CODED COMMUNICATIONS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 26, 1996
The Annual Meeting of Shareholders (the "Annual Meeting") of Coded
Communications Corporation (the "Company") will be held at the offices
of the Company, 1939 Palomar Oaks Way, Carlsbad, California on July 26,
1996, at 9:00 a.m., local time, and at any and all adjournments thereof,
for the following purposes:
1. To elect a Board of Directors to serve for the ensuing year until
the next Annual Meeting and until their successors are elected and
qualified.
2. To consider and vote on the following proposals (collectively,
the "Investment Proposals"):
(a) The approval of the Mutual Agreement of Terms and Conditions
dated as of May 1, 1996 (the "Investment Agreement") by and
among the Company, Grupo Information, Satellite and
Advertising, S.A. de C.V. ("ISA"), Renaissance Capital
Parties, II LTD ("RenCap") and the holders of the Company's
$1,800,000 principal amount Bridge Loan (the "Bridge
Lenders");
(b) The amendment of the Certificate of Incorporation to increase
the number of authorized shares of common stock, $.01 par
value (the "Common Stock"), from 50,000,000 shares to
100,000,000 shares, to provide primarily for the issuance of
shares of Common Stock to ISA, RenCap and the Bridge Lenders
pursuant to the Investment Agreement; and
(c) The amendment of the Certificate of Incorporation to
authorize 2,000,000 shares of preferred stock, $.01 par value
(the "Preferred Stock"), to be issued from time to time in
such amounts and designations as authorized by the Board of
Directors.
THE EFFECTIVENESS OF EACH OF THE ABOVE THREE PROPOSALS IS CONTINGENT ON
THE APPROVAL OF THE OTHERS, AND NO ACTION WILL BE TAKEN BY THE COMPANY
UNLESS ALL SUCH MATTERS ARE APPROVED. THEREFORE, A VOTE AGAINST ANY OF
THE PROPOSALS MAY HAVE THE EFFECT OF A VOTE AGAINST THE OTHER PROPOSALS.
3. To ratify the appointment of Coopers & Lybrand as independent
accountants for the current year.
4. To transact such other business as may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
The Board of Directors fixed the close of business on June 3, 1996,
as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Annual Meeting or any adjournments
thereof.
All shareholders are cordially invited to attend the Annual Meeting
in person. Those who cannot attend are urged to complete, sign and date
the accompanying proxy card and return it promptly in the enclosed
envelope. If you return your proxy card you may nevertheless attend the
Annual Meeting and vote your shares in person.
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This Notice of Annual Meeting of Shareholders is given pursuant
to Section 222 of the Delaware Corporation Law and the Notice and the
accompanying Proxy Statement are scheduled to be mailed on or about June
21, 1996. All inquiries with respect to the Annual Meeting, this Notice
of Annual Meeting and Proxy Statement and the enclosed proxy card should
be directed to the Company, Attention: John A. Robinson, Jr., at its
principal executive office, 1939 Palomar Oaks Way, Carlsbad, California
92009.
By Order of the Board of Directors,
/s/ John A. Robinson, Jr.
John A. Robinson Jr.
Chairman of the Board
Carlsbad, California
June 24, 1996
PLEASE USE THE ENCLOSED ENVELOPE TO RETURN YOUR PROXY RETURNING YOUR
PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL MEETING.
YOUR PROMPT RESPONSE WILL HELP YOUR COMPANY ASSURE A QUORUM AND AVOID
ADDITIONAL EXPENSE FOR PROXY SOLICITATIONS.
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TABLE OF CONTENTS
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PAGE
<S> <C>
INTRODUCTION 1
Matters to be Considered 1
Proxies and Voting 2
Solicitation of Proxies 2
SUMMARY OF THE INVESTMENT PROPOSALS 3
Introduction 3
Votes Required 3
Background; Board of Directors Recommendations 4
Summary of Investment Agreement 4
Certain Considerations 6
Nomination of Directors and Election of the Chairman of the Board 8
Capitalization 8
Selected Financial Information 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS 10
ELECTION OF DIRECTORS AND INFORMATION CONCERNING DIRECTORS
AND EXECUTIVE OFFICERS 11
General 11
Interest of Management and Insiders on Material Transactions 13
Information About the Board of Directors and Committees of the Board 13
Executive Compensation and Benefits 13
Summary of Coded Communications 1992 Stock Option Plan (as Amended) 16
Compliance with Section 16(a) of the Securities Exchange Act of 1934. 17
INVESTMENT PROPOSALS 17
Introduction 17
Votes Required 17
Background of and Reasons for the Investment Proposals 18
Board of Directors' Recommendations 19
Source of Funds 21
Recent Price of Common Stock 21
Certain Considerations 21
INVESTMENT AGREEMENT 23
Summary of Investment Agreement 23
Amendments to Certificate of Incorporation 25
Increase in Number of Authorized Shares of Common Stock 26
Authorization of Preferred Stock 26
Employee Stock Option Plan 29
INFORMATION ON ISA AND MANAGEMENT FOLLOWING THE
INVESTMENT PROPOSALS 29
Background 29
Management and Directors 30
INFORMATION CONCERNING THE COMPANY 31
Price Range of Common Stock 31
Selected Financial Information 31
Capitalization 33
RATIFICATION OF SELECTION OF ACCOUNTANTS 33
OTHER MATTERS 33
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 34
1995 ANNUAL REPORT ON FORM 10-KSB 34
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(i)
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CODED COMMUNICATIONS CORPORATION
1939 PALOMAR OAKS WAY, CARLSBAD, CALIFORNIA 92009
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JULY 26, 1996
INTRODUCTION
This Proxy Statement is furnished in connection with the
solicitation of proxies for use at the Annual Meeting of Shareholders
(the "Annual Meeting") of Coded Communications Corporation, a Delaware
corporation (the "Company"), to be held on July 26, 1996, at the offices
of the Company, 1939 Palomar Oaks Way, Carlsbad, California, at 9:00
a.m. local time, and at any adjournments thereof. The accompanying
Proxy is solicited by and on behalf of the Board of Directors of the
Company.
The Notice of Annual Meeting, this Proxy Statement, and the form of
proxy will be mailed to shareholders on or about June 21, 1996. The
shares represented by all properly executed proxies received by the
Board of Directors in time for the Annual Meeting will be voted.
Failure to return a properly executed and dated proxy card or to vote in
person at the Annual Meeting will have the effect of a vote AGAINST
Proposals 2(a), (b) and (c).
MATTERS TO BE CONSIDERED
The matters to be considered and voted on at the Annual Meeting
will be:
1. To elect a Board of Directors to serve for the ensuing year
until the next Annual Meeting and until their successors are
elected and until qualified.
2. To consider and vote on the following proposals (collectively,
the "Investment Proposals"):
(a) The approval of the Mutual Agreement of Terms and
Conditions dated as of May 1, 1996 (the "Investment
Agreement") by and among the Company, Grupo Information,
Satellite and Advertising, S.A.de C.V. ("ISA"),
Renaissance Capital Parties, II LTD ("RenCap") and
the holders of the Company's $1,800,000 principal amount
Bridge Loan (the "Bridge Lenders");
(b) The amendment of the Certificate of Incorporation to
increase the number of authorized shares of common stock,
$.01 par value (the "Common Stock"), from 50,000,000 shares
to 100,000,000 shares to provide primarily for the issuance
of shares of Common Stock to ISA, RenCap and the Bridge
Lenders pursuant to the Investment Agreement; and
(c) The amendment of the Certificate of Incorporation to
authorize 2,000,000 shares of preferred stock, $.01 par
value (the "Preferred Stock"), to be issued from time to
time in such amounts and designations as authorized by the
Board of Directors.
THE EFFECTIVENESS OF EACH OF THE ABOVE THREE PROPOSALS IS CONTINGENT ON
THE APPROVAL OF THE OTHERS, AND NO ACTION WILL BE TAKEN BY THE COMPANY
UNLESS ALL SUCH MATTERS ARE APPROVED. THEREFORE, A VOTE AGAINST ANY OF
THE PROPOSALS MAY HAVE THE EFFECT OF A VOTE AGAINST THE OTHER PROPOSALS.
3. To ratify the appointment of Coopers & Lybrand as independent
accountants for the current year.
4. To transact such other business as may properly come before
the Annual Meeting and any adjournment or adjournments
thereof.
<PAGE>
PROXIES AND VOTING
A Proxy for use at the Annual Meeting is enclosed. Shareholders
will be entitled to one vote per share on all matters presented at the
Annual Meeting. Any shareholder who executes and delivers a Proxy has
the right to revoke it at any time before it is exercised by filing with
the Company a written revocation of the Proxy or a duly executed Proxy
bearing a later date, or by the shareholder personally appearing at the
Annual Meeting and casting a contrary vote. Subject to such revocation,
all shares represented by a properly executed Proxy received in time for
the Annual Meeting will be voted in accordance with the instructions
contained therein, and in the absence of instructions will be voted
"FOR" the nominees for directors named herein; "FOR" the Investment
Proposals; and FOR the ratification of independent accountants. The
Board of Directors does not anticipate any matters being presented at
the Annual Meeting other than as set forth in the accompanying Notice of
Annual Meeting. If, however, any other matters are properly presented
at the Annual Meeting, the Proxy will be voted by the proxyholders in
accordance with the discretionary authority conferred in the Proxy.
