of an ISO. If an employee disposes of stock acquired through the
exercise of an ISO within one year after the date such stock is acquired or
within two years after the grant of the ISO (a "Disqualifying Disposition"), the
Company will be entitled to a deduction in an amount equal to the difference
between the fair market value of such stock on
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the date it is acquired and the exercise price of the ISO. There are no tax
consequences to the Company if an ISO lapses before exercise or is forfeited.
The grant of a NQSO has no immediate tax consequences to the Company. Upon the
exercise of a NQSO by an optionee, the Company is entitled to a deduction in an
amount equal to the difference between the fair market value of the shares
acquired through exercise of the NQSO and the exercise price of the NQSO. There
are no tax consequences to the Company if a NQSO lapses before exercise or is
forfeited.
An employee who receives an ISO is not subject to federal income tax on the
grant or exercise of the ISO; however, the difference between the option price
and the fair market value of the Common Stock received on the exercise of the
ISO ("ISO Stock") is an adjustment for purposes of the alternative minimum tax.
Upon the exercise of an ISO, an employee will have a basis in the ISO Stock
received equal to the amount paid. An employee will be subject to capital gain
or loss upon the sale of ISO Stock, unless such sale constitutes a Disqualifying
Disposition, equal to the difference between the amount received for the stock
and the employee's basis in such stock. There are no tax consequences to an
employee if an ISO lapses before exercise or is forfeited.
In the event of a Disqualifying Disposition, an employee will be required
to recognize (1) taxable ordinary income in an amount equal to the difference
between the fair market value of the ISO Stock on the date of exercise of the
ISO and the exercise price; and (2) capital gain or loss (long-or short-term, as
the case may be) in an amount equal to the difference between (a) the amount
realized by the employee upon the Disqualifying Disposition and (b) the exercise
price paid by the employee for the stock, increased by the amount of ordinary
income recognized by the employee, if any.
The Stock Option Plan allows an employee to pay an exercise price in cash
or shares of the Company's Common Stock, provided such shares have been owned
for at least six months. If the employee pays with shares of the Company's
Common Stock that are already owned, the basis of the newly acquired ISO Stock
will depend on the tax character and number of shares of the previously owned
stock used as payment. If an employee pays with shares acquired upon other than
the exercise of an ISO ("non-ISO Stock"), the transaction will be tax-free to
the extent that the number of shares received does not exceed the number of
shares of non-ISO Stock paid. The basis of the number of shares of newly
acquired ISO Stock which does not exceed the number of shares of non-ISO Stock
paid will be equal to the basis of the shares paid. The employee's holding
period with respect to such shares will include the holding period of the shares
of non-ISO Stock paid. To the extent that the employee receives more new shares
than shares surrendered, the "excess" shares of ISO Stock will take a zero
basis. If an employee exercises an ISO by using stock that is previously
acquired ISO Stock, however, certain special rules apply. If the employee has
not held the previously acquired ISO Stock for at least two years from the date
of grant of the related ISO and one year from the date the employee acquired the
previously acquired ISO Stock, the use of such ISO Stock to pay the exercise
price will constitute a Disqualifying Disposition and subject the employee to
income tax with respect to the ISO Stock as described above. In such
circumstances, the basis of the newly acquired ISO Stock will be equal to the
fair market value of the previously acquired ISO Stock used as payment.
The grant of a NQSO has no immediate tax consequences to an optionee. The
exercise of a NQSO requires an optionee to include in gross income the amount by
which the fair market value of the acquired shares on the exercise date exceeds
the exercise price. The Company is required to withhold income and employment
taxes from the optionee's wages on account of this income. The optionee's basis
in the acquired shares will be their fair market value on the date of exercise.
Upon a subsequent sale of such shares, the optionee will recognize capital gain
or loss equal to the difference between the sales price and the basis in the
stock. The capital gain or loss will be long- or short-term, depending on
whether the optionee has held the shares for more than one year. There are no
tax consequences to an optionee if a NQSO lapses before exercise or is
forfeited. If an employee uses previously owned Common Stock as payment for the
exercise price of a NQSO, to the extent the employee surrenders the same number
of shares received, the exchange is tax-free and the new shares will have a
basis equal to that of the shares surrendered. The holding period for the new
shares will include the period the employee held the surrendered shares. To the
extent the employee receives more new shares than shares surrendered, the excess
shares are treated as having been acquired for no consideration and the fair
market value of such excess shares is includible in the employee's income as
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compensation. The basis of the excess shares is their fair market value at the
time of receipt. If the previously owned shares consist of ISO Stock for which
the holding requirements were not met such that their use as payment of the
exercise price constituted a Disqualifying Disposition, the employee will have
the income tax consequences described above.
The Board of Directors has authority to amend, suspend, terminate or
discontinue the Stock Option Plan. No such amendment, however, can change the
aggregate number of shares subject to the Stock Option Plan or change the
designation of employees eligible thereunder. The Board may not grant any
options under the Stock Option Plan after March 24, 2008.
Pursuant to the Company's Articles of Incorporation, the holders of a
majority of the outstanding shares of Series A-1 Preferred Stock must approve
the Stock Option Plan and the issuance of options thereunder and Common Stock
upon exercise of these options. Under the Company's senior financing facility,
General Electric Capital Corporation must approve the Stock Option Plan, because
the plan and the issuance of options and Common Stock thereunder are viewed as a
change in the Company's capital structure. Both the approvals of GECC and the
holders of Series A-1 Preferred Stock have been obtained.
The purpose of the Stock Option Plan is to provide employees and
consultants with an opportunity to share in the capital appreciation of the
Common Stock of the Company, which the Board believes is an important incentive
for the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL III TO APPROVE THE
ADOPTION OF THE COMPANY'S 1998 INCENTIVE AND
NON-QUALIFIED STOCK OPTION PLAN.
