SUBSCRIPTION AND SHAREHOLDERS AGREEMENT

DIRECTED ELECTRONICS, INC.

[NAME]
SUBSCRIPTION AND SHAREHOLDERS’ AGREEMENT

TABLE OF CONTENTS

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DIRECTED ELECTRONICS, INC.

[NAME]
SUBSCRIPTION AND SHAREHOLDERS’ AGREEMENT

     THIS SUBSCRIPTION AND SHAREHOLDERS’ AGREEMENT is made as of this 22 ^nd day of September, 2006, by and among Directed Electronics, Inc., a Florida corporation (the “ Company ”), and [NAME] (the “ Shareholder ”).

Recitals

     A. Subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Shareholder, and the Shareholder desires to purchase from the Company, shares of the Company’s Common Stock.

     B. The Company and the Shareholder believe that it would be in the best interest of the Company to place certain restrictions upon the right of transfer of the Shares (as defined below).

     C. The directors of the Company, having considered the provisions of this Agreement, have resolved that, in their opinion, the restrictions upon the transfer of the Shares and the establishment of rights and obligations upon the occurrence of certain events, all as hereinafter set forth, are in the best interest of the Company and its shareholders.

Agreement

     NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereto agree as follows:

     1.  Interpretation of this Agreement .

          1.1 Terms Defined . The following terms when used in this Agreement have the meanings set forth below:

          “ Acquisition ” shall have the meaning given to it in Section 2.3(i) of this Agreement.

          “ Affiliate ” means, at any time, a Person (other than a Subsidiary):

               (i) that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company;

               (ii) that beneficially owns or holds five percent (5%) or more of any class of the Voting Stock of the Company; or

               (iii) five percent (5%) or more of the Voting Stock (or in the case of a Person that is not a corporation, five percent (5%) or more of the equity interest) of which is beneficially owned or held by the Company or a Subsidiary;

at such time.

As used in this definition,

          Control - means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

          “ Agreement ” means this Subscription and Shareholders’ Agreement, as amended, modified or supplemented from time to time.

          “ Common Stock ” means the Company’s common stock, par value $.01 per share.

          “ Company ” shall have the meaning given to it in the first sentence of this Agreement.

          “ Credit Agreement ” means the amended credit agreement that the Company has entered into or will enter into in connection with the Acquisition.

          “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

          “ Incidental Registration ” shall have the meaning given to it in Section 4.1(a) hereof.

          “ Person ” means an individual, partnership, corporation, limited liability company, trust, unincorporated organization, or a government or agency or political subdivision thereof.

          “ Public Offering ” shall mean, with respect to any shares of Common Stock, any sale in a transaction either registered under, or requiring registration under, Section 5 of the Securities Act.

          “ Purchase Price ” shall have the meaning given to it in Section 2.1(a) of this Agreement.

          “ Registrable Securities ” means all Securities of the Company which are subject to registration rights other than the Shares.

          “ Registration Expenses ” means all expenses incident to the Company’s performance of or compliance with Section 4.1 through Section 4.3 , inclusive, including, without limitation:

               (i) all registration and filing fees;

               (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Shares);

               (iii) expenses of printing certificates for the Shares in a form eligible for deposit with the Depositary Trust Company;

               (iv) messenger and delivery expenses;

               (v) internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties);

               (vi) fees and disbursements of counsel for the Company and its independent certified public accountants (including the expenses of any management review, cold comfort letters or any special audits required by or incident to such performance and compliance);

               (vii) securities acts liability insurance (if the Company elects to obtain such insurance);

               (viii) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration;

               (ix) fees and expenses of other Persons retained by the Company; and

               (x) fees and expenses of one counsel for holders of securities to be registered, selected by the holders of a majority of Registrable Securities;

but not including any Selling Expenses.

          “ SEC ” means the Securities and Exchange Commission.

          “ SEC Reports ” shall have the meaning given to it in Section 2.2(e) .

          “ Securities Act ” means the Securities Act of 1933, as amended.