At the close of business on June 3, 1996, the record date for
purposes of determining the shareholders entitled to notice of, and to
vote at, the Annual Meeting, there were issued and outstanding
14,758,201 shares of the Company's Common Stock. The required quorum
for the Annual Meeting is a majority of outstanding shares of Common
Stock (7,379,101 shares) represented in person or by proxy. Assuming a
quorum is present at the Annual Meeting, directors will be elected by a
plurality of the votes cast by the shares present and entitled to vote
in the election at the Annual Meeting. The approval of each of the
Investment Proposals, requires an affirmative vote of a majority of the
Company's outstanding Common Stock entitled to vote at the Annual
Meeting (i.e., the affirmative vote of 7,379,101 shares). The
ratification of the appointment of independent accountants requires the
vote of a majority of the shares of Common Stock present and entitled to
vote at the Annual Meeting.
SOLICITATION OF PROXIES
The enclosed Proxy is solicited on behalf of the Board of Directors
of the Company. The cost of this solicitation will be borne by the
Company. This will include the cost of supplying necessary additional
copies of the solicitation material (and, if requested, the annual
report to shareholders) to beneficial owners of shares held of record by
brokers, dealers, banks and voting trusts, and their nominees, and, upon
request, the reasonable expenses of the record holders for completing
the mailing of such materials and reports to such beneficial owners.
The original solicitation will be by mail. Following the original
solicitation, certain individual shareholders may be further solicited
through telephonic or other oral communications from management.
Management may elect to use specially engaged employees or paid
solicitors, and the cost of these services will be borne by the Company.
<PAGE>
SUMMARY OF THE INVESTMENT PROPOSALS
The following is a brief summary of the more detailed information
contained in this Proxy Statement with respect to the Investment
Proposals. Cross references in this Summary are to the captions or
sections of this Proxy Statement unless otherwise indicated.
Shareholders are urged to read this Proxy Statement carefully and
in its entirety.
INTRODUCTION
The shareholders of the Company will be asked at the Annual Meeting
to consider and act upon the Investment Proposals, which contemplate,
among other things, approval of the grant of an option to ISA to acquire
approximately 49,009,000 shares of Common Stock (the "Option"), the
issuance of Series A Preferred Stock to the Bridge Lenders, and the
issuance of Series B Preferred Stock to RenCap. For purposes of
effecting the Investment Proposals, the Board of Directors approved the
execution and delivery by the Company of the Investment Agreement which
provides for the transactions and acts collectively constituting the
Investment Proposals. The Investment Agreement also requires that the
Company amend its Certificate of Incorporation in the form set out
elsewhere in this Proxy Statement (i) to increase the number of
authorized shares of Common Stock to 100,000,000 shares and (ii) to
authorize 2,000,000 shares of Preferred Stock. Upon the exercise of the
Option held by ISA, the Company is required to authorize and issue 8,000
shares of Series A Preferred Stock and 48,000 shares of Series B
Preferred Stock. See "Investment Agreement." Assuming ISA elects to
exercise its Option, the Board of Directors currently anticipates
effecting the transactions contemplated by the Investment Proposals as
soon as practical.
VOTES REQUIRED
Under Delaware Law, the required quorum for the Annual Meeting is a
majority of outstanding shares of the Company's Common Stock represented
in person or by proxy. Assuming a quorum is present, approval of the
Investment Proposals requires the affirmative vote by a majority of the
Company's outstanding Common Stock entitled to vote at the Annual
Meeting. The Investment Agreement does not require the approval of
shareholders; however, the increase in the number of shares of
authorized Common Stock and the authorization of Preferred Stock do
require shareholder approval. See "Introduction - Proxies and Voting".
The effectiveness of each of the three Investment Proposals is
contingent on the approval of the others, and no action will be taken by
the Company to consummate the Investment Agreement unless all of the
three Investment Proposals are approved. Therefore, the non-vote or a
vote against any of the Investment Proposals may have the effect of a
vote against the other related proposals. If a majority of shares
voting at the Annual Meeting vote "FOR" the Investment Proposals, but
the affirmative vote of shareholders falls short of the required
majority of outstanding shares because of, among other things, the non-
vote of brokers, nominees and shareholders, then the Company intends to
pursue an agreement with ISA, RenCap and the Bridge Lenders on terms and
conditions the Board of Directors deems to be in the best interest of
the Company and its shareholders. Any further agreements may be
structured so that shareholder approval will not be required. However,
<PAGE>
if the Investment Proposals are not approved by the requisite number of
shares, there is no assurance that the Board of Directors can negotiate
any new agreement with all parties on terms and conditions acceptable to
all parties.
If the shareholders approve the Investment Proposals, but ISA does
not exercise its Option, the Board will proceed with the amendment to
the Certificate of Incorporation, so that the Certificate will authorize
100,000,000 shares of Common Stock and 2,000,000 shares of Preferred
Stock. Therefore, the Board will have the flexibility to issue
additional shares of Common Stock and Preferred Stock without further
shareholder approval.
BACKGROUND; BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors of the Company believes the Investment
Proposals are fair to, and in the best interests of, the Company and its
shareholders. The Investment Agreement was unanimously approved by the
Board of Directors. In evaluating the Investment Agreement and the
transactions contemplated therein, the Board of Directors considered the
following factors in relative order of importance: (a) ISA's commitment
to place $10,000,000 in orders for the Company's products over an 18-
month period, which is anticipated to have a substantial positive
economic impact on the operations of the Company over the next 12
months; (b) ISA's decision that it would not award any future orders to
the Company unless the transaction was consummated, because of ISA's
belief that the financial instability of the Company and its lack of
liquidity presented a significant risk to ISA and its customers; (c) the
immediate release by ISA of orders totalling approximately $1,000,000
together with a cash payment of $500,000 against the orders; (d) the
agreement of RenCap and the Bridge Lenders to restructure secured debt
of approximately $6,600,000, all of which had been declared in default
or for which events of default existed; (e) the potential impact the
Investment Proposals were anticipated to have on the market value of the
Company's Common Stock; (f) the potential dilution to existing
shareholders' Common Stock ownership interest in the Company and (g) the
change in the Company's Board of Directors and change in control of the
Company in light of ISA's 67% or more ownership interest in the
Company's Common Stock. The Board also carefully considered the
immediate need for capital to finance operations, and alternatives to
the Investment Proposals and the likelihood of such alternatives,
including public or private equity or debt financing, a sale of the
Company's assets, or a possible foreclosure action on the Company's
assets by the secured creditors. The Board and management of the
Company discussed the alternatives with its financial advisors, RenCap
and the Bridge Lenders.
The Board of Directors unanimously concluded that it is in the best
interests of the Company and its shareholders to consummate the
transactions with ISA, RenCap and the Bridge Lenders. The Board of
Directors unanimously recommends that shareholders vote FOR all of the
proposals collectively comprising the Investment Proposals.
See "Investment Proposal - Background of and Reasons for the Investment
Proposals; and "Board of Directors Recommendation."
SUMMARY OF INVESTMENT AGREEMENT
The material provisions of the Investment Agreement between the
Company, ISA, RenCap and the Bridge Lenders are described below. The
following discussion is qualified in its entirety by reference to the
text of the Investment Agreement, a copy of which is attached as Exhibit
A to the proxy statement.
<PAGE>
Pursuant to the Investment Agreement entered into among the
Company, ISA, RenCap, and the Bridge Lenders on May 1, 1996, ISA has the
right, as of the date of the Investment Agreement or pursuant to the
exercise of its Option thereunder, to the following: (i) to receive
approximately 49,009,000 shares of newly issued Common Stock,
representing approximately a 67% Common Stock ownership interest in the
Company (assuming the conversion of Series A and Series B Preferred
Stock into shares of Common Stock); (ii) to be appointed as the
Company's exclusive distributor of mobile data products in Mexico and
Central and South America for 18 months; (iii) to appoint and thereafter
nominate the majority of the members of the Company's Board of
Directors, including the Chairman of the Board; (iv) and to manage and
control the daily operations of the Company. Except for the right to
manage and control the daily operations of the Company and the
appointment as the Company's exclusive distributor of mobile data
products in Mexico, and Central and South America, which were effective
on May 1, 1996, all other rights will become effective at the time ISA
exercises its Option under the Investment Agreement. Since May 1, 1996,
ISA has been primarily involved with assisting the Company to
restructure and reduce its secured and unsecured debt, and ISA is
working with the Company's current management to improve organizational
and operating efficiency. The Option is exercisable, by ISA for a period
of up to twenty days after the date of shareholder approval of the
Investment Proposals, or as extended by ISA. The Investment Agreement
requires stockholder approval on certain matters on or before June 30,
1996. ISA has extended this date to August 15, 1996.
ISA and RenCap have agreed that during the period before the
exercise of the Option by ISA, ISA and RenCap will not commence
foreclosure pursuant to any of their respective security agreements
without the written consent of the other party. ISA and the Bridge
Lenders also have agreed not to commence foreclosure pursuant to any of
their respective security agreements during the period before ISA
exercises its Option without the mutual consent of the other party.