PROPOSAL IV -- APPROVAL OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
At the Annual Meeting, the shareholders will be asked to approve the
appointment of Deloitte & Touche LLP as independent accountants of the Company
for the 1998 year. Representatives of Deloitte & Touche LLP are expected to
attend the 1998 Annual Meeting. They will have an opportunity to make a
statement if they desire to do so and will be available to respond to
shareholder questions. Deloitte & Touche LLP has acted as independent
accountants for the Company since July 1995.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL IV TO APPROVE THE
APPOINTMENT OF DELOITTE & TOUCHE LLP.
ADDITIONAL INFORMATION
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10 percent of a registered
class of the company's equity securities, to file reports of their ownership
with the Securities and Exchange Commission. Officers, directors and greater
than ten percent shareholders are required by SEC regulation to furnish the
company with copies of all Section 16(a) reports they file. Specific due dates
for these reports have been established and the Company is required to report in
this proxy statement any delinquent filings and failures to file such reports.
Based solely on its review of the copies of such reports received by it and
written representations of its incumbent directors and officers, the Company
believes that during the period from January 1 to December 31, 1997, all filing
reports applicable to its directors, officers and greater than ten percent
beneficial owners were complied with.
17
<PAGE> 21
OTHER BUSINESS
The Company is not aware of any other business to be acted upon at the
Annual Meeting other than that which is discussed in this Proxy Statement. In
the event that any other business requiring a vote of the shareholders is
properly presented at the meeting, the holders of the proxies shall have
discretionary authority to vote your shares in such manner as they shall deem
appropriate or to abstain from voting any or all of such shares. The holders of
the proxies also shall have discretionary authority to vote your shares in such
manner as they shall deem appropriate or to abstain from voting any or all of
such shares on other matters incident to the conduct of the meeting.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any shareholder proposal intended to be presented for consideration at the
1999 Annual Meeting and to be included in the Company's Proxy Statement and form
of proxy must be received at the principal executive offices of the Company by
the close of business on December 29, 1998. Proposals should be sent to the
attention of the Secretary.
You are encouraged to exercise your right to vote by marking the
appropriate boxes, dating and signing the enclosed proxy card. It is not
necessary to mark any boxes if you wish to vote in accordance with the
recommendations of the Board of Directors. The proxy card may be returned in the
enclosed envelope, postage paid if mailed in the United States or Canada. A
prompt response will be helpful and your cooperation is appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
CRAIG S. CAMALO
Craig S. Camalo
Secretary
18
<PAGE> 22
CODE-ALARM, INC.
1998 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
<PAGE> 23
CODE-ALARM, INC.
1998 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
SECTION 1. NAME AND PURPOSES OF THE PLAN.
(a) Name. The Plan will be known as the Code-Alarm, Inc. 1998 Incentive and
Non-Qualified Stock Option Plan.
(b) Purposes. The purpose of the Plan is to provide Employees and
Consultants with an opportunity to share in the capital appreciation of the
Common Stock of the Company. The Options granted pursuant to the Plan are
intended to constitute either Incentive Stock Options or Non-Qualified Stock
Options, as determined by the Administrator of the Plan at the time of grant.
SECTION 2. DEFINITIONS.
(a) "Administrator" shall be the Board or a Committee appointed by the
Board pursuant to Section 3 of the Plan, which shall administer the Plan.
(b) "Affiliate" shall mean, whether now or hereafter existing, a person or
entity that directly, or indirectly controls or is controlled by, or is under
common control with, the Company, except that when used in connection with an
Incentive Stock Option, "Affiliate" shall mean a Subsidiary.
(c) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(d) "Change of Control" shall mean the happening of an event (excluding a
Public Offering) that shall be deemed to have occurred upon the earliest to
occur of the following events:
(i) the date the shareholders of the Company (or the Board, if
shareholder action is not required) approve a plan or other arrangement
pursuant to which the Company will be dissolved or liquidated;
(ii) the date the shareholders of the Company (or the Board, if
shareholder action is not required) approve a definitive agreement to sell
or otherwise dispose of all or substantially all of the assets of the
Company;
(iii) the date the shareholders of the Company (or the Board, if
shareholder action is not required) and the shareholders of the other
constituent corporations (or their respective boards of directors, if and
to the extent that shareholder action is not required) have approved a
definitive agreement to merge or consolidate the Company with or into
another corporation, other than, in either case, a merger or consolidation
of the Company in which holders of shares of the Company's voting capital
stock immediately prior to the merger or consolidation will have at least
fifty percent (50%) of the ownership of voting capital stock of the
surviving corporation immediately after the merger or consolidation (on a
fully diluted basis), which voting capital stock is to be held by each such
holder in the same or substantially similar proportion (on a fully diluted
basis) as such holder's ownership of voting capital stock of the Company
immediately before the merger or consolidation;
(iv) the date any entity, person or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than (A)
the Company, (B) any of its Subsidiaries, (C) any of the holders of the
Common Stock of the Company, as determined on the date that this Plan is
adopted by the Board, (D) any employee benefit plan (or related trust)
sponsored or maintained by the Company or any of its Subsidiaries or (E)
any Affiliate of any of the foregoing, shall have acquired beneficial
ownership of, or shall have acquired voting control over more than fifty
percent (50%) of the outstanding shares of the Company's voting capital
stock (on a fully diluted basis); and
(v) the date upon which the Board determines (in its sole discretion)
that based on then current available information, the events described in
clause (iv) are reasonably likely to occur.
(e) "Charter Amendment" shall mean an amendment to the Company's Articles
of Incorporation which increases the number of authorized shares of Common Stock
to twenty million.
<PAGE> 24
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(g) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 3(a) of the Plan, if one is appointed, in which event
the Committee shall possess the power and authority of the Board with respect to
the Plan as set forth in Section 3(b) of the Plan.
(h) "Common Stock" shall mean the Common Stock of the Company.
(i) "Company" shall mean Code-Alarm, Inc., a Michigan corporation, and any
successor in interest that agrees to assume and maintain the Plan.