          “ Selling Expenses ” means and includes, with respect to any sale of Shares, any underwriting fees, discounts or commissions attributable to the sale of Shares, fees and expenses of more than one counsel representing all of the selling shareholders in a Public Offering, and any other selling expenses, discounts or commissions incurred in connection with the sale of Shares.

          “ Shares ” shall have the meaning given to it in Section 2.1(a) of this Agreement.

          “ Shareholder ” shall have the meaning given to it in the first sentence of this Agreement.

          “ Stock Purchase Agreement ” shall have the meaning given to it in Section 2.3(i) of this Agreement.

          “ Subscription Closing ” shall have the meaning given to it in Section 2.1(a) of this Agreement.

          “ Subsidiary ” means, as to any Person, any corporation in which such Person or one or more Subsidiaries of such Person or such Person and one or more Subsidiaries of such Person owns sufficient voting securities to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such corporation. The term “Subsidiary,” as used herein without reference to any Person, shall mean a Subsidiary of the Company.

          “ Voting Stock ” means, with respect to any Person, any shares of stock or similar equity interests of such Person whose holders are entitled under ordinary circumstances to vote for the election of directors or similar officials of such Person (irrespective of whether at the time stock or equity interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

          1.2 Interpretation . Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in masculine, feminine or neuter gender shall include the masculine, feminine and the neuter.

     2.  Purchase of Shares .

          2.1 Purchase and Sale of Shares .

               (a) The Shareholder hereby subscribes for and agrees to purchase, and the Company hereby agrees to issue and sell to the Shareholder, [                 ] shares of Common Stock (the “ Shares ”) in exchange for an aggregate of $ [                 ], or $12.40 per share (the “ Purchase Price ”). The purchase and sale of the Shares will be consummated concurrently with the Acquisition (the “ Subscription Closing ”).

               (b) Upon receipt of the Purchase Price from the Shareholder at the Subscription Closing, the Company shall deliver to the Shareholder a certificate representing the applicable Shares, registered in the name of the Shareholder.

     2.2 Representations and Warranties of the Company . The Company hereby represents and warrants to the Shareholder as follows:

               (a)  Organization; Power and Authority . The Company is a corporation duly organized, validly existing, and in good standing under the laws of state of Florida. The Company has full corporate power and authority to carry on the business in which it is engaged and to own and use the properties owned and used by it.

               (b)  Authorization of Transaction; Agreement Binding . The Company has the corporate power and authority to execute and deliver, and to perform its obligations under, this Agreement. This Agreement constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency or similar laws which affect creditors’ rights generally.

               (c)  Capitalization . The Company’s authorized capital stock consists of 100,000,000 shares of Common Stock, of which 24,769,197 are currently issued and outstanding (not giving effect to the shares issuable in connection with the Acquisition). The Shares acquired by the Shareholder pursuant to the provisions of this Agreement will be duly authorized, validly issued, fully paid and nonassessable with no personal liability attaching to the ownership thereof. The Company has made available to the Shareholder true and correct copies of the Company’s Articles of Incorporation and bylaws.

               (d)  No Conflict . The execution, delivery and performance of this Agreement by the Company do not and will not violate, conflict with, or result in a breach of or default under (A) the Company’s Articles of Incorporation or bylaws; (B) any applicable law, order, judgment or decree; or (C) any agreement, contract, understanding, mortgage, indenture or other obligation to which the Company is a party or by which any of its assets or properties are bound. Without limiting the generality of the foregoing, the Company represents and warrants that its issuance and sale of the Shares to the Shareholder pursuant to the terms hereof are being conducted in accordance with and in reliance upon an exemption from registration under applicable federal and state securities laws.

               (e)  SEC Reports . The Company has filed all reports required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, preceding the date hereof (the foregoing reports and all amendments thereto being collectively referred to herein as the “ SEC Reports ”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder. In addition, none of the SEC Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

     2.3 Representations and Warranties of the Shareholder . The Shareholder hereby represents and warrants to the Company as follows:

               (a)  State Securities Laws . The Shareholder is a resident of the state of [          ]. The Shareholder intends that the “blue sky” laws of such state govern the offering of the Shares to the Shareholder.