Under the Investment Agreement, the Company received or is to
receive, (i) a deposit from ISA of $500,000 as advance payment for
$1,000,000 in orders for the Company's products; (ii) a deposit from ISA
of $400,000 placed in a third-party escrow, representing a contribution
to the capital of the Company, such deposit to be released to the
Company at the time ISA exercises its Option; (iii) a commitment to loan
the Company $1,000,000 for working capital (the "Working Capital Loan"),
with funding of the loan to be made at the time ISA exercises its
Option; (iv) the agreement of RenCap and the Bridge Lenders to
restructure their secured debt (described below) at the time ISA
exercises its Option; and (v) a commitment from ISA to place $10,000,000
in orders for the Company's products, over an 18-month period commencing
on the date of the Investment Agreement. ISA's commitment to place
$10,000,000 in orders for the Company's products will be secured by ISA
placing in escrow, pursuant to the Investment Agreement, 50% of the
shares of the Company's Common Stock to be issued to ISA. If ISA places
less than $10,000,000 in product orders with the Company, then ISA shall
forfeit 2.4 shares of the Company's Common Stock for each dollar in
orders less than $10,000,000. Further, if ISA does not exercise its
Option and the shareholders approve the transaction, Company has the
right to retain $200,000 of the $400,000 capital contribution. The
Working Capital Loan will be due one year from the date made and will
pay interest at the rate of 6% per year. The Working Capital Loan is
convertible into shares of the Company's Common Stock at a price of $.25
per share, and will be collateralized by a security interest in
substantially all of the assets of the Company, subject to a more senior
priority security interest in the Company's assets collateralizing the
<PAGE>
6% Note to be issued to the Bridge Lenders and any other future working
capital loans from third party lenders. The final terms and conditions
of the Working Capital Loan are subject to the review and approval by
ISA and the Company.
Restructure of RenCap Secured Debt
Upon the exercise of ISA's Option, RenCap will amend its $4,000,000
principal amount, 12% Convertible Debenture, and all interest accrued
and payable thereon, totalling approximately $4,800,000, to a 6%
Debenture ("6% Debenture"), principal payable in seven years, with
interest of 6% per year payable semi-annually. Interest is to be paid
50% in cash and 50% in shares of the Company's Common Stock. The 6%
Debenture is to be collateralized by substantially all of the assets of
the Company; however, this security interest is to be subordinated to
existing senior debt, future working capital debt, the 6% Note and the
Working Capital Loan. The 6% Debenture is convertible into 48,000
shares of Series B Preferred Stock, at such time as (i) the value of the
shares of Common Stock to be issued upon the conversion of Series B
Preferred Stock is equal to 70% or more of the principal amount of the
6% Debentures (approximately $3,380,000 if the principal amount of the
6% Debenture is $4,800,000); or (ii) at such time as the Company's
shareholders' equity shall equal or exceed $1,000,000. In addition,
based on certain increases in the market price of the Company's Common
Stock ranging from a base of $.25 per share to $1.00 per share, as set
out in the Investment Agreement, RenCap may receive up to an additional
2,400,000 shares of Common Stock.
Currently, the original 12% Convertible Debenture is in default due
to the Company's failure to pay interest and principal when due.
ISA has agreed to transfer shares of the Company's Common Stock to
RenCap if the market value of the 7,344,101 shares of Common Stock into
which the Series B Preferred Stock is convertible falls below $3,360,000
on the date three years from the date of the closing of the Investment
Agreement. ISA has further agreed to place into an escrow account
7,344,000 shares of the Company's Common Stock concurrently with the
conversion of the 6% Debenture into the Series B Preferred Stock.
Restructure of Bridge Loan
Upon the exercise of ISA's Option, the Bridge Lenders will cancel
the $1,800,000 principal amount Bridge Loan in exchange for the
following: (i) the payment of $400,000 in cash, (ii) the issuance of a
new $600,000 principal amount promissory note (the "6% Note"), with
interest at 6% per year; and (iii) the issuance of 8,000 shares of
Series A Preferred Stock. In addition, based on certain increases in
the market price of the Company's Common Stock ranging from a base of
$.25 per share to $1.00 per share, as set out in the Investment
Agreement, the Bridge Lenders may receive up to an additional 600,000
shares of Common Stock.
The 6% Note is due in full one year from the date made, and is
collateralized by a security interest in the assets of the Company's
wholly-owned subsidiary Decom Systems, Inc. and Coded Mobile
Communications, Inc. This security interest will be senior to the
security interest collateralizing the Working Capital Loan and the 6%
Debenture. The 6% Note is convertible into shares of the Company's
<PAGE>
Common Stock at a price of $.25 per share. The final terms and
conditions of the 6% note are subject to the review and approval of ISA
and the Company.
The Bridge Loan is currently in default due to the Company's
failure to pay $1,800,00 in principal when due on April 17, 1996.
Change of Control of the Company
Upon the execution of the Investment Agreement, and subject to any
restrictions imposed by the Department of Defense regarding the
management of Decom Systems, Inc., ISA was given the right to manage
and control the daily operations of the Company. As part of its
management control, ISA has the authority to negotiate, and subject to
Board approval where required by law, enter into agreements with
creditors on behalf of the Company.
Following shareholder approval of the Investment Proposals, and the
exercise of the Option by ISA, ISA will hold approximately 49,009,000
shares of the Company's Common Stock, or approximately 77% of the
outstanding shares of Common Stock, excluding the issuance of any shares
of Common Stock upon the conversion of Series A and Series B Preferred
Stock and the exercise of outstanding options to purchase shares of
Common Stock under the Company's 1992 Stock Option Plan. Assuming only
the issuance of 9,744,100 shares of Common Stock on the conversion of
Series A and Series B Preferred Stock, ISA will hold approximately 67%
of the issued and outstanding shares of Common Stock. As a result of
its Common Stock ownership and the organization of the Board of
Directors, ISA will effectively control the Company.
See "Investment Proposals" and "Investment Agreement."
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the Investment
Proposals are in the best interests of the Company and its shareholders,
the approval of the Investment Proposals may have certain potential
adverse effects which shareholders should consider. These
considerations are summarized below.
Composition of Board of Directors Following the Sale. Upon
exercise of its Option, ISA will be entitled to appoint and thereafter
nominate three of the five members of the Board. In addition, the Board
of Directors must elect as the Chairman of the Board the director
designated by ISA. Further, because ISA will own a majority of the
outstanding Common Stock, ISA will have the power, in the absence of any
agreements regarding the composition of the Board or cumulative voting,
to elect all of the directors. RenCap will have the right to nominate
one director or to have one representative attend Board meetings. John
Robinson, currently a member of the Board of Directors and the Company's
CEO and President, is expected to continue as a director of the Company;
however, if Mr. Robinson resigns or is removed from the Board of
Directors, then a committee composed of one representative of ISA and
one representative of RenCap will have the right to nominate Mr.
Robinson's replacement.
Commitment for Product Orders. ISA has committed to place
$10,000,000 in orders for the Company's products from ISA customers in
Mexico and Latin America, over an 18-month period. ISA, however, is not
the end-use customer, and ISA's ability to deliver orders for products
may be impacted by events outside the control of ISA, including economic
<PAGE>
and political conditions in Mexico and Latin America, the availability
of end-user financing for the purchase of equipment, and the
compatibility of the Company's technology with the customer's existing
radio systems. ISA's commitment to place $10,000,000 in orders will be
secured by ISA placing in escrow, pursuant to the Investment Agreement,
50% of the shares of the Company's Common Stock to be issued to ISA. If
ISA places less than $10,000,000 in product orders with the Company,
then ISA will forfeit 2.4 shares of Common Stock for each dollar in
orders less than $10,000,000.
Change of Control of the Company. Because the Investment Agreement
grants to ISA an Option to receive shares that will represent a majority
of the outstanding shares of Common Stock, approval of the Investment
Proposals will prevent the sale of the Company to a buyer other than
ISA, without the approval of ISA.
Conflicts of Interest. The Company, ISA, RenCap and the Bridge
Lenders have agreed to maintain the number of shares of Common Stock
available for grant to employees, including officers and directors,
under the Company's 1992 Stock Option Plan to an amount equal to
approximately 15% of the fully diluted number of outstanding shares of
Common Stock, or approximately the same percentage in effect prior to
the transactions contemplated by the Investment Agreement. All of the
members of the Board of Directors participate in the 1992 Option Plan,
and two officers who also serve as members of the Board of Directors,
John Robinson and Steven Borgardt, have been granted a significant
number of options to purchase shares of Common Stock under the 1992
Stock Option Plan. Because of their participation in the 1992 Stock
Option Plan, Messrs. Robinson and Borgardt are not considered
disinterested with respect to the Investment Proposals. Messrs.
Robinson and Borgardt have informed ISA of their intent to vote the
shares of the Company's Common Stock held by them in favor of the
Investment Proposals. See "Investment Agreement - Employee Stock Option
Plan" and "Security Ownership of Certain Beneficial Owners and
Management." In addition, conflicts could arise in future commercial
relationships between the Company and ISA.
Certain Federal Income Tax Consequences. The Company and its
subsidiaries have a combined Federal net operating loss carryforward
benefit of approximately $30,000,000. The Investment Proposals, for
Federal income tax purposes, will likely result in an "ownership change"
and, as a result, the Company's annual use of Federal net operating loss
carryforward tax benefits could be severely limited. Due to this
limitation, only a portion of the Company's Federal net operating loss
benefits may ultimately be utilized, but then only in the event the
Company has future taxable income. A determination of the annual
limitation of future income tax benefits will be subject to various
factors existing at the date the ownership change is effected. ISA's
organization as a foreign corporation has no impact on the determination
of whether an ownership change has occurred.