(j) "Consultant" shall mean any person associated with the Company who is
engaged by the Company to render services and is compensated by the Company for
such services, including but not limited to, an advisor, independent contractor,
or member of the Board who is not an Employee.
(k) "Disability" or "Disabled" with respect to an Optionee shall mean a
disability which renders such Optionee unable to perform the full extent of his
or her duties and responsibilities by reason of his illness or incapacity for 6
months out of any 12-month period. The determination of whether an Optionee is
Disabled shall be determined by the Board of Directors, whose determination
shall be conclusive; provided that, (i) if an Optionee is bound by the terms of
an employment or consulting agreement between the Optionee and the Company, then
whether the Optionee is "Disabled" for purposes of the Plan shall be determined
in accordance with the procedures set forth in said employment or consulting
agreement, if such procedures are therein provided; and (ii) an Optionee bound
by such an employment or consulting agreement shall not be determined to be
Disabled under the Plan any earlier than he or she would be determined to be
disabled under his or her employment or consulting agreement.
(l) "Employee" shall mean any person, including but not limited to,
officers and directors, employed by the Company or any Subsidiary of the
Company. The payment of directors' fees by the Company shall not be sufficient
to constitute "employment" by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" shall mean, as of any date, the fair market value
of a share of Common Stock as determined pursuant to Section 7 hereof.
(o) "Incentive Stock Option" shall mean any Option that is intended to be
and is designated as an incentive stock option within the meaning of Section 422
of the Code.
(p) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3(b)(3)(i) promulgated by the Securities and Exchange Commission under the
Exchange Act, or any successor definition adopted by the Securities and Exchange
Commission; provided, however, that the Administrator may, to the extent the
Administrator deems it necessary or desirable to comply with Section 162(m) of
the Code and applicable regulations thereunder, ensure that each Non-Employee
Director also qualifies as an "outside director" as that term is defined in the
regulations under Section 162(m) of the Code.
(q) "Non-Qualified Stock Option" shall mean any Option that is not intended
to qualify as an Incentive Stock Option.
(r) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option, as the case may be, granted pursuant to the Plan.
(s) "Option Agreement" shall mean the written agreement by and between the
Company and an Optionee under which Optionee may purchase the Shares pursuant to
the exercise of an Option.
(t) "Optionee" shall mean an Employee or Consultant to whom an Option is
granted.
(u) "Plan" shall mean this Code-Alarm, Inc. 1998 Incentive and
Non-Qualified Stock Option Plan, as amended from time to time.
2
<PAGE> 25
(v) "Public Offering" shall mean the consummation of a firm commitment
underwritten public offering of equity securities of the Company registered
under the Securities Act.
(w) "Securities Act" shall mean the Securities Act of 1933, as amended.
(x) "Share" or "Shares" shall mean a share or shares of Common Stock, as
adjusted in accordance with Section 8 of the Plan, that is allocated to the
Plan.
(y) "Stock Purchase and Restriction Agreement" shall mean an agreement in
such form or forms as the Board (subject to the terms and conditions of this
Plan) may from time to time approve, which an Optionee may be required to
execute as a condition of purchasing Shares upon the exercise of an Option.
(z) "Subsidiary" shall mean, whether now or hereafter existing, a
subsidiary or parent corporation of the Company as such term is defined in
Sections 424(e), (f) and (g) of the Code.
SECTION 3. ADMINISTRATION.
(a) Procedure. The Plan shall be administered by the Board or, if the Board
so decides, a Committee consisting of not less than two (2) persons appointed by
the Board, which, as the case may be, shall be the Administrator. Members of the
Board or the Committee who are eligible for Options or who have been granted
Options may vote on any matters affecting the administration of the Plan or the
grant of any Options pursuant to the Plan, except that no such member shall act
upon the granting of an Option to himself or herself, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board or
the Committee during which action is taken with respect to the granting of
Options to such member. In the event the Company has a class of equity
securities registered under the Exchange Act, the Board shall administer the
Plan or shall appoint a Committee in accordance with Section 3(b).
(b) Committee. If a Committee is appointed by the Board, then the Committee
shall possess the power and authority of the Board in administering the Plan on
behalf of the Board, subject to the terms and conditions as the Board may
prescribe. Members of the Committee shall be members of the Board and shall
serve for such period of time as the Board may determine. From time to time, the
Board may increase the size of the Committee and appoint additional members
thereto, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee and thereafter directly administer the Plan. Notwithstanding the
foregoing, in the event the Company has a class of equity securities registered
under the Exchange Act, the Committee shall be composed of two (2) or more
Non-Employee Directors.
(c) Powers of the Administrator. Subject to the provisions of the Plan
(and, in the case of the Committee, the specific duties delegated by the Board
to such Committee), the Administrator shall have the authority, in its sole
discretion:
(1) to determine whether and to what extent Options are granted
hereunder;
(2) to determine the Fair Market Value of the Common Stock based upon
review of relevant information and in accordance with Section 7 of the
Plan;
(3) to determine the exercise price of the Options in accordance with
Section 6(b) of the Plan;
(4) to select the Optionees to whom Options may from time to time be
granted;
(5) to determine the number of Shares to be subject to each Option
granted hereunder;
(6) to prescribe, amend and rescind rules and regulations relating to
the Plan;
(7) to determine the terms and provisions of each Option granted under
the Plan, each Option Agreement and each other agreement that in the sole
discretion of the Administrator may be required (all of which agreements
need not be identical with the terms of other Options, Option Agreements or
other agreements);
3
<PAGE> 26
(8) to determine the circumstances under which the vesting or exercise
date of an Option will be accelerated;
(9) to interpret the Plan or any agreement entered into with respect
to the grant or exercise of Options;
(10) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
by the Board or to take such other actions as may be necessary or
appropriate with respect to the Company's rights pursuant to Options or
agreements relating to the granting or exercise thereof;
(11) to terminate the Plan in the event of a Change of Control; and
(12) to make such other determinations and establish such other
procedures as it deems necessary or advisable for the administration of the
Plan.