               (b)  Capacity . The Shareholder has full capacity to execute and deliver, and to perform the Shareholder’s obligations under, this Agreement.

               (c)  Agreement Binding . This Agreement constitutes the valid and legally binding obligation of the Shareholder, enforceable in accordance with its terms except as such enforcement may be limited by general equitable principles or by applicable bankruptcy, insolvency or similar laws which affect creditors’ rights generally.

               (d)  Acquisition for Investment . The Shareholder is acquiring the Shares for investment solely for the Shareholder’s account and not with a view to or for sale in connection with any distribution thereof in violation of the federal securities laws, applicable state securities laws or this Agreement.

               (e)  Restrictions on Transfer . The Shareholder understands that the Shareholder must bear the economic risk of the purchase of the Shares for an indefinite period of time because, except as provided in this Agreement, (i) the Company’s sale of the Shares to the Shareholder will not be registered under the Securities Act and applicable state securities laws in reliance on the Shareholder’s representations, (ii) the Shares may not be sold, transferred, pledged, or otherwise disposed of without an opinion of counsel, if requested, for or satisfactory to the Company that registration under the Securities Act or any applicable state securities laws is not required, and (iii) except as otherwise set forth herein, the Company does not have an obligation to register a sale of the Shares (or perfect any exemption) nor has it agreed to do so in the future.

               (f)  Restrictive Legends . The Shareholder understands that the certificate(s) evidencing the Shares will bear a restrictive legend (as set forth in Section 3 below) prohibiting the transfer thereof except in compliance with applicable state and federal securities laws (and may not be transferred of record except in compliance therewith).

               (g)  Access to Information . The Shareholder acknowledges that he has reviewed the SEC Reports and has been afforded (i) the opportunity to ask such questions as he has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management, and prospects sufficient to enable the Shareholder to evaluate his investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

               (h)  Risks of Investment . The Shareholder understands that his investment in the Shares involves a significant degree of risk, including a risk of total loss of the Shareholder’s investment, and the Shareholder has full cognizance of and understands all of the risk factors related to the Shareholder’s purchase of the Shares and has read and fully understands the risk factors relating to the Company included in the SEC Reports, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The Shareholder understands that no representation is being made as to the future value of the Common Stock. The Shareholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Shares and has the ability to bear the economic risks of an investment in the Shares.

               (i)  Risk Factors Related to the Acquisition . The Shareholder has reviewed, or has had an opportunity to review, copies of all documents entered into in connection with the acquisition of stock (the “ Acquisition ”) effected pursuant to that certain Stock Purchase Agreement, dated as of August 21, 2006 (including the exhibits and schedules thereto, the “ Stock Purchase Agreement ”), between the Company, Polk Holding Corp., a Maryland corporation, the “Sellers” named therein, and George Klopfer, as Sellers’ Representative. The Shareholder specifically acknowledges the Shareholder’s understanding that the Company intends to incur substantial additional debt to finance the Acquisition in the amount of $141 million pursuant to the Credit Agreement and that the presence of such substantial amounts of debt creates significant risks. The Shareholder further acknowledges that Goldman, Sachs & Co. and Trivest Partners are receiving fees in connection with the Acquisition.

               (j)  Investor Status . At the time the Shareholder was offered the Shares, the Shareholder was, and at the date hereof the Shareholder is, (i) knowledgeable, sophisticated, and experienced in making, and qualified to make, decisions with respect to investments in securities representing an investment decision similar to that involved in the purchase of the Shares, including investments in securities issued by the Company and comparable entities, and has had the opportunity to request, receive, review, and consider all information he deemed relevant in making an informed decision to purchase the Shares; and (ii) an “accredited investor” as defined in Rule 501(a) under the Securities Act. The Shareholder is not a registered broker-dealer under Section 15 of the Exchange Act.

