<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
------------------ --------------------
Commission File Number: 016441
CODE - ALARM, INC.
------------------
(Exact name of registrant as specified in its charter)
MICHIGAN
--------
(State or other jurisdiction of
incorporation or organization)
38-2334698
----------
(I.R.S. Employer
Identification No.)
950 EAST WHITCOMB, MADISON HEIGHTS, MICHIGAN 48071
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): 248-583-9620
-------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrants common stock,
without par value, as of November 13, 1998 is 2,320,861.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. - Financial Information
Consolidated Condensed Balance Sheets-
As of September 30, 1998 (Unaudited) and December 31, 1997 3
Consolidated Condensed Statements of Operations (Unaudited) -
Three months ended September 30, 1998 and 1997, and nine months 4
ended September 30, 1998 and 1997
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Nine months ended September 30, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. - Other Information 11
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CODE-ALARM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
1998 December 31,
ASSETS (Unaudited) 1997
---------------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 67 $ 36
Accounts receivable, less allowance for doubtful accounts
(September 30, 1998 and December 31, 1997, of $1,480 and $1,073, respectively) 4,619 5,615
Inventories 4,054 4,291
Refundable income taxes 932 950
Other 285 503
---------------------- ------------------
Total current assets 9,957 11,395
Property and equipment, net of accumulated depreciation 1,845 2,444
Excess of cost over net assets acquired, net 300 320
Other intangibles, net 161 424
Other 1,238 1,479
---------------------- ------------------
Total assets $ 13,501 $ 16,062
====================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 4,268 $ 5,545
Accrued expenses 2,340 2,040
Current portion of long-term debt 159 797
---------------------- ------------------
Total current liabilities 6,767 8,382
Long-term debt 18,345 6,574
Reserve for litigation 10,000
---------------------- ------------------
Total liabilities 25,112 24,956
Redeemable preferred stock 7,000 7,000
Shareholders' equity (deficit):
Common stock 12,213 12,213
Additional paid in capital 4,179 4,179
(Accumulated deficit) (35,003) (32,286)
---------------------- ------------------
Total shareholders' equity (deficit) (18,611) (15,894)
---------------------- ------------------
Total liabilities and shareholders' equity (deficit) $ 13,501 $ 16,062
====================== ==================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 8,202 $ 12,590 $ 32,609 $ 41,004
Cost of sales 5,701 8,268 21,626 25,831
-------- -------- -------- --------
Gross profit 2,501 4,322 10,983 15,173
Operating expenses:
Sales and marketing 1,582 1,851 5,058 5,852
Engineering 466 348 1,284 1,194
General and administrative 925 2,516 3,640 7,029
Impairment of goodwill 1,163 1,536
Restructuring charge 536 536
-------- -------- -------- --------
2,973 6,414 9,982 16,147
-------- -------- -------- --------
Income (loss) from operations (472) (2,092) 1,001 (974)
Other expense:
Interest expense 557 440 1,470 1,152
Litigation expense 450 2,376 1,533 2,376
Other - net 174 308 190 315
-------- -------- -------- --------
1,181 3,124 3,193 3,843
-------- -------- -------- --------
Income (loss) before income taxes (1,653) (5,216) (2,192) (4,817)
Income taxes
-------- -------- -------- --------
Net income (loss) (1,653) (5,216) (2,192) (4,817)
Preferred stock dividends 175 525
-------- -------- -------- --------
Net income (loss) applicable to common stock $ (1,828) $ (5,216) $ (2,717) $ (4,817)
======== ======== ======== ========
Basic earnings (loss) per share $ (0.79) $ (2.25) $ (1.17) $ (2.08)
======== ======== ======== ========
Weighted average common
shares outstanding 2,321 2,321 2,321 2,321
======== ======== ======== ========
Diluted earnings (loss) per share $ (0.79) $ (2.25) $ (1.17) $ (2.08)
======== ======== ======== ========
Weighted average common and dilutive
shares outstanding 2,321 2,321 2,321 2,321
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
CODE-ALARM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30
-------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities (Note 5) $ (10,116) $ (3,836)
Cash flows from investing activities:
Capital expenditures (658) (216)
Cash flows from financing activities:
Issuance of term note 10,000
Payments on term notes and capitalized lease obligations (1,162) (231)
Net advances on revolving line of credit 2,295 4,336
Preferred stock dividends paid (328)
---------------- ----------------
Net increase in cash and cash equivalents 31 53
Cash and cash equivalents, beginning of period 36 45
---------------- ----------------
Cash and cash equivalents, end of period $ 67 $ 98
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the nine month period for:
Interest $ 1,052 $ 1,693
================ ================
Income taxes $ 25
================ ================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
CODE-ALARM, INC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The consolidated condensed interim financial statements reflect all
adjustments, which in the opinion of management are necessary to fairly
state results for the interim periods, presented. All adjustments are of a
normal and recurring nature, except for litigation expense of $450,000 and
$1.5 million for the three and nine month periods ended September 30, 1998,
respectively, and items of litigation expense, impairment of goodwill, and
a restructuring charge totaling $4.1 million and $4.4 million for the three
and nine month periods ended September 30, 1997, respectively. Results of
operations for the interim periods presented are not necessarily indicative
of results to be expected for the fiscal year.
The Company has been involved in various matters of litigation, including
those more fully described in "Legal Proceedings" in Part II of this Form
10Q.
On January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income." During the
periods presented, the Company had no elements of comprehensive income.
Accordingly, a Statement of Comprehensive Income has not been provided as
comprehensive income equals net income for all periods presented.
2. The financial statements include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
3. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31
(Unaudited) 1997
--------------- --------------
<S> <C> <C>
Raw materials $ 3,474 $ 3,425
Work in process 439 680
Finished goods 141 186
------------ ------------
$ 4,054 $ 4,291
============ ============
</TABLE>
4. On October 1, 1998, the Company amended its credit agreement with its
senior lender. The amendment provided for the deferral of quarterly
installments under its term loans for one year, beginning October 1, 1998,
modified certain of its provisions, including restricting the payment of
all cash dividends during a quarter in which a principal payment has been
deferred, and waived certain defaults.
The deferral of quarterly payments total $1.5 million, which is payable
October 2000, or upon termination of the credit agreement, if earlier.
5. In July 1997, the Company was found to infringe upon a patent involving a
shock sensing device, and in March 1998 the Court entered a final amended
judgment for approximately $9.3 million. The Company recorded a reserve at
December 31, 1997, in the amount of $10 million to provide for damages and
other costs. On March 5, 1998, the Company posted a bond with the Court in
the amount of $9.3 million to permit an appeal of the judgment against the
Company. The bond was secured by an irrevocable letter of credit provided
by the Company's senior lender and guaranteed by the holders of the
Company's Series A-1 Preferred Stock.
On June 1, 1998, the Company entered into a comprehensive worldwide
settlement agreement and mutual release with the prevailing party in the
above judgment, whereby each party released any and all pending claims,
counterclaims, third-party claims, appeals and cross-appeals against the
other in exchange for payment of $10 million by the Company. Payment was
made on June 19, 1998, with proceeds from a term loan provided for under
the terms of the Company's credit agreement. The payment is reflected in
the Consolidated Condensed Financial Statements of Cash Flows for the
6
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nine months ended September 30, 1998 within "Cash flows from operating
activities." The holders of Series A-1 Preferred Stock have guaranteed
payment of the term loan. In return for the above guarantees, the Company
issued to the holders of its Series A-1 Preferred Stock warrants to
acquire 7,026,790 shares of the Company's Common Stock. These warrants have
an average exercise price of $.47 per share and expire in 2004.
The Company has not yet determined the potential financial impact of the
guarantees on its financial statements, and as of September 30, 1998, no
amount has been recorded with respect to these guarantees.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The Company's sales from U.S. operations were down $5.9 million, or 15.3%,
to $32.6 million for the nine months ended September 30, 1998, as compared
to $38.5 million for the nine months ended September 30, 1997. Consolidated
sales for the nine month period ended September 30, 1997, also included
$2.5 million from the Company's discontinued European operations. Sales
for the third quarter ended September 30, 1998, were $8.2 million compared
to $12.6 million for the comparable period of 1997. Contributing to the
decline during the three and nine month periods was the prolonged weakness
in several of the Company's key overseas markets, including Asia, South
America, and Russia, the General Motors strike during the second and third
quarters of this year, and increased price competition in the retail
aftermarket. The Company's sales to original equipment manufacturers
("OEM"), both direct and to dealers, during the nine months ended September
30, 1998, maintained last year's strong levels excluding the effects of the
strike.
For the nine months ended September 30, 1998, consolidated gross profit
percentage was 33.7% as compared to 37.0% for the comparable nine month
period in 1997. The percentage for the nine month period ended September
30, 1998, was negatively affected by the lower sales volumes, higher
warranty costs, impact of the consolidation of U.S. operations on the
production processes, and new product introductions in the third quarter.