(d) Effect of the Administrator's Decision. All decisions, determinations
and interpretations of the Administrator pursuant to the provisions of the Plan
shall be final and binding on all Optionees and any other holders of Options.
(e) Limitation of Liability. Notwithstanding anything herein to the
contrary, no member of the Board or the Committee shall be liable for any good
faith determination, act or failure to act in connection with the Plan or any
Option awarded hereunder.
SECTION 4. ELIGIBILITY.
(a) Eligible Persons. Options may be granted at any time and from time to
time to any Employee or Consultant who shall be selected by the Administrator.
Any grant of Options may include or exclude any Employee or Consultant as the
Administrator shall determine in its sole discretion. Consultants who are not
also Employees of the Company or a Subsidiary of the Company are eligible to be
granted Non-Qualified Stock Options under the Plan but are not eligible to be
granted Incentive Stock Options under the Plan.
(b) Effect Upon Engagement. The Plan will not confer upon any Optionee any
right with respect to the continuation of any employment, consulting or any
other relationship with the Company or a Subsidiary of the Company, nor will it
interfere in any way with such Optionee's right or the Company's or Subsidiary's
right to terminate that Optionee's employment, consulting or other relationship
with the Company or a Subsidiary at any time, whether with or without cause.
SECTION 5. STOCK SUBJECT TO THE PLAN.
(a) Maximum Number of Shares. Subject to the provisions of Section 8 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares. The Shares may be authorized, but unissued or
reacquired, Common Stock. The maximum aggregate number of Shares which may be
awarded and sold under the Plan to any individual Optionee is 100,000 Shares of
Common Stock.
(b) Return of Shares to the Plan. If an Option expires, is terminated or
becomes unexercisable for any reason without having been exercised in full, then
the unpurchased Shares subject thereto shall, unless the Plan shall have been
terminated, return to the Plan and become available for future grant under the
Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be authorized by the Board and
shall be evidenced by an Option Agreement, which shall state or incorporate by
reference all other terms and conditions of the Plan including, without
limitation, the following terms and conditions:
(a) Number of Shares. The Option Agreement shall state the number of Shares
subject to the Option.
4
<PAGE> 27
(b) Option Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to the exercise of an Incentive Stock Option shall be stated
in the Option Agreement and shall be no less than the Fair Market Value per
share of the Common Stock on the date such Option is granted, without regard to
any restriction other than a restriction that by its terms will never lapse;
provided, however, that any Incentive Stock Option granted under this Plan to an
Employee who, at the time such Option is granted, owns more than ten percent
(10%) of the current total combined voting power of all classes of the capital
stock of the Company, shall have an exercise price per Share of not less than
one hundred ten percent (110%) of the Fair Market Value of the Common Stock on
the date such Option is granted. The per Share exercise price for the Shares to
be issued pursuant to the exercise of a Non-Qualified Stock Option shall be
stated in the Option Agreement and shall be determined by the Administrator.
(c) Consideration. The consideration to be paid for the Shares to be issued
upon the exercise of an Option, including the method of payment, shall be
determined by the Administrator and may consist entirely of cash, check,
promissory notes or any combination of such methods of payment, or such other
consideration and method of payment permitted under any laws to which the
Company is subject and which is approved by the Administrator. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company. In lieu of such forms of payment, the Optionee may, with
the approval of the Administrator or if permitted under the terms of the Option
Agreement relating to such Option, pay such purchase price in whole or in part
by tendering to the Company shares of the Common Stock of the Company then owned
by the Optionee (having been so owned for a continuous period of not less than
six months) which shares shall be deemed to represent a consideration equal to
their Fair Market Value as of the date of such exercise and payment.
If the consideration for the exercise of an Option is a promissory note, it
may, in the discretion of the Administrator, be either full recourse or
nonrecourse and shall bear interest at a per annum rate which is not less than
the applicable federal rate determined in accordance with Section 1274(d) of the
Code as of the date of exercise. In such an instance the Company may, in its
sole discretion, retain the Shares purchased upon exercise of the Option in
escrow as security for payment of the promissory note.
(d) Form of Option. The Option Agreement shall state whether the Option
granted thereunder is intended to be an Incentive Stock Option or a
Non-Qualified Stock Option and shall, subject to the terms of the Option
Agreement, constitute a binding determination as to the form of Option granted
thereunder.
(e) Exercise of an Option.
(1) Any Option awarded hereunder shall be exercisable at such times
and under such conditions as shall be set forth in the Option Agreement (as
may be determined by the Administrator and as shall be permissible under
the terms of the Plan), which may include performance criteria with respect
to the Company and/or the Optionee.
(2) An Option may not be exercised for a fraction of a Share.
(3) An Option may not be exercised after the date of expiration of its
term as shall be set forth in the Option Agreement.
(4) An Option shall be deemed to have been exercised when written
notice of such exercise has been received by the Company at its principal
executive office in accordance with the terms of the Option Agreement by
the person entitled to exercise the Option, and full payment for the Shares
with respect to which the Option is to be exercised has been received by
the Company, accompanied by an executed Stock Purchase and Restriction
Agreement and any other agreements required by the Administrator or the
terms of the Plan and/or Option Agreement. An Optionee shall have no right
to vote or receive dividends and shall have no other rights as a
shareholder with respect to the Shares, notwithstanding the exercise of the
Option, until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company)
of the stock Certificate evidencing such Shares. No adjustment shall be
made for a dividend or other right for which the record date is prior to
the date a stock Certificate with respect to the Shares is issued.