               (k)  General Solicitation . The Shareholder is not purchasing the Shares as a result of any advertisement, article, notice, or other communication regarding the Shares published in any newspaper, magazine, or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

               (l)  Representations Relied Upon by Shareholder . The Shareholder is acquiring the Shares without having been furnished any representations or warranties of any kind whatsoever with respect to the business and financial condition of the Company, other than the representations and warranties contained in this Agreement.

          2.4 Tax Certifications and Acknowledgments . The Shareholder certifies under penalty of perjury that (a) the Social Security Number for the Shareholder provided under the Shareholder’s name on the signature page to this Agreement is correct, (b) the Shareholder is not subject to backup withholding either because the Shareholder has not been notified that the Shareholder is subject to backup withholding as a result of a failure to report all interest or dividends or because the Internal Revenue Service has notified the Shareholder that the Shareholder is no longer subject to backup withholding and (c) the Shareholder is not a nonresident alien.

     3.  Additional Restrictions on Transfer .

          3.1 Legend . Certificates evidencing the Shares will contain the following legends:

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A SUBSCRIPTION AND SHAREHOLDERS’ AGREEMENT, DATED AS OF SEPTEMBER 22, 2006, THE PROVISIONS OF WHICH ARE INCORPORATED HEREIN BY REFERENCE. A COPY OF SUCH SUBSCRIPTION AND SHAREHOLDERS’ AGREEMENT IS AVAILABLE FROM THE COMPANY UPON REQUEST.

          3.2 Opinion of Counsel . Except pursuant to Section 4 , the Shareholder may not sell, pledge or otherwise directly or indirectly transfer (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any Shares (except pursuant to an effective registration statement under the Securities Act) without first delivering to the Company, if requested, an opinion of counsel (reasonably acceptable in form and substance to the Company) that neither registration nor qualification under the Securities Act and applicable state securities laws is required in connection therewith.

     4.  Registration Rights .

          4.1 Incidental Registration .

               (a)  Filing of Registration Statement . If the Company at any time proposes to register any of its Common Stock (an “ Incidental Registration ”) under the Securities Act (other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor forms thereto, solely in connection with securities to be issued in a merger, acquisition of stock or assets of another Person or in a similar transaction, or relating solely to securities issued or to be issued under any employee stock option or purchase plan), for sale in a Public Offering, it will each such time give prompt written notice to the Shareholder of its intention to do so. Upon the written request of the Shareholder to include his Shares under such registration statement (which request shall be made within thirty (30) days after the receipt of any such notice and shall specify the Shares intended to be disposed of by the Shareholder), the Company will effect the registration of all Shares that the Company has been so requested to register by the Shareholder; provided, however, that if, at any time after giving written notice of its intention to register any securities, the Company shall determine for any reason not to register such securities or to delay or not complete that sale of any securities covered by such registration statement, the Company may, at its election, give written notice of such determination to the Shareholder and, thereupon, shall be relieved of its obligation to register any Shares in connection with such registration, and may withdraw the filing or effectiveness of such registration, provided the Company reimburse the Shareholder for any Selling Expenses incurred by Shareholder as a result of Shareholder’s request and the Company’s determination.

               (b)  Selection of Underwriters . Notice of the Company’s intention to register such securities shall designate the proposed underwriters of such offering (which shall be one or more underwriting firms of recognized standing) and shall contain the Company’s agreement, if requested to do so, to arrange for such underwriters to include in such underwriting the Shares that the Company has been so requested to register pursuant to this Section 4.1 , it being understood that the Shareholder shall have no right to select different underwriters for the disposition of his Shares.

               (c)  Priority on Incidental Registrations . If the managing underwriter shall advise the Company in writing (with a copy to the Shareholder if he is requesting sale) that, in such underwriter’s opinion, the number of Shares requested to be included in such Incidental Registration exceeds the number that can be sold in such offering within a price range acceptable to the Company (such writing to state the basis of such opinion and the approximate number of Shares that may be included in such offering without such effect), the Company will be obligated to include in any such registration statement only such limited portion