Consolidated operating expenses for the first nine months of 1998 decreased
$6.2 million, or 38.2%, to $10.0 million as compared to $16.1 million for
the first nine months of 1997. This decrease was primarily due to the
discontinued European operations and related costs, the consolidation of
U.S. operations and associated restructuring costs, 1997 charge for the
impairment of goodwill, and lower sales level in 1998.
As a result, the Company reported operating income for the nine months
ended September 30, 1998, of $1.0 million as compared to an operating loss
of $1.0 million for the comparable period in 1997.
Interest expense was up 27.6% for the nine months ended September 30, 1998,
as compared to the nine month period ended September 30, 1997. The increase
was primarily due to the cost associated with the senior debt refinancing
in October 1997, and additional borrowings resulting from the $10 million
judgment and settlement relating to the patent infringement claim.
Other non-operating expenses for both 1998 and 1997 include litigation
expense associated with reserves for legal settlements and their related
defense costs. The costs for 1998 were partially offset by $1 million in
proceeds received by the Company from the settlement of patent infringement
claims.
The Company has determined that any income tax benefit resulting from
current and prior year operating losses is not currently recognizable for
the nine month period ended September 30, 1998.
As a result of the foregoing, the Company recorded a net loss before
preferred stock dividends for the nine months ended September 30, 1998, of
$2,192,000, compared to a net loss of $4,817,000 for the nine months ended
September 30, 1997. Net loss after preferred stock dividends was
$2,717,000, or $1.17 basic and diluted loss per share, versus $4,817,000,
or $2.08 basic and diluted loss per share, for the nine month period ended
September 30, 1997.
8
<PAGE> 9
Liquidity and Capital Resources
The Company's consolidated working capital improved slightly at September
30, 1998 to $3.2 million as compared to $3 million at December 31, 1997. In
addition, the current ratio (current assets divided by current liabilities)
also improved as of September 30, 1998, to 1.47 to 1 compared to 1.36 to 1
at December 31, 1997.
Cash used in operating activities for the nine months ended September 30,
1998, was $10.1 million , which included payment of the $10 million
settlement of the patent infringement claim, financed by a term loan
provided for under the Company's credit agreement. Additional financing by
the Company under its line of credit was used to finance capital
expenditures of $658,000, and short term working capital needs. For the
three month period ended September 30, 1998, the Company generated $332,000
cash flow from operating activities.
The Company amended and restated its credit agreement with its senior
lender as of March 4, 1998, and further amended the agreement as of April
8, 1998, in order to allow the Company the right to utilize the letter of
credit facility for the Detroit Litigation judgment, both the initial
judgment and for any additional judgment amount, the right to draw on the
letter of credit and utilize an additional term loan, to waive certain
defaults (including those that existed at December 31, 1997), to correct
certain disclosures and to modify certain provisions. Since April 8, 1998,
the credit agreement has been amended (most recently October 1, 1998), to
provide for the deferral of quarterly installments under its term loans for
one year, beginning October 1, 1998, to modify certain of its provisions,
including restricting the payment of all cash dividends during a quarter in
which a principal payment has been deferred, to provide for the adoption of
a certain stock option plan, to request funding for the settlement as it
relates to the Detroit Litigation judgment, to waive certain financial
covenant violations and other compliance requirements, and to correct
certain disclosures.
On March 5, 1998, the Company posted a bond with the Court in the amount of
$9.3 million to permit an appeal of the Detroit Litigation judgment against
the Company. The bond was secured by an irrevocable letter of credit
provided by the Company's senior lender and guaranteed by the holders of
the Company's Series A-1 Preferred Stock. On June 1, 1998, the Company
entered into a comprehensive worldwide settlement agreement and mutual
release as it relates to the above judgment in exchange for payment of $10
million by the Company. Payment was made on June 19, 1998, with proceeds
from a new term note. The holders of Series A-1 Preferred Stock have
guaranteed payment of this new term loan. In return for the above
guarantees, the Company issued to the holders of its Series A-1 Preferred
Stock warrants to acquire 7,026,790 shares of the Company's Common Stock.
These warrants have an average exercise price of $.47 per share and expire
in 2004.
As of September 30, 1998, the Company's outstanding revolving line of
credit was $7.5 million. As of November 10, 1998, $6.3 million of the $12
million revolving credit facility was outstanding. The reduction from
quarter end was due to the Company's receipt of an $1.1 million income tax
refund. Under the revolving line of credit, $6.0 million was borrowed at
the LIBOR based interest rate.
Year 2000
The Company is completing an evaluation of the actions necessary to ensure
that its business critical computer information systems will be able to
function without disruption with respect to the application of the dating
systems in the Year 2000. Upon completion, the Company will be in a
position to evaluate the extent to which it must upgrade, replace and test
certain of its information and other computer systems so as to be able to
operate without disruption due to Year 2000 issues. Although a final
timetable is not in place, the Company does anticipate completion of
substantially all work prior to the third quarter of 1999. Based upon the
status of our current evaluation, the Company does not anticipate that the
costs associated with Year 2000 compliance will be material to the
Company's results of operations and financial position. Costs associated
with the compliance process are being capitalized to the extent that they
meet the Company's capitalization policy; otherwise they are expensed as
incurred.
If the Company is unable to complete actions in the planned timeframe,
contingency plans
9
<PAGE> 10
will be developed to address those business critical systems, which may not
yet be Year 2000 compliant. In addition, disruptions with respect to the
computer systems of vendors or customers, which systems are outside the
control of the Company, could impair the Company's ability to obtain
necessary materials or products to sell or to service their customers.
Disruptions of the Company's computer systems, or the computer systems of
the Company's vendors or customers, as well as the costs of avoiding such
disruption, could have a material adverse impact upon the Company's
financial condition and results of operations.
As part of the continuing assessment process, the Company will develop
contingency plans for dealing with business critical systems, vendors, and
customers. These plans are expected to be completed during the first
quarter of 1999.
10
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The following cases were settled in the manner disclosed in
Code-Alarm's Form 10-Q for the quarter ended June 30, 1998: Code-Alarm, Inc. v.
Directed Electronics Inc., Case No. 87-CV-74022-DT, United States District
Court, Eastern District of Michigan; Code-Alarm, Inc. v. Directed Electronics,
Inc., Case No. A-95-CV-437JN, United States District Court, Western District of
Texas, Austin Division; Directed Electronics, Inc. v. Code-Alarm, Inc., Case No.
95-0513 BTM (CGA), United States District Court for the Southern District of
California; Directed Electronics, Inc. v. Code-Alarm, Inc., Rand Mueller and
Peter J. Stouffer, Case No. 96-659 BTM (CGA), United States District Court for
the Southern District of California; Directed Electronics, Inc. v. TSI Security
Acquisition Corp., United States District Court, Southern District of
California, Case No. 93-1050 BTM, in which Code-Alarm, Inc., by assignment,
replaced TSI Security Acquisition Corp. as the defendant and counterclaimant.
TSI Security Acquisition Corp. challenged the Company's attempt to dismiss Case
No. 93-1050 BTM and sought to continue that case in the place of Code-Alarm,
Inc. In July 1998, the Court of Appeals for the Federal Circuit dismissed Case
No. 93-1050 BTM.
TSI Security Acquisition Corp. v. Code-Alarm, Inc. was filed on August
21, 1998, in the Supreme Court for the County of New York, and on September 17,
1998, Code-Alarm removed the action to the United States District Court for the
Southern District of New York, Case No. 98-CIV-6586 (JSR). A tentative agreement
to settle this case has been reached. If the settlement does not occur, the
Company intends to vigorously defend this case. There can be no assurance that
the Company will prevail in this case or as to the amount of damages to which it
may be subject if it does not prevail.
Aureo Rivera Davila and Aureo E. Rivera v. Magna Holding Company et
al., Case No. 97C1909, filed March 20, 1997, in the U.S. District Court,
Northern District of Illinois, Eastern Division. Plaintiffs seek enforcement
against the Company of a $19.4 million default judgment entered by the court on
July 26, 1990, against Chapman Industries Corp. ("Industries") for alleged
patent infringement. With accumulated interest, the amount of the default
judgment is now approximately $30 million. A subsidiary of the Company purchased
certain assets from LaSalle National Bank ("LaSalle") on January 19, 1990, in a
private sale conducted by LaSalle under Section 9-504 of the Illinois Uniform
Commercial Code to dispose of collateral securing a defaulted loan made by
LaSalle to Chapman Products, Inc. ("Products"). Plaintiffs allege that the
assets were acquired by Products from Industries. Plaintiffs claim that the sale
of assets to the subsidiary of the Company was a fraudulent conveyance and that
the Company is a successor in interest to the liability of Industries for the
default judgment. The Company has tendered the defense of this action to LaSalle
pursuant to the indemnification terms contained in its purchase agreement with
LaSalle. LaSalle has agreed to pay for up to 50% of the defense, but has refused
to assume the full defense. The Company, through its counsel, filed a Motion to
Dismiss, which was denied by the court. The Company intends to vigorously defend
this case, but there can be no assurance that the Company will prevail in this
case or as to the amount of damages to which it may be subject if it does not
prevail.