5
<PAGE> 28
(5) As soon as practicable after the proper exercise of an Option in
accordance with the provisions of the Plan, the Company shall, without
transfer or issue tax to the Optionee, deliver to the Optionee at the
principal executive office of the Company or such other place as shall be
mutually agreed upon between the Company and the Optionee, a Certificate or
Certificates representing the Shares for which the Option shall have been
exercised. The time of issuance and delivery of the Certificate(s)
representing the Shares for which the Option shall have been exercised may
be postponed by the Company for such period as may be required by the
Company, with reasonable diligence, to comply with any applicable listing
requirements of any national or regional securities exchange or any law or
regulation applicable to the issuance or delivery of such Shares.
(6) The exercise of an Option in any manner shall result in a decrease
in the number of Shares that thereafter may be available both for purposes
of this Plan and for sale under the Option by the number of Shares as to
which the Option is exercised.
(f) Termination of Options.
(1) Termination in General. Unless sooner terminated as provided in
this Plan, each Option shall be exercisable for the period of time as shall
be determined by the Administrator and set forth in the Option Agreement
and shall be void and unexercisable thereafter.
(2) Termination of Relationship with the Company.
(i) Except as otherwise provided herein or by the terms of an
Option Agreement, upon the termination of the Optionee's employment or
other relationship with the Company or a Subsidiary of the Company for
any reason, Options exercisable on the date of termination of employment
or such other relationship shall be exercisable by the Optionee (or in
the case of the Optionee's death subsequent to termination of employment
or such other relationship, by the Optionee's executor(s) or
administrator(s)) for a period of three (3) months from the date of the
Optionee's termination of employment or such other relationship and
Options not exercisable on the date of such termination shall not be
exercisable and shall terminate.
(ii) Paragraph (1) of Section 6(h) shall govern the treatment of
Options upon the Disability in certain circumstances or death of an
Optionee while in the employ of or while associated with the Company or
a Subsidiary.
(3) Agreement to Terminate. Options may be terminated at any time by
agreement between the Company and the Optionee.
(g) Other Provisions.
(1) Notwithstanding any provision in this Plan or an Option Agreement
to the contrary, no Option granted to any Optionee under this Plan shall be
treated as an Incentive Stock Option to the extent that such Option would
cause the aggregate Fair Market Value of all Shares with respect to which
Incentive Stock Options are exercisable by such Optionee for the first time
during any calendar year (determined as of the date of grant of each such
Option) to exceed $100,000. For purposes of determining whether an
Incentive Stock Option granted to an Optionee would cause the aggregate
Fair Market Value to exceed the $100,000 limitation, such Incentive Stock
Options shall be taken into account in the order granted. For purposes of
this subsection, Incentive Stock Options granted to an Optionee shall
include all incentive stock options under all plans of the Company that are
incentive stock option plans within the meaning of Section 422 of the Code.
Options may be exercised in any order elected by the Optionee, whether or
not the Optionee holds any unexercised Options under this Plan or any other
plan of the Company.
(2) Notwithstanding any other provision of this Plan or an Option
Agreement to the contrary, no Option shall be (A) granted under this Plan
after ten (10) years from the date on which this Plan is adopted by the
Board, or (B) exercisable more than ten (10) years from the date of grant;
provided that if an Incentive Stock Option shall be granted under this Plan
to any Employee who, at the time of the grant of such Option, owns stock
possessing more than ten percent (10%) of the total combined voting
6
<PAGE> 29
power for all classes of the Company's capital stock, the foregoing clause
(B) shall be deemed modified by substituting the term "five (5) years" for
the term "ten (10) years" that appears therein.
(h) Vesting.
Except as provided in paragraph (2) of this Section 6(h) or except if the
Administrator decides to the contrary, any Option granted hereunder shall not be
exercisable if the Optionee does not remain in the employ of the Company or of
one or more of the Subsidiaries or remain associated with the Company or one or
more of its Subsidiaries, as applicable, for a continuous period of six months
from the date of grant. After expiration of a period of employment or
association of six months from the date of grant, the Optionee shall have a
right to exercise Options in accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL SHARES
PERIOD OF CONTINUOUS EMPLOYMENT OR SUBJECT TO OPTION
ASSOCIATION AFTER DATE OF GRANT OF OPTION WHICH MAY BE EXERCISED
<S> <C>
- ------------------------------------------------------------------------------------------
Six months after Date of Grant to one year after Date of
Grant..................................................... 5%
One year after Date of Grant................................ 10%
Two years after Date of Grant............................... 20%
Three years after Date of Grant............................. 25%
Four years after Date of Grant.............................. 40%
- ------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding the foregoing exercise schedule, if the Optionee has
remained in the employ of or associated with the Company or of one or more of
the Subsidiaries for a period of six or more months from the date of this grant
and either (a) dies while employed by or associated with the Company or one of
its Subsidiaries, or (b) retires or terminates the association prior to
attaining age sixty (60) by reason of Disability, the Optionee (or, in the event
of his death, the personal representative of the Optionee's estate, or the
Optionee's heirs or beneficiaries) shall be eligible to exercise all of the
Optionee's outstanding Options under the grant, provided such exercise occurs
within six (6) months following the date of such retirement or termination of
association for Disability or within twelve (12) months following the date of
the Optionee's death, whichever is applicable. Notwithstanding the foregoing
exercise schedule, if the Optionee has remained in the employ of or associated
with the Company or one or more of the Subsidiaries for a period of six or more
months from the date of the grant and retires or terminates the association upon
attainment of age sixty (60) or thereafter with outstanding Options granted to
the Optionee, the Optionee shall be eligible to exercise all outstanding Options
under the grant, provided such exercise occurs within three (3) months following
the date of the Optionee's retirement or termination of the association.
SECTION 7. FAIR MARKET VALUE OF COMMON STOCK.