Regulatory Matters
The Company's wholly-owned subsidiary, Decom, pursuant to Federal
regulations, has been granted a classified security clearance. In the
event ISA exercises its Option, resulting in ISA's control of the
Company and its Board of Directors, the Company is required to report
the ownership change to the Department of Defense. As a result of ISA's
foreign ownership, control and influence, the Department of Defense will
review the Company's organization, operations and management and,
subject to this review, it may revoke Decom's classified security
clearance. The revocation of Decom's classified security clearance
could have an adverse impact on Decom's future operations. Decom was
not awarded any material contracts requiring classified security
clearance in the last 12 months.
<PAGE>
Pursuant to the regulations generally referred to as the "Exon-
Florio Regulations", the Company and ISA intend to file a joint notice
describing the Investment Proposals with the Committee on Foreign
Investment in the United States. Under the Exon-Florio Regulations, if
there is an investigation and an adverse Presidential finding, the
Investment Proposals may be suspended temporarily or prohibited.
Blank Check Preferred Stock. As part of the proposals comprising
the Investment Proposals, the Company's Certificate of Incorporation
will be amended to authorize the issuance by the Company's Board of
Directors, without the necessity of further notice or authorization by
stockholders, of up to 2,000,000 shares of Preferred Stock. The
Preferred Stock could be used to deter or discourage an unsolicited
attempt by another person or entity to acquire control of the Company.
Pursuant to the Investment Proposals, upon the exercise of the ISA
Option pursuant to the Investment Agreement, the Board of Directors will
authorize 8,000 shares of Series A Preferred Stock and 48,000 shares of
Series B Preferred Stock for issuance by the Company. See "Investment
Agreement - Authorization of Preferred Stock".
See "Investment Proposals - Certain Considerations."
NOMINATION OF DIRECTORS AND ELECTION OF CHAIRMAN OF THE BOARD
ISA will be entitled to appoint and thereafter nominate three of
five members of the Board of Directors; RenCap will be entitled to
nominate one member to the Board, and the Company will nominate John
Robinson to the Board. In addition, the Board of Directors of the
Company have agreed to appoint as Chairman of the Board the director
designated by ISA. See "Information Concerning ISA and Management
Following the Investment Proposals."
The slate of directors nominated by management for election at the
Annual Meeting, consisting of Messrs. Robinson, Borgardt and Kenney, if
elected at the Annual Meeting, will serve as Directors for the ensuing
year. Messrs. Robinson, Borgardt and Kenney constitute all of the
current members of the Board of Directors. If shareholders approve the
Investment Proposals, then Messrs. Borgardt and Kenney will resign from
the Board, and ISA and RenCap will nominate their own representatives.
<PAGE>
CAPITALIZATION
<TABLE>
Set forth below is the consolidated capitalization of the Company
as of March 30, 1996 which is derived from the unaudited consolidated
financial statements of the Company, and the proforma capitalization of
the Company as of that date, adjusted only to give effect to the
Investment Proposal and the assumed conversion of the Series A and
Series B Preferred Stock into shares of Common Stock.
<CAPTION>
March 30, 1996
Actual As Adjusted
(Unaudited)
<S> <C> <C>
Bridge Loan, due April 17, 1996 $ 1,800,000 $ 600,000
Working Capital Loan 0 1,000,000
12% Convertible Debentures,
including accrued interest 4,786,000 0
Creditors' Note 1,383,000 1,383,000
7,969,000 2,983,000
Shareholders' deficit:
Preferred stock, $.01 par value,
2,000,000 shares authorized; no
shares issued and outstanding 0 0
Common Stock, $.01 par value
50,000,000 shares authorized
(100,000,000 as adjusted); issued
and outstanding: 14,688,201 shares
73,441,301 shares as adjusted) 147,000 734,000
Additional paid in capital 23,346,000 28,745,000
Retained deficit (31,102,000) (31,102,000
Total shareholders' deficit (7,609,000) (1,623,000)
Total capitalization $ 360,000 $ 1,360,000
</TABLE>
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
The consolidated statement of loss data for the fiscal years ended
December 31, 1994 and 1995, and the three month periods ended April 1,
1995 and March 30, 1996, and the consolidated balance sheet data at
December 31, 1994 and 1995, and April 1, 1995 and March 30, 1996 are
derived from audited and unaudited financial statements not included in
this Proxy Statement. The Company believes that the unaudited
information at April 1, 1995 and March 30, 1996, contained all
adjustments, consisting of only normal recurring accruals, necessary for
the fair presentation of the financial position at such dates and the
results of operations for such periods. The results of operations for
the three months ended March 30, 1996, are not necessarily indicative of
the results to be expected for the full year.
<CAPTION>
(Amounts in Thousands Except per Share)
Three Months Ended
Year Ended December 31, April 1, March 30,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Consolidated Statement of Loss:
Net sales $ 14,291 $ 10,171 $ 2,224 $ 12,696
Gross margin 3,803 2,788 (2) 1,082
Operating expenses 12,859 4,476 1,517 980
Restructuring expenses 3,151 0 0 0
Operating income (loss) (12,207) (1,688 (1,519) 102
Extraordinary item 0 1,367 0 52
Net loss $(12,929) $ (1,117) $(1,723) $ (55)
Net loss per share $ (1.07) $ (.07) $ (.14) $ (.01)
Average shares outstanding 12,127 14,244 12,568 14,688
<CAPTION>
December 31, April 1, March 30,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet:
Total assets $ 8,175 $ 5,821 $ 6,309 $ 5,451
Current and long-term debt 6,051 7,195 5,920 7,183
Shareholders' deficit (7,614) (7,571) (9,318) (7,609)
Working capital (deficit) $ (9,232) $ (7,648) $(10,776) $ (7,636)
</TABLE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information with respect to
(i) each person who, as of May 15, 1996, is known to the Company to be
the beneficial owner of more than 5% of any class of its common stock,
(ii) each director of the Company and (iii) all directors and executive
officers as a group. The table does not reflect the change in
beneficial ownership that will occur pursuant to the terms of the
Investment Agreement.
<CAPTION>
Common Shares Percent of
Name and Address (7) Position With Company Beneficially Owned (1) Class (1)
Officers and directors:
<S> <C> <C> <C>
John A. Robinson, Jr.(2) Chairman of the Board
and CEO 662,185 4.4%
Steven E. Borgardt (2) Vice President Finance
and Director 296,573 2.0%
Mahrookh Driver (6) Director 100,000 *
James W. Kenney (3) Director 116,665 *
All directors and executive 1,550,621 9.5%
officers as a group (6 persons)(4)
Other Shareholders:
Renaissance Capital Partners II, LTD. 4,666,667 24.0%
8080 North Central Expressway, Suite 210/LB59
Dallas, Texas 75206 (5)
* Less than 1%
<FN>
<FN1>
(1) Includes and reflects the ownership by the named director of
shares of common stock subject to options exercisable
within 60 days of May 15, 1996.
<FN2>
(2) Includes options to purchase 240,000 and 131,600 common shares for
Messrs. Robinson and Borgardt, respectively.
<FN3>
(3) Includes options to purchase 16,665 common shares for Mr. Kenney.
<FN4>
(4) Includes options to purchase 615,731 common shares.
<FN5>
(5) Includes 2,666,667 common shares issuable upon the conversion of
$4,000,000 principal amount 12% Convertible Debentures and warrants
exercisable to purchase 2,000,000 shares of common stock.
<FN6>
(6) Ms. Driver resigned from the Board of Directors in June 1996.
<FN7>
(7) For purposes of this Proxy Statement, the address of Messrs. Borgardt,
Robinson and Kenney is 1939 Palomar Oaks Way, Carlsbad, CA 92009.
</FN>
</TABLE>
<PAGE>
ELECTION OF DIRECTORS AND INFORMATION CONCERNING
DIRECTORS AND EXECUTIVE OFFICERS
(PROPOSAL 1)
GENERAL
The directors and executive officers of the Company are elected
annually. The Bylaws of the Company provide for a Board of Directors of
not less than three nor more than seven, with the exact number to be
fixed from time to time by the Board of Directors. At the present time,
the number of directors is fixed at three. The Board will revise the By-
laws to increase the number of directors to five if shareholders approve
the Investment Proposals and ISA exercises its Option. The nominees
receiving the highest number of affirmative votes of the shares present
in person or represented by proxy and entitled to vote for them, are
elected as directors. Only votes cast for a nominee will be counted in
determining whether that nominee has been elected as director.
Shareholders may withhold authority to vote for the entire slate
nominated or, by writing the name of an individual nominee in the space
provided on the proxy card, withhold the authority to vote for any
individual nominee. Abstentions, broker non-votes, and instructions on
the accompanying proxy card to withhold authority to vote for one or
more of the nominees will result in such nominee receiving fewer votes,
but will not otherwise affect the outcome of the vote. At this time,
three individuals have been nominated by the Board for election as
directors at the Annual Meeting. The Board intends to add directors in
the future if qualified individuals are identified and agree to serve as
directors. Should any nominee become unavailable to serve as a
director, the proxies will be voted for such other person as the
proxyholder may in its discretion determine. To the best of the
Company's knowledge, all nominees are and will be available to serve.