No other reportable changes have taken place in regard to the legal
proceedings disclosed in the registrant's report on Form 10-K for the fiscal
year ended December 31, 1997, or reports on Form 10-Q for the quarters ended
March 31 or June 30, 1998, or report on Form 8-K dated June 16, 1998.
11
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
quarter ended September 30, 1998.
ITEM 5. OTHER INFORMATION
On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities Exchange Act of
1934. The amendment to Rule 14a-4 (c) (1) governs the Company's use of its
discretionary proxy voting authority with respect to a shareholder proposal
which the shareholder has not sought to include in the Company's proxy
statement. The new amendment provides that if a proponent of a proposal fails to
notify the company at least 45 days prior to the month and day of mailing of the
prior year's proxy statement, then the management proxies will be allowed to use
their discretionary voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Shareholders, if
the Company is not provided notice of a shareholder proposal, which the
shareholder has not previously sought to include in the Company's proxy
statement, by December 29, 1998, the management proxies will be allowed to use
their discretionary authority as outlined above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
10.1.7 Waiver No. 6 to Credit Agreement dated as of August 14, 1998,
by and among the Company, the other Credit Parties from time
to time party to the Credit Agreement, the financial
institutions from time to time party to the Credit Agreement
(the "Lenders"), and General Electric Capital Corporation
("GECC") in its individual capacity and as agent for the
Lenders.
10.1.8 Amendment No. 4, Waiver No. 7, and Consent No. 2 to Credit
Agreement and Other Loan Documents dated as of October 1,
1998, by and among the Company, the other Credit Parties from
time to time party to the Credit Agreement, the financial
institutions from time to time party to the Credit Agreement
(the "Lenders"), the financial institutions from time to time
party to the Litigation L/C Agreement (the "Term Lenders"),
and General Electric Capital Corporation ("GECC") in its
individual capacity as a "Lender," a "Term Lender," and as
agent for the Lenders and the Term Lenders.
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) During the quarter ended September 30, 1998, there were no
reports on Form 8-K filed. On November 9, 1998, the Company
filed a Current Report on Form 8-K dated November 2, 1998,
containing Item 4 disclosures.
</TABLE>
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CODE-ALARM, INC.
----------------
(Registrant)
Date: November 16, 1998 /s/ Rand W. Mueller
----------------- --------------------
Rand W. Mueller
President
Date: November 16, 1998 /s/ Craig S. Camalo
----------------- --------------------
Craig S. Camalo
Vice President of Finance
(Chief Financial Officer)
(Principal Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
10.1.7 Waiver No. 6 to Credit Agreement dated as of August 14, 1998,
by and among the Company, the other Credit Parties from time
to time party to the Credit Agreement, the financial
institutions from time to time party to the Credit Agreement
(the "Lenders"), and General Electric Capital Corporation
("GECC") in its individual capacity and as agent for the
Lenders.
10.1.8 Amendment No. 4, Waiver No. 7, and Consent No. 2 to Credit
Agreement and Other Loan Documents dated as of October 1,
1998, by and among the Company, the other Credit Parties from
time to time party to the Credit Agreement, the financial
institutions from time to time party to the Credit Agreement
(the "Lenders"), the financial institutions from time to time
party to the Litigation L/C Agreement (the "Term Lenders"),
and General Electric Capital Corporation ("GECC") in its
individual capacity as a "Lender," a "Term Lender," and as
agent for the Lenders and the Term Lenders.
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
<PAGE> 1
EXECUTION COPY
WAIVER NO. 6
TO
CREDIT AGREEMENT
THIS WAIVER NO. 6 TO CREDIT AGREEMENT ("Agreement") is being
executed and delivered as of August 14, 1998 by and among Code-Alarm, Inc., a
Michigan corporation (the "Borrower"), the other "Credit Parties" from time to
time party to the Credit Agreement referred to below (together with the
Borrower, collectively, the "Credit Parties"), the financial institutions from
time to time party to such Credit Agreement (collectively, the "Lenders", and
each individually, a "Lender"), and General Electric Capital Corporation, in its
individual capacity and as the "Agent" for the Lenders (the "Agent"). Undefined
capitalized terms which are used herein shall have the meanings ascribed to such
terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the other Credit Parties, the Lenders
and the Agent are parties to that certain Credit Agreement dated as of October
24, 1997, as heretofore amended (the "Credit Agreement"), pursuant to which the
Lenders have agreed to provide, subject to the terms and conditions contained
therein, certain loans and other financial accommodations to the Borrower;
WHEREAS, the Borrower failed to comply with the Minimum Fixed
Charge Coverage Ratio covenant set forth in paragraph (b) of Annex G of the
Credit Agreement and the Minimum Quarterly EBITDA covenant set forth in
paragraph (d) of Annex G of the Credit Agreement, in each case with respect to
the period ended June 30, 1998, and the Minimum Net Worth covenant set forth in
paragraph (e) of Annex G of the Credit Agreement as of May 31, 1998 through
September 11, 1998 (hereinafter, collectively, the "Existing Default");
WHEREAS, the Borrower has requested that the Lenders and the
Agent, and subject to the terms and conditions of this Agreement the Lenders and
the Agent are willing to, waive the Existing Default.
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions stated herein and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the Borrower, the
Lenders and the Agent, such parties hereby agree as follows:
1. Waiver. Subject to Paragraph 2 of this Agreement and
effective as of the date of this Agreement, each of the Lenders and the Agent
hereby waives the Existing Default.
2. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraph 1 shall be deemed to have become effective as of the
date of this Agreement, but such
<PAGE> 2
effectiveness shall be expressly conditioned upon the Agent's receipt on or
before August 17, 1998 of each of the following:
(a) an originally-executed counterpart of this Agreement
executed by a duly authorized officer of the Borrower, each such other Credit
Party, and each of the Requisite Lenders; and
(b) originally-executed counterparts to a Reaffirmation of
Guaranties duly executed by the Pegasus Funds in substantially the form attached
hereto.
3. Representations and Warranties. (a) The Borrower and each
other Credit Party hereby represents and warrants that this Agreement
constitutes the legal, valid and binding obligation of the Borrower and such
other Credit Party enforceable against the Borrower and each other Credit Party
in accordance with its terms.
(b) The Borrower and each other Credit Party hereby represents
and warrants that its execution and delivery of this Agreement, and its
performance hereafter of the Credit Agreement as modified by this Agreement,
have been duly authorized by all necessary corporate action, do not violate any
provision of its articles of incorporation, bylaws or other charter documents,
will not violate any law, regulation, court order or writ applicable to it, will
not require the approval or consent of any governmental agency, and (except as
provided in this Agreement) do not require the approval or consent of any third
party under the terms of any contract or agreement to which the Borrower, any
other Credit Party, Parent or any Subsidiary of the Borrower or any other Credit
Party is bound.
(c) The Borrower hereby represents and warrants that, as of
the date hereof, (i) no Default or Event of Default (other than the Existing
Default) has occurred and is continuing or will have occurred and be continuing,
and (ii) all of the representations and warranties of the Borrower and each
other Credit Party contained in the Credit Agreement (other than representations
and warranties which, in accordance with their express terms, are made only as
of a specified date) are, and will be, true and correct.
4. Reference to and Effect on Credit Agreement. The Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed. Except as is expressly set forth in Paragraph 1 of this Agreement,
neither the execution, delivery nor effectiveness of this Agreement shall
operate as a waiver of any right, power or remedy of the Agent or any Lender of
any Default or Event of Default under the Credit Agreement, all of which the
Agent and the Lenders hereby expressly reserve. The Borrower, each other Credit
Party, the Lenders and the Agent agree and acknowledge that this Agreement
constitutes a "Loan Document" under and as defined in the Credit Agreement.
5. Reaffirmation. Each of the Borrower and the other Credit
Parties hereby (a) ratifies and reaffirms all of its payment and performance
obligations, contingent or otherwise,
-2-
<PAGE> 3
under each Loan Document to which it is a party, (b) agrees and acknowledges
that such ratification and reaffirmation is not a condition to the continued
effectiveness of such Loan Documents and (c) agrees that neither such
ratification and reaffirmation, nor the Agent's and the Lenders' solicitation of
such ratification and reaffirmation, constitutes a course of dealing giving rise
to any obligation or condition requiring a ratification or reaffirmation of the
Borrower's or the other Credit Parties' obligations under the Loan Documents
with respect to any subsequent modifications to the Credit Agreement or other
Loan Documents.