The Fair Market Value of a Share of Common Stock, as of any date, shall be
determined as follows:
(a) In the event that shares of Common Stock are traded in the
over-the-counter market, the Fair Market Value of a Share of Common Stock
shall be the mean of the closing bid and asked prices for a share of Common
Stock on the relevant valuation date as reported in The Wall Street Journal
(or, if not so reported, as otherwise reported by the NASDAQ Stock Market)
as applicable or, if there is no trading on such date, on the next
preceding date on which there were reported share prices. In the event
shares of Common Stock are listed on a national or regional securities
exchange or traded through the NASDAQ National Market, the Fair Market
Value of a share of Common Stock shall be the closing price for a share of
Common Stock on the principal exchange or on the Nasdaq National Market, as
reported in The Wall Street Journal on the relevant valuation date, or if
there is no trading on that date, on the next preceding date on which there
were reported share prices.
(b) In the absence of an established market for the Common Stock, the
Fair Market Value of a share of Common Stock shall be determined by the
Board in its sole discretion.
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<PAGE> 30
SECTION 8. ADJUSTMENTS.
(a) Adjustments. Subject to any required action by the shareholders of the
Company, the number of Shares covered by each outstanding Option, the number of
Shares that have been authorized for issuance under the Plan but as to which no
Options have yet been granted or that have been returned to the Plan upon
cancellation or expiration of an Option, and the price per Share of the Common
Stock covered by an Option will each be proportionately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock
resulting from stock splits, reverse stock splits, stock dividends,
reclassifications and recapitalizations or automatic conversion of shares of one
class of stock to those of another by operation of the terms of such stock. Such
adjustment shall be made by the Board whose determination in that respect will
be final, binding and conclusive. Except as provided herein, no issuance by the
Company of shares of stock of any class or securities convertible into shares of
stock of any class, will affect, and no adjustment by reason thereof will be
made with respect to, the number or price of shares of Common Stock subject to
an Option.
(b) No Fractional Shares. No fractional Shares shall be issuable on account
of any action aforesaid, and the aggregate number of Shares into which Shares
then covered by the Option, when changed as the result of such action, shall be
reduced to the number of whole Shares resulting from such action, unless the
Board, in its sole discretion, shall determine to issue scrip Certificates in
respect to any fractional Shares, which scrip Certificates shall be in a form
and have such terms and conditions as the Board in its discretion shall
prescribe.
SECTION 9. RIGHTS AS A SHAREHOLDER.
An Optionee shall have no rights as a shareholder of the Company and shall
not have the right to vote nor receive dividends with respect to any Shares
subject to an Option until such Option has been exercised and a stock
Certificate with respect to the Shares purchased upon such exercise of the
Option has been issued to Optionee as set forth in Section 6(e)(4) and (5)
hereof.
SECTION 10. FORFEITURE.
Notwithstanding any other provision of this Plan, if an Optionee's
employment or consulting relationship with the Company or a Subsidiary of the
Company (as the case may be) is terminated by the Company or a Subsidiary and
the Board makes a determination that the Optionee (a) has engaged in any type of
disloyalty to the Company or Subsidiary that is materially damaging, including
without limitation, fraud, embezzlement, theft, or dishonesty in the course of
Optionee's employment or consulting relationship, (b) has been convicted of a
felony or other crime involving a breach of trust or fiduciary duty owed to the
Company or Subsidiary, (c) has made an unauthorized disclosure of trade secrets
or confidential information of the Company or a Subsidiary, or (d) has breached
any confidentiality agreement or non-competition agreement with the Company or
Subsidiary in any material respect, then, at the election of the Board, all
unexercised Options held by the Optionee (whether or not then exercisable) shall
terminate. In the event of such an election by the Board, in addition to
immediate termination of all unexercised Options, the Optionee shall forfeit all
Shares for which the Company has not yet delivered stock Certificates to the
Optionee and the Company shall refund to the Optionee the exercise price paid to
it upon exercise of the Option with respect to such Shares. Notwithstanding
anything herein to the contrary, the Company may withhold delivery of stock
Certificates pending the resolution of any inquiry that could lead to a finding
resulting in forfeiture.
SECTION 11. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the date on
which the Administrator makes the determination to grant the Option or such
other date as is determined by the Administrator. Notice of the determination
shall be given to each Optionee to whom an Option is so granted within a
reasonable time after the date of such grant.
SECTION 12. MODIFICATION, EXTENSION, RENEWAL OF OPTION.
Subject to the terms and conditions of the Plan, the Board may modify,
extend or renew an Option, or accept the surrender of an Option (to the extent
not theretofore exercised); provided that no Incentive Stock
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Option may be modified, extended or renewed if such action would cause such
Option to cease to be an incentive stock option within the meaning of Section
422 of the Code.
SECTION 13. TRANSFERABILITY.
No Option may be sold, pledged, assigned, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, his or her Options shall be exercisable only by the
Optionee, or, in the event of his or her legal incapacity or Disability, by the
legal guardian or representative of the Optionee.
SECTION 14. POWER OF BOARD IF CHANGE OF CONTROL.
Notwithstanding anything to the contrary set forth in this Plan, in the
event of a Change of Control, the Board shall have the authority, in its
discretion, to accelerate the vesting of all unmatured Options and to accelerate
the expiration date of all Options, whether or not matured. In addition, in the
event of a Change of Control of the Company by reason of a merger, consolidation
or tax free reorganization or sale of all or substantially all of the assets of
the Company, the Board shall have the authority, in its discretion, to terminate
this Plan and to (a) exchange all Options for options to purchase common stock
in the successor corporation or (b) distribute to each Optionee cash and/or
other property in an amount equal to and in the same form as the Optionee would
have received from the successor corporation if the Optionee had owned the
Shares subject to the Option rather than the Option at the time of the Change of
Control, provided that any such amount paid to an Optionee shall reflect the
deduction of the exercise price the Optionee would have paid to purchase such
Shares. The form of payment or distribution to the Optionee pursuant to this
Section shall be determined by the Board.
SECTION 15. AMENDMENT OR TERMINATION OF THE PLAN.