SHARES REPRESENTED BY THE ENCLOSED PROXY WILL BE VOTED "FOR" THE
ELECTION OF THE NOMINEES, UNLESS AUTHORITY TO VOTE FOR ONE OR MORE
NOMINEES IS WITHHELD.
The Company knows of no arrangement or understanding between any
director or nominee pursuant to which he was or is to be elected as a
director or nominee, except that Renaissance Capital Partner II, LTD
("RenCap"), pursuant to the 12% Convertible Debenture Loan Agreement,
may appoint one member of the Company's Board of Directors. Mr. Kenney
was appointed to the Board of Directors by RenCap in January 1993.
Set out below are the names of, and certain information with
respect to, the directors all of whom are also nominees, and officers of
the Company. If the Investment Proposals are approved by shareholders
and the transactions contemplated by the Investment Agreement among ISA,
RenCap and the Bridge Lenders are consummated, then only John A.
Robinson, Jr. will continue as a director of the Company, and all of the
other nominees will resign at the time their successors are qualified
and appointed by ISA and RenCap. See "Investment Proposals" and
"Investment Agreement."
<PAGE>
Further, if the Investment Proposals are approved by shareholders
and the transactions contemplated thereby are consummated, ISA may
elect, at its option, to retain or replace the executive officers of the
Company. At the present time, ISA has indicated that it expects to
retain all executive officers in positions of responsibility. All
executive officers have in effect executive employment agreements or
letter arrangements which provide severance benefits in the event the
officer's employment with the Company is terminated; at the present
time, all of the Company's executive officers have expressed their
intent to continue their employment with the Company. See "Executive
Compensation and Benefits - Employment Agreements."
<TABLE>
<CAPTION>
Name Age Position Held With Company
Directors and Nominees:
<S> <C> <C>
Steven E. Borgardt 43 Vice President Finance and
Director
James W. Kenney (1)(2)(3) 54 Director
John A. Robinson, Jr.(1) 61 Chairman of the Board, President
and Chief Executive Officer
Officers:
Richard K. Carrine 53 Vice President Manufacturing
Edward Sharp 54 Vice President Business
Development, Mobile Data
John Wiggins 45 Chief Operating Officer
<FN>
<FN1>
(1) Member of the Compensation Committee
<FN2>
(2) Member of the Audit Committee
<FN3>
(3) Member of the Stock Option Committee
</FN>
</TABLE>
Steven E. Borgardt was appointed the Company's Vice President
Finance and Chief Financial Officer in August 1993, and was elected a
Director on September 13, 1995. Since September 1981, he has served in
the capacities of Vice President Finance or Chief Financial Officer of
the Company's wholly-owned subsidiary, Decom Systems, Inc. ("Decom").
Mr. Borgardt holds a Bachelor of Science degree in Accounting from San
Diego State University and he is a Certified Public Accountant in
California.
James W. Kenney was appointed to the Board of Directors in January
1993. Mr. Kenney has served as executive vice president of San Jacinto
Securities, an investment and brokerage firm in Dallas, Texas, since
October 1993. From February 1992 until October 1993, Mr. Kenney was
associated with Renaissance Capital Group, Inc. as a Vice President,
Director, and consultant. Prior to joining Renaissance Capital Group,
Inc., Mr. Kenney served as senior vice president for Capital
Institutional Services, Inc., and prior to that for more than 5 years,
in executive positions with major southwest regional brokerage firms.
Mr. Kenney holds a Bachelor of Arts degree in Economics from the
University of Colorado. Mr. Kenney serves as a director of the
following public companies: AmeriShop Corp.; Scientific Measurement
Systems, Inc.; Technol Medical Products, Inc.; Consolidated Health Care
Associates, Inc.; Industrial Holdings, Inc.; Prism Group, Inc.; Appoint
Technologies, Inc. and Tricom Corporation.
John A. Robinson, Jr. has served as the Company's Chairman of the
Board of Directors and in varying capacities as an officer since
February 1987. On March 13, 1995, Mr. Robinson was appointed to the
additional positions of President and Chief Executive Officer. Mr.
Robinson is also a Director, President, and Chief Executive Officer of
the Company's wholly-owned subsidiary, Decom Systems, Inc., and has
served in such capacities since 1976. Mr. Robinson holds a BSEE degree
from Bridgeport Engineering Institute.
Richard K. Carrine was appointed the Company's Vice President
Manufacturing in August 1993. Prior to August 1993, he served as
Decom's Vice President Manufacturing and Operations and in similar
positions since September 1976.
Edward Sharp joined the Company in December 1995 as Vice President
Business Development, Mobile Data. Mr. Sharp has over ten years of
experience in management and sales in the wireless data communications
industry. From 1990 to December 1995, Mr. Sharp served as Executive
Vice President, Marketing and Sales, for RAM Mobile Data USA-UK. Prior
to joining RAM Mobile Data, Mr. Sharp was the Director of Sales for
Motorola MDI. Mr. Sharp holds a Bachelors of Science degree in Marketing
and Management from St. Peter's University.
John Wiggins joined the Company in April 1994 and was appointed
Vice President Operations, Mobile Data, in August 1995. Mr. Wiggins has
over 12 years experience in sales and software applications support of
mobile data communications systems. Prior to joining Coded in 1994 as
the General Manager of Coded Europe, Mr. Wiggins served in various sales
and engineering management positions over a twelve year period with
Motorola Inc., most recently as Senior Systems Manager, Southeast
Region. Mr. Wiggins holds a Bachelors of Science degree in Computer
Science from Knightsbridge University in the U.K. In June 1996, Mr.
Wiggins was appointed the Company's Chief Operating Officer.
INTEREST OF MANAGEMENT AND INSIDERS IN MATERIAL TRANSACTIONS
None of the directors or officers of the Company, nor any person
who beneficially owns, directly or indirectly, shares carrying more than
10% of the voting rights attached to all outstanding shares of common
stock, nor any associate or affiliate of the foregoing persons has any
material interest, direct or indirect, in any transaction since the
commencement of the Company's last completed fiscal year or in any
proposed transaction which, in either case, has or will materially
affect the Company, except as disclosed in this Proxy Statement.
There are no family relationships between any of the directors or
executive officers of the Company.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
In 1995, the Board of Directors held 4 meetings. No director
attended less than 75% of such meetings. In addition to regular and
special meetings of the Board of Directors, members of the Board
participated in informal weekly telephonic meetings throughout 1995. The
independent directors of the Company in 1995, Mahrookh Driver and James
Kenney, each received 100,000 unregistered shares of the Company's
common stock, valued at $26,000, for services in 1995. Ms. Driver
resigned as a director in June 1996. Independent directors are entitled
to receive an annual grant of options to purchase shares of common stock
under the Company's 1992 Option Plan. Directors who are also officers
of the Company or its subsidiaries receive no additional compensation
for their services as directors. All directors are reimbursed for their
expenses incurred to attend meetings.
<PAGE>
The standing committees of the Board of Directors are the
Compensation Committee, Audit Committee and Stock Option Committee. The
principal duties of the Compensation Committee are to determine and
review all compensation of directors and officers of the Company, and to
report to the Board of Directors of the Company. The principal duties
of the Audit Committee are to advise and assist the Board of Directors
in evaluating the performance of the Company's independent auditors,
including the scope and adequacy of the auditor's examination, and to
review with the auditors the accuracy and completeness of the Company's
financial statements and procedures. The principal duty of the Stock
Option Committee is to determine grants of stock options under the
Company's option plans.
The Compensation Committee and the Audit Committee held no meetings
in 1995. The Stock Option Committee held no formal meetings in 1995,
however, options to purchase shares of common stock under the 1992
Option Plan were granted by the Stock Option Committee on several
occasions by unanimous written consent.
EXECUTIVE COMPENSATION AND BENEFITS
The compensation and benefits program of the Company is designed to
attract, retain, and motivate employees to operate and manage the
Company for the best interests of its shareholders.
Executive compensation is designed to provide incentives for those
senior members of management who are responsible for the Company's goals
and achievements. The compensation policy calls for base salaries, with
the opportunity for bonuses to reward outstanding performance, and a
stock option program.
<TABLE>
Summary Compensation Table
The following table and notes show the compensation provided to the
Chief Executive Officer and the other executive officers, who served as
such at the end of 1995, and whose annual compensation exceeded
$100,000.
<CAPTION>
Long-Term
Compensation
Annual Compensation Stock Option All Other
Name and Position Year Salary ($) Bonus ($) Other($)(1) Shares (#)
Compensation ($)
<S> <C> <C> <C> <C> <C> <C>
John A. Robinson, Jr. (2) 1995 128,842 0 0 430,000 0
Chief Executive Officer 1994 136,177 0 0 0 0
and President 1993 132,127 16,506 0 50,000 0
Maurice Nieman (3) 1995 114,692 0 0 350,000(3) 0
Vice President Marketing
and Sales Mobile 1994 119,419 0 0 0 100,000(4)
1993 105,000 0 0 50,000(3) 0
<FN>
<FN1>
(1) In the interest of attracting and retaining qualified personnel,
the Company provides executive officers with certain other
benefits, which may include relocation allowances, automobile
allowances, insurance and other benefits. Unless otherwise
noted, the cost of providing such personnel benefits did not
exceed, as to any individual named above, the lesser of $25,000
or 10% of the total annual salary reported for the executive
officer.
<PAGE>
<FN2>
(2) Includes compensation in 1995 as Chief Operating Officer through
March 3, 1995 and as Chief Executive Officer thereafter.