6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and decisions of the State of Illinois
(including S.H.A. 735 ILCS 105/5-1, et. seq., but without giving effect to any
other conflicts of law provisions).
7. Agent's Expenses. The Borrower hereby agrees to promptly
reimburse the Agent for all of the reasonable out-of-pocket expenses, including,
without limitation, attorneys' and paralegals' fees, it has heretofore or
hereafter incurred or incurs in connection with the preparation, negotiation and
execution of this Agreement.
8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original and all of which together shall
constitute one and the same agreement among the parties.
* * * *
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<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
CODE-ALARM, INC.
By:
-----------------------------------
Name: Craig S. Camalo
------------------------------
Title: Vice President
-----------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By:
-----------------------------------
Name:
------------------------------
Title: Duly Authorized Signatory
-----------------------------
TESSCO GROUP, INC.
By:
-----------------------------------
Name: Craig S. Camalo
------------------------------
Title: Secretary
-----------------------------
CHAPMAN SECURITY SYSTEMS, INC.
By:
-----------------------------------
Name: Craig S. Camalo
------------------------------
Title: Secretary
-----------------------------
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<PAGE> 5
INTERCEPT SYSTEMS, INC.
By:
Name: Craig S. Camalo
------------------------------
Title: Secretary
-----------------------------
ANES, INC.
By:
Name: Craig S. Camalo
------------------------------
Title: Secretary
-----------------------------
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<PAGE> 6
REAFFIRMATION OF GUARANTIES
---------------------------
Reference is hereby made to (i) that certain Limited
Supplemental Guaranty dated as of October 24, 1997 (the "Supplemental Guaranty")
among Pegasus Partners, L.P., a Delaware limited partnership, and Pegasus
Related Partners, L.P., a Delaware limited partnership (collectively, the
"Guarantors"), and General Electric Capital Corporation, a New York corporation,
individually and as agent (the "Agent"), (ii) that certain Limited Litigation
Guaranty dated as of October 24, 1997 (the "Litigation Guaranty") among the
Guarantors and the Agent, (iii) that certain Credit Agreement dated as of
October 24, 1997, as heretofore amended (the "Credit Agreement"), among
Code-Alarm, Inc., a Michigan corporation (the "Borrower"), certain other "Credit
Parties" referred to and as defined therein (the "Credit Parties"), certain
"Lenders" from time to time party thereto (the "Lenders"), and the Agent, and
(iv) that certain Waiver No. 6 to Credit Agreement of even date herewith (the
"Waiver") among the Borrower, the Credit Parties, the Lenders and the Agent.
Each of the Guarantors hereby (a) acknowledges having received
and reviewed a copy of the Waiver, (b) ratifies and reaffirms all of its payment
and performance obligations, contingent or otherwise, under the Supplemental
Guaranty and the Litigation Guaranty (collectively, the "Guaranties"), (c)
agrees and acknowledges that such ratification and reaffirmation is not a
condition to the continued effectiveness of such Guaranties and (d) agrees that,
without limiting any of the express provisions of the Guaranties, neither such
ratification and reaffirmation, nor the Agent's and the Lenders' solicitation of
such ratification and reaffirmation, constitutes a course of dealing giving rise
to any obligation or condition requiring a ratification or reaffirmation of the
Guarantors' obligations under the Guaranties with respect to any subsequent
modifications to the Credit Agreement or other Loan Documents.
IN WITNESS WHEREOF, this instrument has been executed and
delivered as of this 14th day of August, 1998.
PEGASUS PARTNERS, L.P. PEGASUS RELATED PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P., By: PEGASUS INVESTORS, L.P.,
as Managing General Partner as Managing General Partner
By: PEGASUS INVESTORS GP, INC., By: PEGASUS INVESTORS GP, INC.,
as General Partner as General Partner
By: By:
--------------------------- ----------------------------
Name: Richard Cion Name: Richard Cion
--------------------- ----------------------
Title: Vice President Title: Vice President
-------------------- ---------------------
<PAGE> 1
EXECUTION COPY
AMENDMENT NO. 4, WAIVER NO. 7 AND CONSENT NO. 2
TO
CREDIT AGREEMENT
AND
OTHER LOAN DOCUMENTS
THIS AMENDMENT NO. 4, WAIVER NO. 7 AND CONSENT NO. 2 TO CREDIT
AGREEMENT AND OTHER LOAN DOCUMENTS ("Agreement") is being executed and delivered
as of October 1, 1998 by and among Code-Alarm, Inc., a Michigan corporation (the
"Borrower"), the other "Credit Parties" from time to time party to the Credit
Agreement referred to below (together with the Borrower, collectively, the
"Credit Parties"), the financial institutions from time to time party to such
Credit Agreement (collectively, the "Lenders", and each individually, a
"Lender"), the financial institutions from time to time party to the Litigation
L/C Agreement referred to below (collectively, the "Term Lenders", and each
individually, a "Term Lender") and General Electric Capital Corporation, in its
individual capacity as a "Lender" and a "Term Lender" and as the "Agent" for the
Lenders and the Term Lenders (the "Agent"). Undefined capitalized terms which
are used herein shall have the meanings ascribed to such terms in the Credit
Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the other Credit Parties, the Lenders
and the Agent are parties to that certain Credit Agreement dated as of October
24, 1997, as heretofore amended (the "Credit Agreement"), pursuant to which the
Lenders have agreed to provide, subject to the terms and conditions contained
therein, certain loans and other financial accommodations to the Borrower;
WHEREAS, the Borrower, the Term Lenders and the Agent are
parties to that certain Litigation L/C and Term Loan C Agreement, dated as of
October 24, 1997, as heretofore amended (the "Litigation L/C Agreement"),
pursuant to which the Term Lenders have agreed to provide, subject to the terms
and conditions contained therein, certain loans and other financial
accommodations to the Borrower;
WHEREAS, the Borrower has requested that the Agent and Lenders
agree to defer certain scheduled payments of principal with respect to Term Loan
A and Term Loan C;
WHEREAS, the Borrower has requested that certain cash
collateral held in a lockbox and concentration account established at Harris
Trust and Savings Bank be included in the Borrowing Base;
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<PAGE> 2
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<PAGE> 3
WHEREAS, on or about August 18, 1998, the Borrower received
$235,000 of cash proceeds from the sale of certain assets of Tessco Group, Inc.,
a Michigan corporation (the "August 1998 Tessco Proceeds"), which, pursuant to
the provisions of Section 1.3(b)(ii) of the Credit Agreement, gave rise to
Borrower's obligation to prepay the Term Loans prior to the Revolving Credit
Advances, in accordance with the application provisions set forth in Section
1.3(c) of the Credit Agreement;
WHEREAS, on or before October 23, 1998, the Borrower expects
to receive approximately $70,000 of cash proceeds from the sale of certain
Equipment no longer useful in its business (the "October 1998 Code-Alarm
Proceeds"), which pursuant to the provisions of Section 1.3(b)(ii) of the Credit
Agreement, would give rise to Borrower's obligation to prepay the Term Loans
prior to the Revolving Credit Advances, in accordance with the application
provisions set forth in Section 1.3(c) of the Credit Agreement;
WHEREAS, Borrower requested that the Lenders and Agent permit
Borrower to apply the August 1998 Tessco Proceeds and the October 1998
Code-Alarm Proceeds to the Revolving Loan Advances notwithstanding the
provisions of Section 1.3(b)(ii) and 1.3(c) of the Credit Agreement;
WHEREAS, the Borrower desires to enter into a settlement
agreement with TSI Security Acquisition Corp. ("TSI") with respect to TSI's
complaint entitled TSI Acquisition Security Acquisition Corp. v. Code-Alarm,
Inc. originally filed by TSI with the Supreme Court of the State of New York on
August 21, 1998 ("TSI Settlement Agreement") pursuant to which, in consideration
of the settlement of the claims asserted by TSI in such complaint, the Borrower
would agree (a) to pay to TSI $115,000 on the date of the Borrower's execution
and delivery of the TSI Settlement Agreement; $66,500 on each of October 1,
2000, April 1, 2001, October 1, 2001, April 1, 2002, October 1, 2002 and April
1, 2003; $42,500 on October 1, 2003; and $43,500 on April 1, 2004 (the "TSI
Settlement Obligations") and (b) to grant to TSI an option to convert the TSI
Settlement Obligations into shares of the Borrower's common stock (the "TSI
Option");
WHEREAS, the incurrence by the Borrower of the TSI Settlement
Obligations would violate Section 6.3 of the Credit Agreement unless the
Borrower first obtains the prior written consent of the Agent and the Requisite
Lenders;
WHEREAS, the Borrower has failed to comply with the Minimum
Fixed Charge Coverage Ratio covenant set forth in paragraph (b) of Annex G of
the Credit Agreement and the Minimum Quarterly EBITDA covenant set forth in
paragraph (d) of Annex G of the Credit Agreement, in each case with respect to
the period ended June 30, 1998, and the Borrower has failed to comply with the
Minimum Net Worth covenant set forth in paragraph (e) of Annex G of the Credit
Agreement as of September 11, 1998 and
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<PAGE> 4
during the period through the date hereof (hereinafter, collectively, the
"Covenant Defaults");
WHEREAS, Borrower has requested that the Agent modify the
financial covenants set forth in Annex G;
WHEREAS, Borrower has failed to complete the Tessco
Liquidation on or before June 30, 1998, as required by Section 5.12 of the
Credit Agreement (hereinafter, the "Tessco Liquidation Default"); and
WHEREAS, the Borrower has requested that the Lenders and the
Agent, and subject to the terms and conditions of this Agreement the Lenders and
the Agent are willing to, (i) amend the Credit Agreement and the L/C Litigation
Agreement to defer certain payments of principal with respect to Term Loan A and
Term Loan C, (ii) amend the Credit Agreement to include certain cash collateral
in the Borrowing Base, (iii) consent to the application of the August 1998
Tessco Proceeds and October 1998 Code-Alarm Proceeds to the Revolving Loan
Advances and to consent to the Borrower's incurrence of the TSI Settlement
Obligations, (iv) waive the Covenant Defaults and modify the financial covenants
and (v) waive the Tessco Liquidation Default.