Insofar as permitted by law and the Plan, the Board may at any time
suspend, terminate, discontinue, alter or amend the Plan in any respect
whatsoever; provided, however, that without prior approval of at least a
majority of the shareholders entitled to vote thereon, no such revision or
amendment may increase the aggregate number of Shares for which Options may be
granted hereunder or change the designation of the class of Employees eligible
to receive Options. Any other provision of this Section notwithstanding, the
Board specifically is authorized to adopt any amendment to this Plan deemed by
the Board to be necessary or advisable to assure that the Incentive Stock
Options or the Non-Qualified Stock Options available under the Plan continue to
be treated as such, respectively, under all applicable laws.
SECTION 16. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Shares pursuant to
the exercise of Options shall be used for general corporate purposes.
SECTION 17. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
SECTION 18. APPROVAL OF SHAREHOLDERS.
This Plan shall become effective on the date that it is adopted by the
Board; provided that it shall become limited to a non- qualified stock option
plan if it is not approved by the shareholders of a majority of the Company's
outstanding voting stock within one year (365 days) of its adoption by the
Board. The Board may grant Options hereunder prior to approval of the Plan, or
any material amendments thereto, by the holders of a majority of the Company's
outstanding voting stock; provided that any and all Options so granted shall be
converted into non-qualified stock options if the Plan, or a material amendment,
is not approved by such shareholders within 365 days of its adoption or material
amendment.
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SECTION 19. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Options granted under the Plan are conditioned upon the Company
obtaining any required permit or order from appropriate governmental agencies,
authorizing the Company to issue such Options and Shares issuable upon the
exercise thereof.
(b) Shares shall not be issued pursuant to the exercise of an Option unless
the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(c) As a condition to the exercise of an Option, the Board may require the
person exercising such Option to execute an agreement with, and/or may require
the person exercising such Option to make any representation and/or warranty to,
the Company as may be, in the judgment of counsel to the Company, required under
applicable law or regulation, including but not limited to, a representation and
warranty that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation and warranty is appropriate under
any of the aforementioned relevant provisions of law.
SECTION 20. RESERVATION OF SHARES.
(a) Subject to the effectiveness of the Charter Amendment, the Company,
during the term of this Plan, shall at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
(b) The Company, during the term of this Plan, shall use its best efforts
to seek to obtain from appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
SECTION 21. OTHER AGREEMENTS.
Options shall be evidenced by an Option Agreement in such form or forms as
the Board (subject to the terms and conditions of this Plan) may from time to
time approve, which Option Agreement shall evidence and reflect the terms and
conditions of an Option as set forth in Section 6 hereof. Upon exercise of an
Option, the Optionee shall execute and deliver to the Company a Stock Purchase
and Restriction Agreement in such form or forms as the Board shall approve from
time to time, if the Board so requires that execution. The Administrator may,
from time to time, require such other agreements in connection with the Option
as it, in its sole discretion, deems advisable. The Option Agreement and the
Stock Purchase and Restriction Agreement and any other agreement required by the
Plan or the Option Agreement, as determined by the Board, may contain such other
provisions as the Board in its discretion deems advisable and that are not
inconsistent with the provisions of this Plan, including, without limitation,
restrictions upon or conditions precedent to the exercise of the Option.
SECTION 22. TAXES, FEES, EXPENSES AND WITHHOLDING.
(a) The Company shall pay all original issue and transfer taxes (but not
income taxes, if any) with respect to the grant of an Option and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will,
from time to time, use its best efforts to comply with all laws and regulations
that, in the opinion of counsel for the Company, shall be applicable thereto.
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(b) The granting of Options hereunder and the issuance of Shares pursuant
to the exercise thereof is conditioned upon the Company's reservation of the
right to withhold in accordance with any applicable law, from any compensation
or other amounts payable to the Optionee, any taxes required to be withheld
under federal, state or local law as a result of the grant or exercise of such
Option or the sale of the Shares issued upon exercise thereof. To the extent
that compensation or other amounts, if any, payable to the Optionee is
insufficient to pay any taxes required to be so withheld, the Company may, in
its sole discretion, require the Optionee (or such other person entitled herein
to exercise the Option), as a condition to the exercise of an Option, to pay in
cash to the Company an amount sufficient to cover such tax liability or
otherwise to make adequate provision for the Company's satisfaction of its
withholding obligations under federal, state and local law.
SECTION 23. NOTICES.
Any notice to be given to the Company pursuant to the provisions of this
Plan shall be addressed to the Company in care of its Secretary (or such other
person as the Company may designate from time to time) at its principal
executive office, and any notice to be given to an Optionee shall be delivered
personally or addressed to the Optionee at the address given beneath the
signature of the Optionee on his or her Option Agreement, or at such other
address as such Optionee or his or her permitted transferee (upon the transfer
of the Shares) may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified, and deposited, postage
and registry or certification fee prepaid, in a post office or branch post
office regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each permitted transferee holding Shares
purchased upon exercise of an Option to provide the Secretary of the Company, by
letter mailed as provided herein, with written notice of his or her direct
mailing address.
SECTION 24. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Employee or Consultant, or to be consideration for or a
condition of the employment or service of any Employee or Consultant as the case
may be. Nothing contained in this Plan shall be deemed to give any Employee or
Consultant the right to be retained in the employ or service of the Company, or
to interfere with the right of the Company or a Subsidiary to discharge or
retire any Employee or Consultant thereof at any time. No Employee or Consultant
shall have any right to or interest in Options authorized hereunder prior to the
grant thereof to such Employee or Consultant, and upon such grant such Employee
shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Articles of
Incorporation, as the same may be amended from time to time.
SECTION 25. INFORMATION TO OPTIONEES.
The Company, upon request, shall provide without charge to each Optionee
copies of such annual and periodic reports as are provided by the Company to its
shareholders generally.
SECTION 26. AVAILABILITY OF PLAN.
A copy of this Plan shall be delivered to the Secretary of the Company and
shall be shown to any eligible person making reasonable inquiry concerning it.
SECTION 27. INVALID PROVISIONS.
In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
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SECTION 28. APPLICABLE LAW.