Includes compensation for services as the Company's Chief
Operating Officer and Decom's Chief Executive Officer in 1994
and 1993.
<FN3>
(3) Mr. Nieman's employment was terminated in February 1996. All
options expired unexercised in May 1996.
<FN4>
(4) Loan made for relocation and financing of a new personal
residence in San Diego, California.
</FN>
</TABLE>
Employment Agreements
Messrs. Robinson, Carrine and Borgardt entered into employment
agreements with the Company in 1993 providing initial base salaries of
$140,000, $100,000 and $90,000, respectively. The term of the
agreement is three years for Mr. Robinson and two years for Messrs.
Carrine and Borgardt. In 1995, the employment agreements with Messrs.
Carrine and Borgardt were extended for a one year period. The
agreements provide each officer an opportunity to earn an annual
incentive bonus of 25% of base salary, under a plan to be approved
annually by the Board of Directors. No incentive bonuses were paid to
executive officers in 1995. If the agreements are terminated by the
Company, Mr. Robinson is to receive 1.25 times his then annual salary,
payable over a period of 12 months; and Messrs. Carrine and Borgardt,
are to receive .75 times their then annual salary. If the agreement is
terminated by the officer, the officer will receive up to 100% of his
then current base salary in the case of Mr. Robinson, and 75% of his
then current base salary in the case of Messrs. Carrine and Borgardt,
as a severance benefit. In the event of termination or resignation
following a change of control in the ownership of the Company, as that
term is defined in the agreements, an officer can receive the greater
of his then current salary over the remaining employment contract term
or, in the case of Mr. Robinson, 1.25 times his current salary; and in
the case of Messrs. Carrine and Borgardt, an amount equal to their
annual salary. The agreements also provide, on a case by case basis,
additional benefits such as paid life insurance and automobile
allowances or the use of a Company-provided automobile. The value of
these benefits, for any one officer, does not exceed 10% of his annual
base salary. The Company expects to enter into new employment
agreements in 1996 with Messrs. Robinson, Carrine, Borgardt and other
executive officers, under terms and conditions to be negotiated between
the Company, ISA and the executive officers.
In 1995, all officers of the Company voluntarily accepted salary
reductions ranging from 5% to 10% of their respective salaries.
<PAGE>
<TABLE>
Stock Options Granted During Fiscal Year
The following table shows certain information concerning stock
options granted during the year ended December 31, 1995, to the named
executive officers. Stock option grants are normally considered for
executive officers every year. There were no grants of stock options
to any named executive officer in 1994.
<CAPTION>
1995 Stock Option Grants
% of Total
Options Options Granted Exercise Expiration
Name Granted to Employees Price Date
<S> <C> <C> <C> <C>
John A. Robinson, Jr. 215,000 6.7% $.20 2000
John A. Robinson, Jr. 215,000 6.7% $.50 2000
Maurice Nieman 175,000 5.0% $.20 2000
Maurice Nieman 175,000 5.0% $.50 2000
</TABLE>
In January 1996, options previously granted to certain employees
and officers, including Messrs. Robinson and Borgardt, were cancelled
and reissued at a new exercise price. Options to purchase 215,000 and
175,000 shares of the Company's Common Stock granted in 1995 under the
1992 Option Plan to Messrs. Robinson and Borgardt, respectively, at an
exercise price of $.50 were cancelled and new options for the same
number of shares of Common Stock were granted at a price of $.25 per
share. The exercise price of the new options were granted at the then
current market price of the Company's Common Stock, as quoted by the
NASD Electronic Bulletin Board.
Stock Options Exercised During the Fiscal Year and Year-End Value of
Unexercised Options
<TABLE>
The following table sets forth information about stock options
held by the Company's named executive officers individually, as of
December 31, 1995.
<CAPTION>
Aggregated Option Exercises in Last
Fiscal Year and FY-End Option Values
Value of Unexercised
Shares Acquired Value Number of In-the Money
on Realized Unexercised Options Options($)(2)
Name Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John A. Robinson, Jr. 0 0 56,250 430,000 0 0
Maurice Nieman 0 0 50,000 350,000 0 0
<FN>
<FN1>
(1) Calculated by taking the difference between the fair market value
of common stock at the time of exercise and the exercise price of
the option.
<FN2>
(2) Calculated by taking the difference between the fair market value
of common stock at December 29, 1995 and the exercise price of the
options.
</FN>
</TABLE>
<PAGE>
SUMMARY OF CODED COMMUNICATIONS 1992 STOCK OPTION PLAN (AS AMENDED)
A summary of the material provisions of the 1992 Option Plan (as
amended) is set forth below.
The purpose of the 1992 Option Plan is to (i) enable the Company
and its subsidiaries to recruit and retain capable employees in a highly
competitive labor market for the successful operation of its businesses,
and (ii) provide an additional incentive to non-employee directors,
officers and other eligible key employees upon whom rest major
responsibilities for the successful operation and management of the
Company and its subsidiaries.
In June 1992, shareholders approved the 1992 Option Plan. The 1992
Option Plan provides for the grant of incentive stock options, as
defined in Section A of the Internal Revenue Code of 1986, and the grant
of non-qualified options. No incentive stock options have been granted
to date. Under the 1992 Option Plan, as amended, options may be granted
to key employees, officers and directors to purchase an aggregate of
3,500,000 shares of common stock.
The 1992 Option Plan is administered by a committee of
"disinterested directors" (the "Committee") as defined in Section 16 of
the Securities Exchange Act of 1934. The Committee, comprised of
Mahrookh Driver and James Kenney in 1995, is authorized to determine the
grant of options to eligible employees, the number of shares to be
covered by the option, the exercise date of each option, and the
exercise price of each option which, in the case of an incentive stock
option can be no less than fair market value at the date of grant, and
in the case of a non-qualified stock option can be no less than 75% of
fair market value at the date of grant.
Options may be granted under the 1992 Option Plan by the Committee
to key full or part-time employees of the Company and its subsidiaries.
Disinterested directors who are not also employees automatically receive
options covering a specified number of shares on their election or re-
election to the Board. Disinterested directors are granted options
under the 1992 Option Plan as follows: (i) on the date when a
disinterested director first becomes a member of the Board of Directors,
he or she will receive a one time grant of a non-qualified option
covering 50,000 common shares, which will become exercisable for 20,000
shares 6 months after the date of grant and 15,000 shares in 2 annual
installments beginning the first anniversary following the date of grant
and (ii) following re-election to the Board of Directors at the annual
meeting of shareholders, a grant of an option covering 50,000 common
shares which is exercisable in 3 annual installments of approximately
16,666 shares beginning the first anniversary following the date of
grant. All grants of options to disinterested directors will be at an
exercise price of not less than 85% of fair market value at the date of
grant.
All options granted under the 1992 Option Plan to officers and
other eligible key employees may be exercisable only at a price which is
not less than 75% of the fair market value of the stock on the date of
grant. Payment of the exercise price may be made in cash, by certified
check or in property (including other securities of the Company) and may
be subject to a deferred payment arrangement that is a "cashless
exercise" arrangement which meets the requirements of Federal Reserve
Board Regulation T. Taxes required to be withheld at the time of
exercise may be paid in cash, by certified check, by the withholding of
shares deliverable pursuant to the exercise, or by the delivery of
previously acquired shares. In addition, the Board may authorize loans
and loan guarantees, as the case may be, for the exercise price and
taxes due by reason of exercise of options granted under the 1992 Option
Plan.
If an optionee's employment terminates, the exercisable portion of
the option remains exercisable for a fixed period of 3 months (12 months
where employment has terminated because of death or disability). In no
case may an option be exercised after the expiration of the option term.
An option may be exercised by the optionee or his guardian or legal
representative.
The Committee has the authority to "reprice options" (i.e. to grant
new options in exchange for the cancellation of outstanding options).
Options granted to employees generally are made cumulatively
exercisable in installments, although the actual dates of exercise may
be modified by the Committee so long as the option holder's interest is
not thereby diminished without the option holder's consent. Options are
exercisable no sooner than six months after grant, or exercisable only
under such conditions as the Committee may establish, such as if the
optionee remains employed until a specified date, if specified
performance goals have been met, or in the event of a change of control.
Unless otherwise terminated by the Board of Directors, the 1992
Option Plan will terminate on March 25, 2002. The Board of Directors
may amend or terminate the 1992 Option Plan at any time; however, once
granted, no option may be terminated and no amendment of the 1992 Stock
Option Plan may adversely affect any previously granted options without
the consent of the option holder. Any material amendment to the 1992
Stock Option Plan is subject to approval of shareholders to the extent
required by applicable laws and regulations.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's
directors, officers and any person holding more than 10% of outstanding
shares of Common Stock are required to report their initial ownership of
Common Stock and any subsequent changes in ownership to the Securities
and Exchange Commission. Specific due dates for these reports have
been established, and the Company is required to disclose in this proxy
statement any failure to file these reports on a timely basis. Based
solely on a review of the copies of such forms furnished to the Company,
the Company believes that from January 1, 1995 through December 31,
1995, its Directors, Officers and greater than 10% beneficial owners
complied with the Section 16(a) filing requirements.
