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Amendment And Forbearance Agreement

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AMENDMENT AND FORBEARANCE AGREEMENT


NBD Bank ("NBD" or "Lender"), Code-Alarm, Inc. ("Code-Alarm" or "Borrower") Tessco Group, Inc. ("Tessco"), Chapman Security Systems, Inc. ("Chapman"), Anes, Inc. d/b/a Anes Security, Inc. ("Anes") and Intercept Systems, Inc. ("Intercept"), enter into this Amendment and Forbearance Agreement (this "Agreement") on June 11, 1997. For convenience, (i) Tessco, Chapman, Anes and Intercept are referred to herein, collectively, as "Guarantors" and, individually, as "Guarantor", and (ii) Code-Alarm and Guarantors are referred to herein, collectively, as the "Parties" and, individually, as a "Party".


RECITALS


A. NBD, as lender and secured party, and Code-Alarm, as borrower and debtor, are parties to a certain Loan Agreement, dated as of June 28, 1996, (as may be amended and with all supplements thereto, the "Loan Agreement").


B. In furtherance of, and in accordance with, the Loan Agreement, NBD agreed, among other things, to make available through May 31, 1998 a secured revolving credit facility (the "Revolving Credit Facility"), subject to certain limitations, up to a maximum principal amount of $14,250,000 in the aggregate at any time outstanding. The Revolving Credit Facility is evidenced by a Revolving Credit Note, dated June 28, 1996, in the original principal amount of $14,250,000 (the "Revolving Credit Note").


C. NBD also made term loans to Code-Alarm evidenced by (i) a Term Note, dated June 28, 1996 in the original principal amount of $1,300,000 which matures on May 23, 1997 ("Term Note A"), and (ii) a Term Note, dated June 28, 1996 in the original principal amount of $1,650,000, which matures on May 23, 1999 ("Term Note B"). For convenience, Term Note A and Term Note B are referred to herein collectively as the "Term Notes."


D. In addition, NBD holds five year brokered lease paper with respect to Code-Alarm (the "Brokered Lease Paper").


E. Among other security agreements (i) Code-Alarm executed and delivered to NBD a Security Agreement, dated as of May 23, 1995 (as may be amended and with all supplements thereto, the "Security Agreement"); (ii) Code-Alarm executed and delivered to NBD a Pledge Agreement and Irrevocable Proxy, dated May 23, 1995 (as may be amended and with all supplements thereto, the "Pledge Agreement"); (iii) Code-Alarm, as both owner and beneficiary, executed and delivered to NBD an Assignment of Policy as Collateral Security, dated May 18, 1995, with respect to Mueller (the "Life Insurance Assignment"), and (iv) Code-Alarm procured for the benefit of NBD a multi-debtor trade credit insurance policy, issued by Reliance Insurance Company of Illinois, Policy No. 2535724-96 (the "Foreign Receivable Insurance Policy").


F. All of the obligations of Code-Alarm to NBD, whether then existing or thereafter created or arising, are guaranteed by Guarantors pursuant to that certain guaranty contained in 2


the Loan Agreement (the "Guaranty"). Each Guarantor's obligations with respect to the Guaranty are secured in accordance with the terms and conditions of a security agreement executed by each Guarantor in favor of NBD, each of which is dated as of May 23, 1995 (each as may be amended and with all supplements thereto, a "Guarantor Security Agreement" and, collectively, the "Guarantor Security Agreements"). For convenience, the Guaranty, the Guarantor Security Agreements and all other documents and agreements executed by any Guarantor in connection therewith are referred to collectively as the "Guarantor Loan Documents."


G. Code-Alarm and each Guarantor also executed a Consent and Amendment of Security Documents dated June 28, 1996 (the "Ratification of Security Documents").


H. For convenience, all of the foregoing documents, agreements, assignments, and promissory notes set forth in Recitals A through G above, together with any other documents, instruments, agreements or promissory notes executed in connection with, or in furtherance of, any of the foregoing, as amended from time to time, including as amended by this Agreement, but exclusive of all present or future oral agreements between NBD and any one or more of the Parties, are referred to, collectively, as the "Loan Documents."