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions stated herein and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the Borrower, the
Lenders and the Agent, such parties hereby agree as follows:
1. Amendment. (a) Subject to Paragraph 4 of this
Agreement, and effective as of the date of this Agreement, the Credit
Agreement is hereby amended as follows:
i. Section 1.1(b) of the Credit Agreement is amended to delete
clause (ii) thereof in its entirety and to substitute the
following therefor:
(ii) Borrower shall pay the principal amount of the
Term Loan A in twelve (12) equal, consecutive quarterly
installments of $125,000 each, on the first day of January,
April, July and October of each year, commencing on January 1,
1998; provided, however, that, notwithstanding the foregoing,
for each of the quarters beginning October 1, 1998, January 1,
1999, April 1, 1999 and July 1, 1999, Borrower shall be
permitted to defer payment of the quarterly installment for
such quarter until the Commitment Termination Date, at which
time each such deferred payment of the principal amount of the
Term Loan A shall be paid in full.
ii. Section 1.1(d) of the Credit Agreement is amended to delete
clause (v) thereof in its entirety and to substitute the
following therefor:
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<PAGE> 5
(v) Borrower shall pay the principal amount of the
Term Loan C in equal, consecutive quarterly installments of
$250,000 each, on the first day of January, April, July and
October of each year, commencing on the first of such dates
occurring after June 19, 1998 (unless the first of such dates
is less than forty-five (45) days following the date of such
payment by the L/C Issuer, in which case such installments
shall commence on the second of such dates occurring after the
date of such payment); provided, however, that,
notwithstanding the foregoing, for each of the quarters
beginning October 1, 1998, January 1, 1999, April 1, 1999 and
July 1, 1999, Borrower shall be permitted to defer payment of
the quarterly installment for such quarter until the
Commitment Termination Date, at which time each such deferred
payment of the principal amount of the Term Loan C shall be
paid in full.
iii. Section 5.12 of the Credit Agreement is amended to delete, in
its entirety, the last sentence of such section.
iv. Section 6.14 of the Credit Agreement is amended to add the
following language before the period at the end thereof:
; provided further, that notwithstanding any of the foregoing,
Borrower shall not be permitted to make any payments in cash
of the type described in clause (d) in a quarter if a
principal payment for that quarter has been deferred (y) with
respect to Term Loan A pursuant to Section 1.1(b) of the
Credit Agreement or (z) with respect to Term Loan C pursuant
to Section 1.1(d)(v) of the Credit Agreement or Section 1.1(f)
of the Litigation L/C Agreement.
v. Annex A to the Credit Agreement is amended (a) to delete the
definition for the term "Fixed Charge Coverage Ratio" in its
entirety and (b) to delete the current definitions for the
terms set forth below in their entirety and to substitute the
following therefor:
"Borrowing Base" shall mean, as of any date of
determination by Agent, from time to time, an amount equal to
the sum at such time of the following, minus the Tessco
Liquidation Reserve then in effect:
(a) eighty-five percent (85%) of Borrower's
and Tessco's Eligible Accounts, less any Reserves
established by Agent at such time;
(b) twenty-five percent (25%) of the book
value of Borrower's and Tessco's Eligible Inventory
valued on a first-in,
5-
<PAGE> 6
first-out basis (at the lower of cost or market),
less any Reserves established by Agent at such time;
(c) one hundred percent (100%) of the Harris
Cash Collateral, less any Reserves established by
Agent at such time; and
(d) the Supplemental Amount.
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<PAGE> 7
"Reserves" shall mean, with respect to the
Borrowing Base, (a) reserves established by Agent from time to
time against Borrower's and/or Tessco's Eligible Inventory
pursuant to Section 5.9, (b) reserves established pursuant to
Section 5.4(c), (c) reserves established by Agent from time to
time against the Harris Cash Collateral and (d) such other
reserves against Borrower's and/or Tessco's Eligible Accounts
or Eligible Inventory of Borrower or Tessco which Agent may,
in its reasonable credit judgment, establish from time to
time. Without limiting the generality of the foregoing,
reasonable Reserves established to ensure the payment of
accrued Interest Expenses or Indebtedness, Reserves for
product warranty liabilities and expenses, and Reserves for
physical Inventory test counts, shall be deemed to be a
reasonable exercise of Agent's credit judgment.
vi. Annex A to the Credit Agreement is further amended to add the
following definitions in the appropriate alphabetical
locations:
"Harris Account" shall mean that certain
Concentration Account with respect to which the Borrower has
entered into a blocked account agreement with the Agent and
Harris Trust and Savings Bank, in form and substance
acceptable to the Agent.
"Harris Cash Collateral" shall mean the cash on
deposit in the Harris Account, to the extent that (i) the
Agent has verified, if it deems necessary, that the cash is on
deposit in the Harris Account (ii) the Agent has verified, if
it deems necessary, that the cash balance of the Harris
Account equals or exceeds the amount being added to the
Borrowing Base pursuant to clause (c) of the definition of
such term and (iii) the Borrower and Harris Trust and Savings
Bank have fully performed and not otherwise breached, revoked
or terminated any of their respective obligations under the
blocked account agreement governing the proceeds maintained in
the Harris Account. At any time that any of the criteria set
forth in (i), (ii) and/or (iii) above is not satisfied in a
manner acceptable to the Agent, the Harris Cash Collateral
shall, in Agent's discretion, be excluded from the Borrowing
Base or be subject to such Reserves as may be established by
Agent in its reasonable credit judgment.
"Minimum EBITDA Period" shall have the meaning
assigned to it in Annex G.
vii. Annex E to the Credit Agreement is amended to insert the
following clauses (n) and (o) after the current clause (m),
and to relabel the current clause (n) as clause (p):
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<PAGE> 8
8-
<PAGE> 9
(n) Additional Compliance Certificates. Borrower
shall deliver or cause to be delivered to Agent and Lenders,
within thirty (30) days following the last day of each
"Minimum EBITDA Period" (as defined in Annex G), a Compliance
Certificate showing the calculations used in determining
compliance with the Minimum EBITDA covenant as set forth on
Annex G.
(o) Daily Cash Projections. Borrower shall deliver or
cause to be delivered to Agent, on a daily basis by facsimile
or e-mail transmission, Borrower's daily cash flow projections
with respect to the current calendar month, in the form of
Exhibit 1 to this Annex E attached hereto.
viii. Annex E to the Credit Agreement is further amended to add
Exhibit 1 to such Annex E, attached hereto in the form of
Exhibit A.
ix. Annex F(a) to the Credit Agreement is amended to add the
reference "(1)" immediately after the "(a)" and to add the
following new subsection (a)(2) immediately before subsection
(b) thereof:
(2) To Agent, upon its request, and in no event less
frequently than Tuesday of each week (together with a copy of
all or any part of such delivery requested by any Lender in
writing after the Closing Date), a Borrowing Base Certificate
providing information as of the immediately preceding Sunday,
in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable
discretion;
x. Annex G to the Credit Agreement is hereby amended in the
manner and to the extent provided in the conformed copy of
Annex G attached hereto as Exhibit B.
xi. Exhibit 1.1(b) is amended in the manner and to the extent
provided in the conformed copy of Exhibit 1.1(b) attached
hereto as Exhibit C.
xii. Exhibit 4.1(b) is amended in the manner and to the extent
provided in the conformed copy of Exhibit 4.1(b) attached
hereto as Exhibit D.