<PAGE>
INVESTMENT PROPOSALS
(Proposals 2(a), (b) and (c))
INTRODUCTION
The shareholders of the Company will be asked at the Annual Meeting
to consider and act upon the Investment Proposals, which contemplate,
among other things, approval of the grant of an Option to ISA to acquire
approximately 49,009,000 shares of Common Stock, the issuance of Series
A Preferred Stock to the Bridge Lenders, and the issuance of Series B
Preferred Stock to RenCap. For purposes of effecting the Investment
Proposals, the Board of Directors approved the execution and delivery by
the Company of the Investment Agreement which provides for the
transactions and acts collectively constituting the Investment
Proposals. The Investment Agreement also requires that the Company amend
its Certificate of Incorporation in the form set out elsewhere in this
Proxy Statement, (i) to increase the number of authorized shares of
Common Stock to 100,000,000 shares and (ii) to authorize 2,000,000
shares of preferred stock. Upon the exercise of the Option held by ISA,
the Company is required to authorize and issue 8,000 shares of Series A
Preferred Stock and 48,000 shares of Series B Preferred Stock. See
"Investment Agreement." Assuming ISA elects to exercise its Option, the
Board of Directors currently anticipates effecting the transactions
contemplated by the Investment Proposals as soon as practical.
VOTES REQUIRED
Under Delaware Law, the required quorum for the Annual Meeting is a
majority of outstanding shares of the Company's Common Stock represented
in person or by proxy. Assuming a quorum is present, approval of the
Investment Proposals requires the affirmative vote by a majority of the
Company's outstanding Common Stock entitled to vote at the Annual
Meeting. The Investment Agreement does not require the approval of
shareholders; however, the increase in the number of shares of
authorized Common Stock and the authorization of Preferred Stock do
require shareholder approval. See "Introduction - Proxies and Voting".
The effectiveness of each of the three Investment Proposals is
contingent on the approval of the others, and no action will be taken by
the Company to consummate the Investment Agreement unless all of the
three Investment Proposals are approved. Therefore, the non-vote or a
vote against any of the Investment Proposals may have the effect of a
vote against the other related proposals. If a majority of shares
voting at the Annual Meeting vote "FOR" the Investment Proposals, but
the affirmative vote of shareholders falls short of the required
majority of outstanding shares because of, among other things, the non-
vote of brokers, nominees and shareholders, then the Company intends to
pursue an agreement with ISA, RenCap and the Bridge Lenders on terms and
conditions the Board of Directors deems to be in the best interest of
the Company and its shareholders. Any further agreements may be
structured so that shareholder approval will not be required. However,
if the Investment Proposals are not approved by the requisite number of
shares, there is no assurance that the Board of Directors can negotiate
any new agreement with all parties on terms and conditions acceptable to
all parties.
If the shareholders approve the Investment Proposals, but ISA does
not exercise its Option, the Board will proceed with the amendment to
the Certificate of Incorporation, so that the Certificate will authorize
100,000,000 shares of Common Stock and 2,000,000 shares of Preferred
Stock. Therefore, the Board will have the flexibility to issue
additional shares of Common Stock and Preferred Stock without further
shareholder approval.
<PAGE>
BACKGROUND OF AND REASONS FOR THE INVESTMENT PROPOSALS
The Company, on a consolidated basis, has operated at a net loss
since inception in 1987. The net losses accelerated in 1993 and 1994 as
the Company, under the direction of a prior CEO, aggressively expanded
its marketing and sales efforts in Europe, Australia, Japan, Mexico and
the Philippines. In addition, research and development programs were
compressed and accelerated, and the management organization was expanded
to support an international business and projections of significantly
increased revenues. When orders for mobile data products from
international markets failed to materialize, net losses increased
dramatically; deficits in working capital and net worth resulted; the
Company could not meet the repayment terms of its secured debt and trade
credit, and the principal holder of the Company's secured debt, RenCap,
declared its secured debt in default and the payment of principal and
interest accelerated.
In the first quarter of 1995, management of the Company took action
to restructure its business and management organization. These actions
included the close of the Company's VSAT satellite earthstation product
line and its mobile data international sales organization. In addition,
the Company's CEO resigned and its Chairman of the Board and Chief
Operating Officer, John Robinson, assumed the additional
responsibilities as CEO and President. As a result of the restructuring
and management reorganization, a number of management positions were
eliminated to streamline operations, personnel reductions implemented,
and operating expenses were reduced by approximately $8,400,000 in 1995
compared to the prior year. Recently, primarily as a result of the
actions taken by management to restructure the Company, the Company
reported three consecutive quarters of income from operations (before
interest and income taxes), and continued improvement in operating
results compared to the prior year.
The Company's net losses in 1993 and 1994 adversely impacted the
Company's financial position by decreasing working capital and
increasing debt. As a result of severe liquidity problems, the Company
was unable to meet its financial obligations in a timely manner, with
trade debt increasing to nearly $6,000,000 and secured debt, including
accrued and unpaid interest, increasing to approximately $5,300,000. In
March 1995, management of the Company met with RenCap to discuss several
alternative financial strategies, including foreclosure on the assets of
the Company by RenCap, reorganization under Chapter 11 of the Federal
Bankruptcy Code and an informal voluntary reorganization of the
Company's unsecured creditor or claims outside of the protection of
bankruptcy. At the meeting in March 1995 with the Company's management,
RenCap agreed to allow the Company to attempt an informal voluntary
reorganization of its unsecured creditors, and further agreed to
subordinate its security interest in the Company's assets to the senior
security interest of a new $1,800,000 Bridge Loan. RenCap also agreed
to participate as one of the lenders in the Bridge Loan, providing
$1,000,000 out of a total of $1,800,000 in Bridge Loan financing.
<PAGE>
In 1995, following the restructuring, the Company negotiated the
conversion of $990,000 in debt into shares of Common Stock at a
negotiated price of $.75 per share, and negotiated settlements with
unsecured creditors with claims in excess of $3,200,000 on terms
favorable to the Company. In October 1995, following the Company's
first-ever quarterly operating profit (before interest and income tax
expense), for the quarter ended September 30, 1995, and following the
implementation of the settlement plan with unsecured creditors,
management explored alternatives to strengthen the Company's financial
position and liquidity and help ensure its short-term and long-term
viability. The Company required additional financing to support its
operations, and to repay the $1,800,000 Bridge Loan which was due in
April 1996, and to pay past due interest and principal owed to RenCap on
the 12%
Convertible Debenture. In connection with these efforts, the Company
considered various alternatives in order to finance the Company's
operations and maximize shareholder value, including the possible
issuance of additional Common Stock or other securities in the private
market and the sale of all or part of the Company. The Company
contacted potential investors that it believed might have an interest in
an investment in the Company, and engaged the investment banking firm of
W.B. McKee Securities and other financial advisors to assist management
in obtaining the financing necessary to support the Company's operations
and meet its debt obligations. The Company also met with RenCap on a
continuous basis to monitor the financial progress of the Company and
its short-term and long-term liquidity.
The Company and its advisors contacted more than ten prospective
purchasers or investors. The Company and its financial advisors
provided each prospective investor with financial information and a
written overview of the Company and responded to all other due diligence
requests. The Company did not receive any written investment or
purchase offers from any party. A verbal offer of an expression of
interest was made by a potential equity investor; however, this informal
offer was rejected by RenCap as unacceptable. The Company has received
a proposal from a third-party financing source for a one year,
$1,500,000 working capital line of credit, to be secured by a senior
security interest in substantially all of the Company's assets.
Discussions with this third-party lender are continuing, subject to
completion of the third party lender's due diligence and the agreement
of RenCap and the Bridge Lenders to subordinate their security interest
in the Company's assets to a more senior priority security interest of
the third-party lender. The third-party lender has informed the Company
that it's proposal for a working capital line of credit is unaffected by
the transaction contemplated by the Investment Proposals, but that ISA
may be required to guarantee the credit line.
In March 1996, management first contacted ISA to determine its
possible interest in a transaction with or an investment in the Company.
At that time, ISA was the Company's only distributor of mobile data
products in Mexico, and substantial marketing and selling activities had
been conducted in Mexico by ISA and the Company. In March 1996, ISA
informed the Company that it did not have an interest in an investment
in the Company as proposed, and ISA expressed its concern that the weak
financial condition of the Company could jeopardize future business
opportunities in Mexico. In April 1996, ISA met directly with the
Company's principal secured creditor, RenCap, to discuss the financial
condition of the Company and ISA's decision not to pursue new business
opportunities with Coded in Mexico, unless ISA could acquire a
controlling interest in the Company and its senior secured creditors
agreed to restructure their debt on terms acceptable to ISA.