I. On May 1, 1997, there was (i) $11,146,987.20 in principal owing by Code-Alarm to NBD under the Revolving Credit Facility, (ii) $1,300,000 in principal owing by Code-Alarm to NBD under Term Loan A, (iii) $1,100,000 in principal owing by Code-Alarm to NBD under Term Loan B, and (iv) $268,125.97 in principal owing by Code-Alarm to NBD under the Brokered Lease Paper, plus accrued but unpaid interest, costs and expenses (including attorneys' fees) called for by the Loan Documents. Collectively, together with all other principal and interest due or becoming due to NBD, together with the payment of all other sums, indebtedness and liabilities of any and every kind now or hereafter owing and to become due from Code-Alarm to NBD, however created, incurred, evidenced, acquired or arising, and whether direct or indirect, primary, secondary, fixed or contingent, matured or unmatured, joint, several, or joint and several, and whether for principal, interest, reimbursement obligations, indemnity obligations, obligations under guaranty agreements, fees, costs, expenses, or otherwise, all of Code-Alarm's obligations under this Agreement, together with all other present and future obligations of Code-Alarm to NBD, are referred to, collectively, as the "Obligations."


J. Each Party, jointly and severally, acknowledges and agrees that (i) the Obligations, Guarantors' obligations under the Guarantor Loan Documents, and all other obligations of any one or more of the Parties to NBD are owing to NBD without setoff, recoupment, defense or counterclaim, in law or in equity, of any nature or kind; (ii) the Obligations are secured by (a) valid, perfected, indefeasible, enforceable, first priority, liens and security interests in favor of NBD in, among other things, all of Code-Alarm's present and future personal property, including, without limitation, accounts, chattel paper, general intangibles, documents, instruments, inventory, machinery, equipment, furniture, fixtures and all other tangible and intangible personal property and all proceeds and products of all of the foregoing, as more fully described in the Security Agreement; (b) a valid, perfected indefeasible and enforceable pledge


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by Code-Alarm to NBD of (i) all of the issued and outstanding shares of capital stock of each Guarantor, (ii) 66% of the issued and outstanding shares of capital stock of Europe Auto Equipment S.A. ("EAE"), a wholly-owned subsidiary of Code-Alarm, located in Paris, France, and (iii) 66% of the issued and outstanding capital stock of Code-Alarm Europe Ltd. ("Ltd"), a European holding company, wholly-owned by Code-Alarm, which owns 100% of the capital stock of Code-Alarm U.K. Ltd. ("UK"), Code-Alarm Iberica, S.A. ("Iberica") and Code-Alarm Benelux ("Benelux"), each as more fully described in the Pledge Agreement; (c) a valid, perfected, indefeasible and enforceable assignment by Code-Alarm of a life insurance policy on the life of Mueller, as more fully described in the Life Insurance Assignment; and (d) valid, perfected, indefeasible, enforceable, first priority liens and security interests in favor of NBD in, among other things, all of each Guarantor's present and future personal property, including, without limitation, accounts, chattel paper, general intangibles, documents, instruments, inventory, machinery, equipment, fixtures and all other tangible and intangible personal property and all proceeds and products of all of the foregoing, as more fully described in Guarantor Security Agreements. For convenience, all collateral referred to in this paragraph, together with all other collateral described in the Loan Documents and all collateral heretofore, simultaneously herewith or hereafter granted to NBD by any one or more of the Parties to secure any of the Obligations or any one or more of the Parties' other obligations to NBD, including, without limitation, the obligations of any one or more of the Guarantors under the Guarantor Loan Documents, is referred to, collectively, as the "Collateral". In addition, for convenience, EAE, Ltd., UK, Iberica and Benelux are referred to, collectively, as the "Foreign Subsidiaries."


K. Each Party reaffirms, ratifies, confirms and approves its obligations and duties under the Loan Documents, as modified by this Agreement. Without limiting the generality of the immediately preceding sentence, Guarantors hereby reaffirm, ratify, confirm and approve their obligations and duties under the Guarantor Loan Documents and the provisions herein, and acknowledge and agree that the Guarantor Loan Documents extend to, and cover, all of the Obligations, including the sums described in Paragraph I above. Each Party, jointly and severally, reaffirms, ratifies and confirms the liens, mortgages, assignments and security interests granted to NBD in the Collateral under the Loan Documents or otherwise.