This Plan shall be governed by and construed in accordance with the laws of
the State of Michigan.
SECTION 29. BOARD ACTION.
Notwithstanding anything to the contrary set forth in this Plan, any and
all actions of the Board or Committee, as the case may be, taken under or in
connection with this Plan and any agreements, instruments, documents,
Certificates or other writings entered into, executed, granted, issued and/or
delivered pursuant to the terms hereof, shall be subject to and limited by any
and all votes, consents, approvals, waivers or other actions of all or certain
shareholders of the Company or other persons required pursuant to (a) the
Company's Articles of Incorporation (as the same may be amended and/or restated
from time to time), (b) the Company's Bylaws (as the same may be amended and/or
restated from time to time), and (c) any other agreement, instrument, document
or writing now or hereafter existing, between or among the Company and its
shareholders or other persons (as the same may be amended from time to time).
SECTION 30. INDEMNIFICATION.
Each Person who is or shall have been a member of the Board or of the
Committee shall be indemnified and held harmless by the Company against expenses
actually and necessarily incurred by him, as and when such expenses are
incurred, in connection with the defense of any claim, action, suit or
proceeding in which he may be or become a party or any governmental
investigation by reason of any action taken or failure to act under this Plan
and against and from any and all amounts paid by him in settlement thereof (with
the Company's written approval) or paid by him in satisfaction of a judgment or
civil penalty in any such action, suit or proceeding, except in relation to
matters as to which he shall be adjudged in such action, suit or proceeding to
be liable for a breach of his duty of loyalty to the Company or its
shareholders, acts or omissions not in good faith or that involve intentional
misconduct or knowing violation of law, a violation of Section 551(1) of the
Michigan Business Corporation Act, or a transaction from which he derived an
improper personal benefit and to such matters as shall be settled by agreement
predicated on the existence of such liability; subject, however, to the
condition that upon the institution of any claim, action, investigation, suit or
proceeding against him, he shall in writing give the Company an opportunity, at
its own expense, to handle and defend the same before he undertakes to handle
and defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive of any other right to which such person may be entitled as a
matter of law or otherwise, or any power that the Company may have to indemnify
him or hold him harmless.
Each member of the Board or of the Committee, and each officer and employee
of the Company shall be fully justified in relying or acting in good faith upon
any information furnished in connection with the administration of this Plan by
any appropriate person or persons other that himself. In no event shall any
person who is or shall have been a member of the Board or of the Committee, or
an officer or employee of the Company be held liable for any determination made
or other action taken or any omission to act in reliance upon any such
information, or for any action (including the furnishing of information) taken
or any failure to act, if in good faith.
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CODCM-PS-98
<PAGE> 36
[ ] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ---------------------------------------
CODE-ALARM, INC.
- ---------------------------------------
Mark box at right if an address change [ ]
or comment has been noted on the reverse
side of this card.
RECORD DATE SHARES:
Please be sure to sign and date this Proxy. ---------
Date
- --------------------- --------------------
Shareholder sign here Co-owner sign here
Your signature should appear the same as your name appears hereon. If signing as
attorney, executor, trustee or guardian, please indicate the capacity in which
signing. When signing as joint tenants, all parties to the joint tenancy must
sign. When the Proxy is given by a corporation, it should be signed by an
authorized officer and the corporate seal affixed.
1. ELECTION OF DIRECTORS:
FOR WITH- FOR ALL
HOLD EXCEPT
KENNETH M. MUELLER [ ] [ ] [ ]
MARSHALL J. MUELLER [ ] [ ] [ ]
If you do not wish your shares voted "For" a particular nominee, mark the "For
All Except" box and strike a line through the nominee's name. Your shares will
be voted for the remaining nominee.
2. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED
SHARES OF COMMON STOCK TO 20 MILLION.
FOR WITH- FOR ALL
HOLD EXCEPT
[ ] [ ] [ ]
[ ] [ ] [ ]
3. PROPOSAL TO APPROVE THE 1998 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN.
FOR WITH- FOR ALL
HOLD EXCEPT
[ ] [ ] [ ]
[ ] [ ] [ ]
4. RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS.
FOR WITH- FOR ALL
HOLD EXCEPT
[ ] [ ] [ ]
[ ] [ ] [ ]
Proposal to ratify the appointment of Deloitte & Touche LLP as independent
certified public accountants to audit the books and records of the Company for
the year ending December 31, 1998.
5. In their discretion the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
<PAGE> 37
CODE-ALARM, INC.
This Proxy is Solicited on Behalf of the Board of Directors of Code-Alarm, Inc.
The undersigned shareholder of CODE-ALARM, INC. (the "Company") hereby appoints
William S. Pickett, Jack D. Rutherford and Alan H. Foster, or any one of them,
Proxies, with full power of substitution, to vote all Common Stock of the
Company standing in the name of the undersigned at the 1998 Annual Meeting of
Shareholders of the Company to be held at the Northfield Hilton, Troy, Michigan,
on Tuesday, May 19, 1998, at 10:00 a.m., and at any adjournment thereof, hereby
ratifying all that said Proxies or their substitutes may do by virtue hereof;
and the undersigned authorizes and instructs said Proxies to vote as indicated
on the reverse side, revoking any proxies heretofore given.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE. IF NO DIRECTION IS MADE, THE PROXIES WILL VOTE THIS PROXY FOR THE
ELECTION OF ALL NOMINEES FOR DIRECTOR LISTED IN ITEM 1, FOR THE APPROVAL OF ITEM
2, ITEM 3, AND ITEM 4, AND WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS
REFERRED TO IN ITEM 5. THE UNDERSIGNED RATIFIES ALL THAT THE PROXIES OR ANY ONE
OF THEM OR THEIR SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF AND REVOKES ALL PRIOR PROXIES.
Receipt of the Notice of said Meeting and the Proxy Statement and Annual Report
of the Company for the year ended December 31, 1997 accompanying this Proxy is
hereby acknowledged.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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