(b) Subject to Paragraph 4 of this Agreement, and effective as
of the date of this Agreement, the Litigation L/C Agreement is hereby amended as
follows:
i. Section 1.1 of the Litigation L/C Agreement is amended to
delete clause (f) thereof in its entirety and to substitute
the following therefor:
9-
<PAGE> 10
(f) Borrower shall pay the principal amount of the
Term Loan C in equal, consecutive quarterly installments of
$250,000 each, on the first day of January, April, July and
October of each year, commencing on the first of such dates
occurring after June 19, 1998 (unless the first of such dates
is less than forty-five (45) days following the date of such
payment by the L/C Issuer, in which case such installments
shall commence on the second of such dates occurring after the
date of such payment); provided, however, that,
notwithstanding the foregoing, for each of the quarters
beginning October 1, 1998, January 1, 1999, April 1, 1999 and
July 1, 1999, Borrower shall be permitted to defer payment of
the quarterly installment for such quarter until the
Commitment Termination Date, at which time each such deferred
payment of the principal amount of the Term Loan C shall be
paid in full.
ii. Exhibit A to the Litigation L/C Agreement is amended in the
manner and to the extent provided in the conformed copy of
Exhibit A attached hereto as Exhibit E.
2. Waiver. Subject to Paragraph 4 of this Agreement and
effective as of the date of this Agreement, each of the Lenders and the Agent
hereby waive (a) the Covenant Defaults, (b) the Tessco Liquidation Default and
(c) the terms of Sections 1.3(b)(ii) and 1.3(c) of the Credit Agreement, solely
with respect to the application of the August 1998 Tessco Proceeds and the
October 1998 Code-Alarm Proceeds.
3. Consent. Subject to Paragraph 4 of this Agreement and
effective as of the date of this Agreement, each of the Lenders and the Agent
hereby provides its consent (a) to the application of the August 1998 Tessco
Proceeds and the October 1998 Code-Alarm Proceeds to prepay Revolving Credit
Advances (which application of the August 1998 Tessco Proceeds was consented to
in writing by both the Agent and the Pegasus Funds prior to the application of
such proceeds) notwithstanding the terms of Sections 1.3(b)(ii) and 1.3(c) of
the Credit Agreement and (b) to the Borrower's incurrence of the TSI Settlement
Obligations notwithstanding the provisions of Section 6.3 of the Credit
Agreement.
4. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraph 1 through 3 shall be deemed to have become effective as
of the date of this Agreement, but such effectiveness shall be expressly
conditioned upon the Agent's receipt on or before October 31, 1998 of each of
the following:
(a) an originally-executed counterpart of this Agreement
executed by a duly authorized officer of the Borrower, each such other Credit
Party, and each of the Requisite Lenders;
(b) originally-executed counterparts to a Reaffirmation of
Guaranties duly executed by the Pegasus Funds in substantially the form attached
hereto;
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<PAGE> 11
(c) evidence that each Term A Note and Term C Note in effect
as of the date hereof has been respectively substituted and amended by the
execution and delivery by the Borrower of a Term A Note in the form of Exhibit B
attached hereto and a Term C Note, in the form of Exhibit D attached hereto, in
each case dated as of the date hereof; and
(d) an originally-executed fee letter, in form and substance
acceptable to the Agent, providing for the payment of an amendment fee to GE
Capital.
5. Representations and Warranties. (a) Each of the Borrower
and the other Credit Parties hereby represents and warrants that this Agreement
constitutes the legal, valid and binding obligation of the Borrower and such
other Credit Party enforceable against the Borrower and each other Credit Party
in accordance with its terms.
(b) Each of the Borrower and the other Credit Parties hereby
represents and warrants that its execution and delivery of this Agreement, and
its performance hereafter of the Credit Agreement as modified by this Agreement,
have been duly authorized by all necessary corporate action, do not violate any
provision of its articles of incorporation, bylaws or other charter documents,
will not violate any law, regulation, court order or writ applicable to it, will
not require the approval or consent of any governmental agency, and (except as
provided in this Agreement) do not require the approval or consent of any third
party under the terms of any contract or agreement to which the Borrower, any
other Credit Party, Parent or any Subsidiary of the Borrower or any other Credit
Party is bound.
(c) The Borrower hereby represents and warrants that, as of
the date hereof, (i) no Default or Event of Default (other than the Covenant
Defaults and the Tessco Liquidation Default) has occurred and is continuing or
will have occurred and be continuing, and (ii) all of the representations and
warranties of the Borrower and each other Credit Party contained in the Credit
Agreement (other than representations and warranties which, in accordance with
their express terms, are made only as of a specified date) are, and will be,
true and correct.
6. Reference to and Effect on Credit Agreement. The Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed. Except as is expressly set forth in Paragraph 1 of this Agreement,
the execution, delivery and effectiveness of this Agreement shall not operate as
a waiver of any right, power or remedy of the Agent or any Lender of any Default
or Event of Default under the Credit Agreement, all of which the Agent and the
Lenders hereby expressly reserve. The Borrower, each other Credit Party, the
Lenders and the Agent agree and acknowledge that this Agreement constitutes a
"Loan Document" under and as defined in the Credit Agreement. Without limiting
the foregoing, the Borrower confirms its understanding that
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<PAGE> 12
all Overadvances heretofore and hereafter made by the Agent to or for the
benefit of the Borrower are discretionary in nature, and are payable on demand,
in each case as provided in Section 1.1(a)(iii) of the Credit Agreement. The
Agent and the Lender hereby reserve all rights under the Credit Agreement to (a)
refuse making any additional Overadvances, regardless of the amount requested
and regardless of the circumstances, and (b) to demand immediate repayment of
any outstanding Overadvances whether now or hereafter outstanding and regardless
of whether or not there shall then exist any Default or Event of Default. The
Borrower further confirms its understanding that nothing in this Agreement
constitutes GE Capital's waiver of the applicability of the antidilution
provisions of the GECC Warrants with respect to the Borrower's granting to TSI
of the TSI Option.
7. Reaffirmation. Each of the Borrower and the other Credit
Parties hereby (a) ratifies and reaffirms all of its payment and performance
obligations, contingent or otherwise, under each Loan Document to which it is a
party, (b) agrees and acknowledges that such ratification and reaffirmation is
not a condition to the continued effectiveness of such Loan Documents and (c)
agrees that neither such ratification and reaffirmation, nor the Agent's and the
Lenders' solicitation of such ratification and reaffirmation, constitutes a
course of dealing giving rise to any obligation or condition requiring a
ratification or reaffirmation of the Borrower's or the other Credit Parties'
obligations under the Loan Documents with respect to any subsequent
modifications to the Credit Agreement or other Loan Documents.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and decisions of the State of Illinois
(including S.H.A. 735 ILCS 105/5-1, et. seq., but without giving effect to any
other conflicts of law provisions).
9. Agent's Expenses. The Borrower hereby agrees to promptly
reimburse the Agent for all of the reasonable out-of-pocket expenses, including,
without limitation, attorneys' and paralegals' fees, it has heretofore or
hereafter incurred or incurs in connection with the preparation, negotiation and
execution of this Agreement.
10. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original and all of which together shall
constitute one and the same agreement among the parties.
* * * *
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<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
CODE-ALARM, INC.
By:
------------------------------------
Name: Craig S. Camalo
-------------------------------
Title: Vice President
------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent for
the Lenders and Agent For
the Term Lenders, and as
Lender and Term Lender
By:
------------------------------------
Name:
-------------------------------
Title: Duly Authorized Signatory
------------------------------
TESSCO GROUP, INC.
By:
------------------------------------
Name: Craig S. Camalo
-------------------------------
Title: Secretary
------------------------------
CHAPMAN SECURITY SYSTEMS, INC.
By:
------------------------------------
Name: Craig S. Camalo
-------------------------------
Title: Secretary
------------------------------
13-
<PAGE> 14
INTERCEPT SYSTEMS, INC.
By:
------------------------------------
Name: Craig S. Camalo
-------------------------------
Title: Secretary
------------------------------
ANES, INC.
By:
------------------------------------
Name: Craig S. Camalo
-------------------------------
Title: Secretary
------------------------------
14-
<PAGE> 15
REAFFIRMATION OF GUARANTIES
---------------------------
Reference is hereby made to (i) that certain Limited
Supplemental Guaranty dated as of October 24, 1997 (the "Supplemental Guaranty")
among Pegasus Partners, L.P., a Delaware limited partnership, and Pegasus
Related Partners, L.P., a Delaware limited partnership (collectively, the
"Guarantors"), and General Electric Capital Corporation, a New York corporation,
individually and as agent (the "Agent"), (ii) that certain Limited Litigation
Guaranty dated as of October 24, 1997 (the "Litigation Guaranty") among the
Guarantors and the Agent, (iii) that certain Credit Agreement dated as of
October 24, 1997, as heretofore amended (the "Credit Agreement"), among
Code-Alarm, Inc., a Michigan corporation (the "Borrower"), certain other "Credit
Parties" referred to and as defined therein (the "Credit Parties"), certain
"Lenders" from time to time party thereto (the "Lenders"), and the Agent, and
(iv) that certain Amendment No. 4, Waiver No. 7 and Consent No. 2 to Credit
Agreement and Other Loan Documents of even date herewith (the "Amendment") among
the Borrower, the Credit Parties, the Lenders and the Agent.