L. During the fiscal years ended December 31, 1995 and December 31, 1996, Code-Alarm suffered substantial losses, leaving Code-Alarm in default under the Loan Documents. NBD informed Code-Alarm of these defaults and informed Code-Alarm that every effort should be made to effect an improvement in Code-Alarm's business and financial prospects.


M. By letter dated April 4, 1997 (the "April 4 Letter"), NBD informed the Parties that, due to Code-Alarm's unsatisfactory performance and various defaults under the Loan Documents, NBD needed to more fully evaluate Code-Alarm's financial controls and performance, management goals and directions, NBD's collateral position and whether NBD wished to continue a lending relationship with Code-Alarm.


N. Following the receipt of the April 4 Letter, representatives of the Parties and NBD discussed on several occasions the terms under which NBD would be willing to forbear and on


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May 8, 1997 a draft Amendment and Forbearance Agreement (the "Draft) was circulated to Code-Alarm and its counsel. On May 29, 1997 Code-Alarm's counsel informed NBD that Code-Alarm would not enter into an Amendment and Forbearance Agreement with NBD. On May 30, 1997, Code-Alarm's counsel informed NBD that Code-Alarm had decided to continue negotiations and to finalize and execute an Amendment and Forbearance Agreement. On Monday, June 2, 1997, the parties met to finalize an Amendment and Forbearance Agreement which was to be executed on June 3, 1997. On June 3, 1997, Code-Alarm's counsel again informed NBD that Code-Alarm would not execute the Amendment and Forbearance Agreement on that day as had been agreed. Therefore, on June 3, 1997, NBD sent Code-Alarm a Notice of Default (the "Notice of Default") notifying Code- Alarm of its default under its loan agreements with NBD and advising Code-Alarm that effective as of June 1, 1997, interest on all Obligations was being accrued at the overdue rate.


O. Code-Alarm is in default under the Loan Documents for the following reasons:


(i) Code-Alarm is in violation of the following
financial covenants contained in the Loan Agreement (collectively, the
"Existing Covenant Violations");


(a) Based on Code-Alarm's audited financial
statements for the 12 month period ended December 31, 1996
(the "1996 Financials"), the ratio of Consolidated Current
Assets to Consolidated Current Liabilities is less than
1.4 to 1.0. (The 1996 Financials indicate that the ratio
of Consolidated Current Assets to Consolidated Current
Liabilities is 0.82 to 1.0).


(b) Based on the 1996 Financials, Consolidated
Working Capital is less than $9,750,000. (The 1996
Financials indicate that Consolidated Working Capital is
negative $4,791,137.)


(c) Based on the 1996 Financials, Consolidated
Tangible Net Worth is less than $3,000,000. (The 1996
Financials indicate that Consolidated Tangible Net Worth
is negative $1,548,019.)


(d) Based on the 1996 Financials, the ratio of
Consolidated Total Liabilities to Consolidated Tangible
Net Worth is greater than 9.5 to 1.0. (The 1996
Financials indicate that the ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth is negative
18.33 to 1.0.)


(e) Based on the 1996 Financials, the
Consolidated Fixed Charge Coverage Ratio is less than 1.0
to 1.0. (The 1996 Financials indicate that Consolidated
Fixed Charge Coverage Ratio is negative 4.72 to 1.0.)


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(ii) A tax lien in the amount of $34,128.76 for unpaid
single business taxes assessed October 23, 1995 (the "Tax Lien") was
filed against Code-Alarm on November 20, 1996.


(iii) The Commitment Fee due on March 31, 1997 was not
paid.


(iv) EAE filed for "bankruptcy" in France on April 30,
1997.


(v) Code-Alarm did not meet reporting requirements set
forth in the Loan Agreement for the reporting periods prior to the
calendar year beginning January 1, 1997.


(vi) Based on the Borrowing Base Certificate for the
month ended March 31, 1997, certified by Code-Alarm's Chief Financial
Officer and delivered to NBD on April 23, 1997, Code-Alarm acknowledged
it exceeded the Borrowing Base Formula set forth in the Loan Agreement
by $1,847,000.


For convenience, the Existing Covenant Violations together with all of the other above-described defaults, are referred to collectively as the "Existing Defaults." Each Party represents and warrants, after due inquiry and investigation, that none of them is aware of any other Events of Default or defaults, or of any event which, with the passage of time, notice, or both, would become an Event of Default or a default under the Loan Documents or this Agreement.


P. Each Party also acknowledges that based on the Existing Defaults, NBD has the right, without further notice, to enforce its rights under the Loan Documents (including the Guarantor Loan Documents) and applicable law. Further, if NBD took such action, each Party acknowledges that NBD's actions would be within NBD's rights under the Loan Documents (including the Guarantor Loan Documents) and applicable law, and would be reasonable and appropriate under the circumstances.


Q. Each Party acknowledges and agrees that (i) NBD has fully performed all of its obligations under the Loan Documents; (ii) NBD has no obligation to continue to lend to Code-Alarm, or to forbear from enforcing its rights and remedies beyond the Forbearance Period (as hereinafter defined); (iii) notwithstanding anything to the contrary contained in the Loan Documents, any loans made after the date of this Agreement will be made in NBD's sole discretion; and (iv) NBD has made no representations of any nature or kind that funding in any amount will continue, or that the Forbearance Period (as hereinafter defined) will be extended beyond the expiration thereof.


R. Each Party further acknowledges and agrees that the actions taken by NBD to date in furtherance of the Loan Documents are reasonable and appropriate under the circumstances and are within NBD's rights under the Loan Documents and applicable law.


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S. Each Party represents and warrants to NBD that he or it has received direct and substantial economic benefit from all of the Obligations and that he or it will continue to receive direct and substantial economic benefit from such loans, and from any other loans made or which may be made in the future to Code-Alarm.


T. Each Party has requested that NBD agree to forbear from exercising its rights and remedies under the Loan Documents and applicable law in connection with the Existing Defaults until July 31, 1997.


U. Subject to the terms and conditions of this Agreement, and in reliance on the Parties' agreements, acknowledgments, representations, and warranties in this Agreement, NBD has agreed to amend the Loan Documents, and forbear from enforcing its rights and remedies on account of the Existing Defaults under the Loan Documents (including the Guarantor Loan Documents) and applicable law, as set forth below.


AGREEMENT


Based on the foregoing Recitals (which are incorporated herein as agreements, representations, warranties, and covenants of the respective Parties, as the case may be), and for other good and valuable consideration, the adequacy and receipt of which are acknowledged by each Party hereto, NBD and each Party agree as follows:


1. FORBEARANCE. Subject to the following conditions and those set forth below, NBD agrees to forbear from enforcing its rights and remedies based on the Existing Defaults through October 31, 1997 (the "Forbearance Period"):


(a) There are no further or additional Events of Default or defaults under the Loan Documents (including a worsening of the Existing Defaults, calculating all covenants as of the end of each month), and each Party fully complies with all terms and conditions of this Agreement and the Loan Documents; and


(b) On or before June 11, 1997, (the "Effective Date") NBD receives a fully executed copy of this Agreement, acknowledged by counsel to each of the Parties as provided below, together with fully executed copies of all Exhibits hereto that require signature.


With respect to the Existing Covenant Violations, a worsening shall mean: (a) that the ratio of Consolidated Current Assets to Consolidated Current Liabilities becomes less than 0.75 to 1.0, (b) that Consolidated Working Capital becomes more negative than negative $5.7 million, or (c) that Consolidated Tangible Net Worth becomes more negative than negative $1.6 million. A worsening of (i) the ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth and (ii) the Consolidated Fixed Charge Coverage Ratio shall not be an Event of Default under this Agreement; provided, however, Code-Alarm shall continue to report all covenant calculations, including the ratios in (i) and (ii) in this sentence, on a monthly basis.