Each Guarantor hereby (a) acknowledges having received and
reviewed a copy of the Amendment and hereby consents to its terms and provisions
and (b) ratifies and reaffirms all of its payment and performance obligations,
contingent or otherwise, under the Supplemental Guaranty and the Litigation
Guaranty.
IN WITNESS WHEREOF, this instrument has been executed and
delivered as of this 1st day of October, 1998.
PEGASUS PARTNERS, L.P. PEGASUS RELATED PARTNERS, L.P.
By: PEGASUS INVESTORS, L.P., By: PEGASUS INVESTORS, L.P.,
as Managing General Partner as Managing General Partner
By: PEGASUS INVESTORS GP, INC., By: PEGASUS INVESTORS GP, INC.,
as General Partner as General Partner
By: By:
------------------------------ ------------------------------
Name: Richard Cion Name: Richard Cion
---------------------- ----------------------
Title: Vice President Title: Vice President
--------------------- ---------------------
15-
<PAGE> 16
EXHIBIT A
---------
EXHIBIT 1
TO
ANNEX E
TO
CREDIT AGREEMENT
FORM OF DAILY CASH PROJECTIONS REPORT
-------------------------------------
Attached
16-
<PAGE> 17
EXHIBIT B
---------
ANNEX G (SECTION 6.10)
TO
CREDIT AGREEMENT
----------------
FINANCIAL COVENANTS
-------------------
Borrower shall not breach or fail to comply with the following
financial covenants, which shall be calculated in accordance with GAAP
consistently applied:
(a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures during any of its Fiscal
Years of more than (i) the amount set forth below opposite such Fiscal Year plus
(ii) in the case of Fiscal Year 1998 and each Fiscal Year thereafter, 50% (but
not to exceed $250,000) of the unused portion of the maximum amount of Capital
Expenditures permitted hereunder for the then immediately preceding Fiscal Year
(and without giving effect to any additional amounts permitted during such
preceding Fiscal Year because of this clause (ii)):
Fiscal Year Maximum Amount
----------------------------------------------------------
1997 $1,000,000
1998 $1,300,000
1999 and each Fiscal
Year thereafter $1,000,000.
(b) Minimum EBITDA. Borrower and its Subsidiaries on a consolidated
basis shall have, for each of the following periods (each, a "Minimum EBITDA
Period"), EBITDA for such Minimum EBITDA Period of not less than the
corresponding amount set forth below opposite such Minimum EBITDA Period:
Minimum EBITDA Period Amount
September 1, 1998 through November 30, 1998 $120,000
December 1, 1998 through February 28, 1999 $365,000
March 1, 1999 through May 31, 1999 $835,000
June 1, 1999 through August 31, 1999 $1,180,000
Each three calendar month period thereafter $1,250,000
Unless otherwise specifically provided herein, any accounting
term used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied as in effect on the Closing Date
(and without giving effect to any changes in GAAP except to the extent agreed to
in writing by Borrowers and the
17-
<PAGE> 18
Requisite Lenders). That certain items or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing.
EXHIBIT C
---------
EXHIBIT 1.1(B)
TO
CREDIT AGREEMENT
----------------
FORM OF SUBSTITUTED AND AMENDED TERM A NOTE
-------------------------------------------
Chicago, Illinois
$1,500,000 October 1, 1998
FOR VALUE RECEIVED, the undersigned, CODE-ALARM, INC., a
Michigan corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of
GENERAL ELECTRIC CAPITAL CORPORATION ("Lender") at the offices of GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation, as Agent for Lenders
("Agent"), at its address at 10 South LaSalle Street, Suite 2800, Chicago,
Illinois 60603, or at such other place as Agent may designate from time to time
in writing, in lawful money of the United States of America and in immediately
available funds, the amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO
CENTS ($1,500,000). All capitalized terms used but not otherwise defined herein
have the meanings given to them in the "Credit Agreement" (as hereinafter
defined) or in Annex A thereto.
This Substituted and Amended Term A Note (the "Term A Note")
is one of the Term A Notes issued pursuant to that certain Credit Agreement
dated as of October 24, 1997 by and among Borrower, the other Persons named
therein as Credit Parties, Agent, Lender and the other Persons signatory thereto
from time to time as Lenders (including all annexes, exhibits and schedules
thereto and as from time to time amended, restated, supplemented or otherwise
modified, the "Credit Agreement"), evidences the Lender's Term Loan A, and is
entitled to the benefit and security of the Credit Agreement, the Security
Agreement and all of the Loan Documents other than Litigation Collateral
Documents referred to therein. Reference is hereby made to the Credit Agreement
for a statement of all of the terms and conditions under which such Term Loan A
is made and is to be repaid. The principal balance of such Term Loan A, the
rates of interest applicable thereto and the date and amount of each payment
made on account of the principal thereof, shall be recorded by Agent on its
books; provided that the failure of Agent to make any such recordation shall not
affect the obligations of Borrower to make a payment when due of any amount
owing under the Credit Agreement or this Term A Note.
18-
<PAGE> 19
Borrower shall pay the principal amount of the Term Loan A
evidenced hereby in accordance with the provisions set forth in Section
1.1(b)(ii) of the Credit Agreement. Interest thereon shall be paid until such
principal amount is paid in full at such interest rates and at such times, and
pursuant to such calculations, as are specified in the Credit Agreement. The
terms of the Credit Agreement are hereby incorporated herein by reference.
If any payment on this Term A Note becomes due and payable on
a day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day (except as otherwise provided in the Credit
Agreement) and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
Upon and after the occurrence of any Event of Default, this
Term A Note may, as provided in the Credit Agreement, and without demand, notice
or legal process of any kind, be declared, and immediately shall become, due and
payable.
This Term A Note (i) re-evidences all the indebtedness
outstanding under the Term A Note dated October 24, 1997 (the "Original Note"),
(ii) is given in substitution of, and not as payment of, such Original Note and
(iii) is in no way intended to constitute a novation of such Original Note.
Time is of the essence of this Term A Note. Demand,
presentment, protest and notice of nonpayment and protest are hereby waived by
Borrower.
Except as provided in the Credit Agreement, this Term A Note
may not be assigned by Lender to any Person.
THIS TERM A NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT STATE.
CODE-ALARM, INC.
By:
---------------------------
Name:
--------------------
Title:
---------------------
19-
<PAGE> 20
EXHIBIT D
---------
EXHIBIT 4.1(b)
TO
CREDIT AGREEMENT
----------------
FORM OF BORROWING BASE CERTIFICATE
----------------------------------
Reference is made to that certain Credit Agreement dated as of
October 24, 1997 by and among Code-Alarm, Inc. ("Borrower"), the other Persons
signatory thereto as Credit Parties, General Electric Capital Corporation
("Agent") and the Persons signatory thereto from time to time as Lenders
(including all annexes, exhibits and schedules thereto, and as from time to time
amended, restated, supplemented or otherwise modified, the "Credit Agreement").
Capitalized terms used herein without definition are so used as defined in the
Credit Agreement.
The undersigned certifies that (a) all of the foregoing
information regarding Eligible Accounts is true and correct on the date hereof
and relates solely to Eligible Accounts within the meaning given such term in
the Credit Agreement, and (b) all of the foregoing information regarding
Eligible Inventory is true and correct on the date hereof and relates solely to
Eligible Inventory within the meaning given such term in the Credit Agreement.