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2. DEMAND DISCRETIONARY FACILITY. The Loan Agreement is hereby amended to convert the Revolving Credit Facility to a Demand Discretionary Facility, which Demand Discretionary Facility shall expire on the earlier of demand or the expiration of the Forbearance Period. Upon the earlier of demand or the expiration of the Forbearance Period, all Obligations of Code-Alarm under such Demand Discretionary Facility shall be due and payable in full. Any reference in any document or instrument (including the Loan Agreement) to the Revolving Credit Facility shall constitute a reference to the Demand Discretionary Facility and any reference in any document or instrument (including the Loan Agreement) to Revolving Credit Loans shall constitute a reference to Line of Credit Loans made under the Demand Discretionary Facility. The Loan Agreement is further amended to eliminate the requirement to pay any Commitment Fees (as defined in the Loan Agreement) which would have been due and payable after the Effective Date.


3. ELIMINATION OF LETTER OF CREDIT ADVANCES. The Loan Agreement is hereby amended to terminate all Letters of Credit Advances. Notwithstanding anything to the contrary in the Loan Agreement, NBD shall not be required to issue any Letters of Credit pursuant to such Loan Agreement.


4. ELIMINATION OF EURODOLLAR RATE LOANS. The Parties acknowledge that under the Loan Agreement, Code-Alarm had the option of electing Eurodollar Rate Loans or Floating Rate Loans (as those terms are defined in the Loan Agreement). The Loan Agreement is hereby amended so that no further Eurodollar Rate Loans shall be permitted. Upon maturity of each existing Eurodollar Rate Loan, each such loan was converted to a Floating Rate Loan and shall bear interest at the Note Rate or, if applicable, the Default Rate, each as defined below.


5. INTEREST.


(a) Anything to the contrary in the Notice of Default notwithstanding, NBD hereby agrees that interest from June 1 through the date hereof shall not be accrued at the Overdue Rate set forth in the Loan Documents.


(b) The Loan Agreement is hereby amended to provide that all Obligations with respect to payment of principal under the Revolving Credit Note, the Term Notes and the Brokered Lease Paper, prior to default (excluding the Existing Defaults, but including a worsening of such Existing Defaults), shall bear interest at 2% over the rate NBD announces from time to time as its prime rate (the "Note Rate"). After the occurrence of an Event of Default or default under this Agreement or the Loan Documents (excluding the Existing Defaults, but including a worsening of such Existing Defaults), all of such Obligations shall bear interest at the rate of 3% per annum above the Note Rate (the "Default Rate"). Notwithstanding the foregoing, in no event whatsoever shall the rate of interest charged under this Agreement or any agreement or note executed in connection herewith or referred to or incorporated herein exceed the highest rate permitted by applicable law. The fact that NBD is entitled to receive a higher rate of interest upon default is to compensate NBD for increased administrative and monitoring costs and shall not in any manner be deemed to have waived or modified any of


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NBD's rights in connection with the occurrence of a default or any Event of Default under this Agreement or any other Loan Document.


(c) The Loan Agreement is further amended to provide that interest with respect to the Amended Line of Credit Note, Amended Term Note A and Amended Term Note B (each as defined below), respectively, shall be due and payable monthly on the first business day of the following month.


6. AMENDED AND RESTATED NOTES.


(a) The Revolving Credit Note is hereby amended, restated and replaced in its entirety by an Amended and Restated Demand Business Loan Note, a copy of which is attached as Exhibit A hereto (the "Amended Line of Credit Note"). Any reference in any other document or instrument (including, but not limited to, the Loan Agreement) to the Revolving Credit Note shall constitute a reference to the Amended Line of Credit Note. The Amended Line of Credit Note is in substitution and exchange for the Revolving Credit Note and shall not in any circumstances be deemed a novation or to have paid, terminated, extinguished or discharged Code-Alarm's Obligations evidenced by the Revolving Credit Note, all of which Obligations shall continue under, and be evidenced and governed by, the Amended Line of Credit Note.


(b) The parties acknowledge and agree that Term Note A matured on May 23, 1997. Code-Alarm has informed NBD that it was unable to pay all obligations due and payable under Term Note A on such maturity date. Therefore, Term Note A is hereby amended, restated and replaced in its entirety by an Amended and Restated Term Note A, a copy of which is attached hereto as Exhibit B ("Amended Term Note A"), which Amended Term Note A provides among other things, that such Note is due and payable on the expiration of the Forbearance Period. Any reference in any other document or instrument (including, but not limited to, the Loan Agreement) to Term Note A shall constitute a reference to Amended Term Note A. Amended Term Note A is in substitution and exchange for Term Note A and shall not in any circumstances be deemed a novation or to have paid, terminated, extinguished or discharged Code-Alarm's Obligations evidenced by Term Note A, all of which Obligations shall continue under and be evidenced and governed by, Amended Term Note A.


(c) Term Note B is hereby amended, restated and replaced in its entirety by an Amended and Restated Term Note B, a copy of which is attached hereto as Exhibit C ("Amended Term Note B"), which Amended Term Note B provides, among other things, that such Note matures at the expiration of the Forbearance Period. Any reference in any other document or instrument (including, but not limited to, the Loan Agreement) to Term Note B shall constitute a reference to Amended Term Note B. Amended Term Note B is in substitution and exchange for Term Note B and shall not in any circumstances be deemed a novation or to have paid, terminated, extinguished or discharged Code-Alarm's Obligations evidenced by Term Note B all of which Obligations shall continue under and be evidenced and governed by, Amended Term Note B.


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7. OUT OF FORMULA AMOUNT. As noted in the Recitals, based on Code-Alarm's Borrowing Base Certificate for the month ended March 31, 1997, certified by the Chief Financial Officer of Code-Alarm and delivered to NBD, Code-Alarm acknowledged it has exceeded the Borrowing Base Formula set forth in the Loan Agreement by $1,847,000. Investigation by NBD has indicated that rather than the amount set forth in the March 31, 1997 borrowing base calculation, Code-Alarm has exceeded the Borrowing Base Formula set forth in the Loan Agreement as of March 31, 1997, by approximately $4,555,583, as evidenced by the revised March 31, 1997 borrowing base calculation attached hereto as Exhibit D, as a result of Ineligible Receivables and Ineligible Inventory (each as defined below) being included in Code-Alarm's March 31, 1997 Borrowing Base Certificate. Consistent with NBD's determination of eligibility, the Borrowing Base Certificate as of June 2, 1997, certified by the Chief Financial Officer of Code-Alarm and delivered to NBD, a copy of which is attached as Exhibit E, indicates that Borrower has exceeded the Borrowing Base Formula set forth in the Loan Documents by $4,927,000 (the "Out-of-Formula Amount"). During the Forbearance Period, the amount by which Code-Alarm exceeds the Borrowing Base Formula set forth in the Loan Agreement shall not be greater than $5,300,000 (the "Out-of-Formula Cap") minus the aggregate of all Out-of-Formula Paydowns (as defined immediately below). During the Forbearance Period the following shall be applied to permanently reduce the Out-of-Formula Cap (the "Out-of-Formula Paydowns"), until the Out-of-Formula Amount has been eliminated for a period of 30 consecutive days, so long as such Out-of-Formula Amount remains eliminated and there are no other Events of Default under the Loan Documents, including this Agreement at which point no Out-of-Formula borrowing shall be permitted and the Out-of-Formula Cap shall be eliminated:


(i) Cash payments of $30,000 per week to be made by
Code-Alarm to NBD on the last business day of each week, effective the
week beginning June 2, 1997.


(ii) 100% of all amounts collected by Code-Alarm each
week with respect to the Pre-Agreement Ineligibles as defined below, on
the last business day of the next week. For all purposes herein,
Pre-Agreement Ineligibles are any Ineligible Receivables that existed as
of March 31, 1997, including those set forth on Exhibit D and that have
been previously reported to NBD as eligible for borrowing purposes.
Notwithstanding the foregoing, Code-Alarm may hold any collections of
Pre-Agreement Ineligibles of any customer otherwise required to be
rem
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