20-
<PAGE> 21
Company Name: Code-Alarm, Inc. Date:
-----------------
B.B.C.#
--------
1. Period end accounts receivable as of :
----------------------
2. Ineligible Accounts as of :
------------------------
<TABLE>
<S> <C>
Accounts from sales/services not in ordinary course
(as defined in Section 1.6(a)) $
--------------
Contingent or judicially unenforceable accounts
(as defined in Section 1.6(b)) $
--------------
Defense, counterclaim, setoff or dispute applies
(as defined in Section 1.6(c)) $
--------------
Invalid Account (as defined in Section 1.6(d)) $
--------------
Invoice not sent to Account Debtor
(as defined in Section 1.6(e)) $
--------------
Accounts not owned (as defined in Section 1.6(f)) $
--------------
Intercompany accounts
(as defined in Section 1.6(g)) $
--------------
United States government Account
(as defined in Section 1.6(h)) $
--------------
Foreign accounts (as defined in Section 1.6(i)) $
--------------
Contra accounts (as defined in Section 1.6(j)) $
--------------
Consignment (as defined in Section 1.6(k)) $
--------------
Accounts in default (as defined in Section 1.6(l)) $
--------------
50% Cross aging exclusion
(as defined in Section 1.6(m)) $
--------------
Accounts exceeding 10% of all Eligible Accounts
(excluding entities named in Section 1.6(n)) $
--------------
Restricted Accounts (as defined in Section 1.6(o)) $
--------------
Representations and Warranties untrue
(as defined in Section 1.6(p)) $
--------------
Evidenced by judgment, Instrument, or Chattel Paper
(as defined in Section 1.6(q)) $
--------------
Payable in currency other than Dollars
(as defined in Section 1.6(r)) $
--------------
Payment conditional on delivery
(as defined in Section 1.6(s)) $
--------------
Warranty (as defined in Section 1.6(t)) $
--------------
Other (as specified in Section 1.6 or otherwise):
$
------------------------------------------- --------------
</TABLE>
TOTAL INELIGIBLES
$
--------------
21-
<PAGE> 22
3. Eligible Accounts (Line 1 minus Line 2)
$
--------------
4. Eligible Accounts advance rate 85%
5. Eligible Accounts availability (Line 3 multiplied by Line 4)
$
--------------
- - --------------------------------------------------------------------------------
- - ------------
<TABLE>
<S> <C>
6. Inventory as of :-------------------- $
--------------
7. Ineligible Inventory as of :
--------------------
Not owned by Borrower/Tessco
(as defined in Section 1.7(a)) $
--------------
On premises not owned/operated by Borrower/Tessco
(as defined in Section 1.7(b)) $
--------------
Locations less than $100,000
(as defined in Section 1.7(b)) $
--------------
Inventory on Consignment or In Transit
(as defined in Section 1.7(c)) $
--------------
Negotiable titles (as defined in Section 1.7(d)) $
--------------
Excess Inventory Reserve
(as defined in Section 1.7(e)) $
--------------
Work-in-process (as defined in Section 1.7(f)) $
--------------
Low Value items (as defined in Section 1.7(f)) $
--------------
Returned goods (as defined in Section 1.7(g)) $
--------------
Not held for sale in ordinary course of business
(as defined in Section 1.7(h)) $
--------------
Restricted (as defined in Section 1.7(i)) $
--------------
Representations and Warranties untrue
(as defined in Section 1.7(j)) $
--------------
"Freight-in" costs or charges
(as defined in Section 1.7(k)) $
--------------
Hazardous Materials or licensed sales
(as defined in Section 1.7(l)) $
--------------
Unacceptably insured
(as defined in Section 1.7(m)) $
--------------
Components not tracked
(as defined in Section 1.7(n)) $
--------------
Valuation Reserve (as defined in Section 1.7(o)) $
--------------
Other (as specified in Section 1.7 or otherwise):
$
------------------------------------------ --------------
</TABLE>
22-
<PAGE> 23
TOTAL INELIGIBLES
$
--------------
8. Eligible Inventory (Line 6 minus Line 7)
$
--------------
9. Eligible Inventory advance rate 25%
10. Eligible Inventory availability (Line 8 multiplied by Line 9)
$
--------------
- - --------------------------------------------------------------------------------
11. (a) Harris Cash Collateral $
--------------
(b) Supplemental Amount $4,000,000
- - ------------------------------------------------------------------------------
12. Reserves against availability (including any required Rent Reserve and
reserve for Harris indemnities and any additional reserve required
against the Harris Cash Collateral)
$
--------------
13. [Intentionally Omitted]
- - --------------------------------------------------------------------------------
14. Borrowing Availability (the lesser of (i) the total of lines 5, 10,
11(a) and 11 (b) minus line 12, or (ii) the Maximum Amount of
$12,000,000)
$
--------------
15. Revolving Credit Loan Balance
$
--------------
16. Letter of Credit Obligations
$
--------------
17. Net Borrowing Availability (Line 14 minus the total of Lines 15 and 16)
$
--------------
23-
<PAGE> 24
24-
<PAGE> 25
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Borrowing Base Certificate as of the date first set forth above.
CODE-ALARM, INC.
By:
------------------------------------
Title:
---------------------------------
25-
<PAGE> 26
EXHIBIT E
---------
EXHIBIT A
TO
LITIGATION L/C AND TERM LOAN C AGREEMENT
----------------------------------------
FORM OF SUBSTITUTED AND AMENDED TERM C NOTE
-------------------------------------------
Chicago, Illinois
$10,000,000 October 1, 1998
FOR VALUE RECEIVED, the undersigned, CODE-ALARM, INC., a
Michigan corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of
GENERAL ELECTRIC CAPITAL CORPORATION ("Lender") at the offices of GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation, as Agent for Lenders
("Agent"), at its address at 10 South LaSalle Street, Suite 2800, Chicago,
Illinois 60603, or at such other place as Agent may designate from time to time
in writing, in lawful money of the United States of America and in immediately
available funds, the amount of TEN MILLION DOLLARS AND NO CENTS ($10,000,000).
All capitalized terms used but not otherwise defined herein have the meanings
given to them in the Credit Agreement or in Annex A thereto.
This Amended and Supplemented Term C Note (the "Term C Note")
is one of the Term C Notes issued pursuant to that certain Litigation L/C and
Term Loan C Agreement dated as of October 24, 1997 by and among Borrower, the
other Persons named therein as Credit Parties, Agent, Lender and the other
Persons signatory thereto from time to time as Lenders (including all annexes,
exhibits and schedules thereto and as from time to time amended, restated,
supplemented or otherwise modified, the "Credit Agreement"), evidences Lender's
Term Loan C, and is entitled to the benefit and security of the Credit Agreement
and the Litigation Collateral Documents referred to therein. Reference is hereby
made to the Credit Agreement for a statement of all of the terms and conditions
under which such Term Loan C is made and is to be repaid. The principal balance
of such Term Loan C, the rates of interest applicable thereto and the date and
amount of each payment made on account of the principal thereof, shall be
recorded by Agent on its books; provided that the failure of Agent to make any
such recordation shall not affect the obligations of Borrower to make a payment
when due of any amount owing under the Credit Agreement or this Term C Note.
26-
<PAGE> 27
Borrower shall pay the aggregate principal amount of the Term
Loan C in accordance with the provisions set forth in Section 1.1(f) of the
Credit Agreement. Interest thereon shall be paid until such principal amount is
paid in full at such interest rates and at such times, and pursuant to such
calculations, as are specified in the Credit Agreement. The terms of the Credit
Agreement are hereby incorporated herein by reference.
If any payment on this Term C Note becomes due and payable on
a day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day (except as otherwise provided in the Credit
Agreement) and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
Upon and after the occurrence of any Event of Default, this
Term Note may, as provided in the Credit Agreement, and without demand, notice
or legal process of any kind, be declared, and immediately shall become, due and
payable.
This Term C Note (i) re-evidences all the indebtedness
outstanding under the Term C Note dated October 24, 1997 (as heretofore amended,
the "Original Note"), (ii) is given in substitution of, and not as payment of,
such Original Note and (iii) is in no way intended to constitute a novation of
such Original Note.
Time is of the essence of this Term C Note. Demand,
presentment, protest and notice of nonpayment and protest are hereby waived by
Borrower.
Except as provided in the Credit Agreement, this Term C Note
may not be assigned by Lender to any Person.
THIS TERM C NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
THAT STATE.
CODE-ALARM, INC.
By:
---------------------------
Name:
--------------------
Title:
---------------------
27-
<PAGE> 28
28-
<PAGE> 1
Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding A 2,320,861 2,320,861 2,320,861 2,320,861
Weighted average dilutive
warrants outstanding
Weighted average common
--------------- --------------- --------------- ----------------
and dilutive shares outstanding B 2,320,861 2,320,861 2,320,861 2,320,861
=============== =============== =============== ===============
Net income (loss) applicable to common stock C $ (1,828,000) $ (5,216,000) $ (2,717,000) $ (4,817,000)
=============== =============== =============== ===============
Basic earnings (loss) per share C/A $ (0.79) $ (2.25) $ (1.17) $ (2.08)
=============== =============== =============== ===============
Diluted earnings (loss) per share C/B $ (0.79) $ (2.25) $ (1.17) $ (2.08)
=============== =============== =============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 6099
<ALLOWANCES> 1480
<INVENTORY> 4054
<CURRENT-ASSETS> 9957
<PP&E> 7846
<DEPRECIATION> 6001
<TOTAL-ASSETS> 13501
<CURRENT-LIABILITIES> 6767
<BONDS> 0
0
7000
<COMMON> 12213
<OTHER-SE> (30824)
<TOTAL-LIABILITY-AND-EQUITY> 13501
<SALES> 32609
<TOTAL-REVENUES> 32609
<CGS> 21626
<TOTAL-COSTS> 9982
<OTHER-EXPENSES> 1723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1470
<INCOME-PRETAX> (2192)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2717)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