<PAGE>
In April 1996, RenCap informed the Company that it had met on at
least two occasions with the representatives of ISA to discuss a
proposal by ISA to acquire a controlling interest in the Company and
restructure existing secured debt. At that time, RenCap informed the
Company of the terms and conditions of ISA's proposal. Through the end
of April 1996, there were intense negotiations of the terms and
conditions of the Investment Agreement between RenCap, the Bridge
Lenders and ISA. On April 30, 1996, following the approval of the
Investment Agreement by RenCap and the Bridge Lenders, the Board of
Directors approved the execution of the Investment Agreement. The
Company's financial advisors did not render any formal opinion on the
proposed Investment Agreement, and the financial advisors were not a
party to the negotiations of the Investment Agreement. On May 2, 1996,
the Company publicly announced the general terms and conditions of the
Investment Agreement.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors of the Company believes the Investment
Proposals are fair to, and in the best interests of, the Company and its
shareholders. The Investment Agreement was unanimously approved by the
Board of Directors. In evaluating the Investment Agreement and the
transactions contemplated therein, the Board of Directors considered the
following factors in relative order of importance: (a) ISA's commitment
to place $10,000,000 in orders for the Company's products over an 18-
month period, which is anticipated to have a substantial positive
economic impact on the operations of the Company over the next 12
months; (b) ISA's decision that it would not award any future orders to
the Company unless the transaction was consummated, because of ISA's
belief that the financial instability of the Company and its lack of
liquidity presented a significant risk to ISA and its customers; (c) the
immediate release by ISA of orders totalling approximately $1,000,000
together with a cash payment of $500,000 against the orders; (d) the
agreement of RenCap and the Bridge Lenders to restructure secured debt
of approximately $6,600,000, all of which had been declared in default
or for which events of default existed; (e) the potential impact the
Investment Proposals were anticipated to have on the market value of the
Company's Common Stock; (f) the potential dilution to existing
shareholders' Common Stock ownership interest in the Company and (g) the
change in the Company's Board of Directors and change in control of the
Company in light of ISA's 67% or more ownership interest in the
Company's Common Stock. The Board also carefully considered the
immediate need for capital to finance operations, and alternatives to
the Investment Proposals and the likelihood of such alternatives,
including public or private equity or debt financing, a sale of the
Company's assets or a possible foreclosure action on the Company's
assets by the secured creditors. The Board and management of the
Company discussed the alternatives with its financial advisors, RenCap
and the Bridge Lenders.
In considering the Investment Proposals, the Board of Directors
assigned the most weight to the growth prospects of the Company with up
to $10,000,000 in orders over an 18-month period generated by ISA from
customers in Mexico and Latin and South America. The Board of Directors
believes that this export business, together with potential business
opportunities in the United States, will allow the Company to accelerate
its sales growth and continue its recent trend of improving financial
operating results. The Board of Directors believes that sales growth,
continuing improvement in financial performance, expansion into export
markets with ISA as a strategic and financial partner, and the
restructuring of the Company's secured debt, are among the more
significant impacts of the Investment Proposals that could lead to
continued improvement in financial condition and increased shareholder
value.
<PAGE>
The Board of Directors recognized that without the order base
provided by ISA's customers, and without ISA customer contacts in Mexico
and Latin and South America, it would be difficult for the Company to
develop a profitable export business in those geographical areas in an
acceptable timeframe. Moreover, the loss of $10,000,000 in orders from
ISA could not be replaced by other customers in a like timeframe, and
the Company's business and its relationship with RenCap and the Bridge
Lenders would be adversely affected. In evaluating the potential loss
of the ISA orders, the Board considered the possible actions of its
principal secured creditor, RenCap, which included the possible
foreclosure on the assets of the Company or the sale of all or a portion
of the assets of the Company, on terms the Board believed would be
unfavorable and unacceptable to the Company and its shareholders.
The Board of Directors also carefully considered the terms and
conditions of the RenCap and Bridge Lender agreement to restructure
their secured debt. The Board believes that this secured debt, all past
due and in default in April 1996, was a significant factor adversely
impacting the Company's relationship with its customers, its ability to
win new business, and the market price of the Company's Common Stock.
The Board believes the terms and conditions under which the secured debt
of RenCap and the Bridge Lenders is to be restructured are favorable to
the Company, and might not be possible without ISA's financial
commitments to the Company and its commitment to provide $10,000,000 in
new orders.
Based primarily on the considerations discussed above, the Board of
Directors unanimously concluded that it is in the best interests of the
Company and its shareholders to consummate the transactions with ISA,
RenCap and the Bridge Lenders. The Board of Directors unanimously
recommends that shareholders vote FOR all of the proposals collectively
comprising the Investment Proposals.
SOURCE OF FUNDS
ISA has informed the Company that the funds required to purchase
the Common Stock, in the aggregate amount of $400,000 (already deposited
in a third-party escrow), and $1,000,000 to be advanced to the Company
as the Working Capital Loan will be made from available cash resources.
RECENT PRICE OF COMMON STOCK
The average of the closing bid prices for the Company's Common
Stock for the 15 trading days prior to the announcement of the
Investment Agreement, as reported by the NASD Electronic Bulletin Board,
was approximately $.33 per share; the average of the closing bid prices
for the Company's Common Stock for the 15 trading days following the
announcement of the Investment Agreement, as reported by the NASD
Electronic Bulletin Board, was approximately $.47 per share. On June 9,
1996, the closing bid price for the Company's Common Stock was $.41 per
share.
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the Investment
Proposals are in the best interests of the Company and its shareholders,
the approval of the Investment Proposals may have certain potential
adverse effects which shareholders should consider. These
considerations are summarized below.
<PAGE>
Composition of Board of Directors Following the Sale. ISA is
entitled to appoint and thereafter nominate 3 of the 5 members of the
Board. In addition, the Board of Directors must elect as the Chairman
of the Board the director designated by ISA. Further, because ISA will
own a majority of the outstanding Common Stock, ISA will have the power,
in the absence of any agreements regarding the composition of the Board
or cumulative voting, to elect all of the directors. RenCap will have
the right to nominate one director or to have one representative attend
Board meetings. John Robinson, currently a member of the Board of
Directors and the Company's CEO and President, is expected to continue
as a director of the Company; however, if John Robinson resigns or is
removed for reason from the Board of Directors, then a committee
composed of one representative of ISA and one representative of RenCap
shall have the right to nominate Mr. Robinson's replacement.
Commitment for Product Orders. ISA has committed to place
$10,000,000 in orders for the Company's products from ISA customers in
Mexico and Latin America, over an 18-month period. ISA, however, is not
the end-use customer, and ISA's ability to deliver orders for products
may be impacted by events outside the control of ISA, such as the
economic conditions in Mexico and Latin America, the availability of
end-user financing for the purchase of equipment and the compatibility
of the Company's technology with the customer's existing radio systems.
ISA's commitment to place $10,000,000 in orders will be secured by ISA
placing in escrow, pursuant to the Investment Agreement, 50% of the
shares of the Company's Common Stock to be issued to ISA. If ISA places
less than $10,000,000 in product orders with the Company, then ISA will
forfeit 2.4 shares of Common Stock for each dollar in orders less than
$10,000,000.
Change of Control of the Company. Because the Investment Agreement
grants to ISA an Option to receive shares that will represent a majority
of the outstanding shares of Common Stock, approval of the Investment
Proposals will prevent the sale of the Company to a buyer other than
ISA, without the approval of ISA.
Conflicts of Interest. The Company and ISA have agreed to maintain
the number of shares of Common Stock available for grant to employees,
including officers and directors, under the Company's 1992 Stock Option
Plan to a number equal to approximately 15% of the fully diluted
outstanding shares of Common Stock, or approximately the same percentage
in effect prior to the transactions contemplated by the Investment
Agreement. All of the members of the Board of Directors participate in
the 1992 Option Plan, and two officers who also serve as members of the
Board of Directors, John Robinson and Steven Borgardt, have been granted
a significant number of options to purchase shares of Common Stock under
the 1992 Stock Option Plan. Because of their participation in the 1992
Stock Option Plan, Messrs. Robinson and Borgardt are not considered
disinterested with respect to the Investment Proposal. Messrs. Robinson
and Borgardt have informed ISA of their intent to vote the shares of the
Company's Common Stock held by them in favor of the Investment
Proposals. See "Security Ownership of Certain Beneficial Owners and
Management." In addition, conflicts could arise in future commercial
relationships between the Company and ISA.
Limitation of Use of Net Operating Loss Carryovers. Section 382
of the Internal Revenue Code of 1986, as amended (the "Code"), may limit
the Company's use of its net operating loss carryovers. Section 382 of
<PAGE>
the Code limits the amount of taxable income of a corporation following
an "ownership change" that may be offset by the "pre-change loss" of the
corporation to an amount equal to the fair market value of the stock of
the corporation immediately before the ownership change multiplied by
the "long-term tax-exempt rate" as defined in Section 382(f) of the
Code. The pre-change loss of a corporation includes any net operating
loss carryover of the corporation before the year of the ownership
change and any net operating loss of the corporation for the year of the
ownership change to the extent such loss is allocable to the period in
such year on or before the change date.
An ownership change would have occurred with respect to the Company
if the percentage of the Common Stock of the Company owned by one or
more "5-percent shareholders" within the meaning of Section 382(k) of
the Code increased by more than fifty percentage points over the lowest
percentage of Common Stock of the Company owned by such shareholders at
any time during a "testing period". A testing period is generally the
three-year period ending on the date of any change in the ownership of
stock of a corporation involving a 5-percent shareholder.
The Company and its subsidiaries have a combined Federal net
operating loss carryforward benefit of approximately $30,000,000. The
Investment Proposals, for Federal income tax purposes, will likely
result in an "ownership change" and, as a result, the Company's annual
use of Federal net operating loss carryforward tax benefits could be
severely limited. Due to this limitation, only a portion of the
Company's Federal net operating loss benefits may ultimately be
utilized, and then only in the event the Company has future taxable
income. A determination of the limitation, if any, will be subject to
various factors existing at the date the ownership change is effected.
ISA's organization as a foreign corporation has no impact on the
determination of whether an ownership change has occurred.
Regulatory Matters.
The Company's wholly-owned subsidiary, Decom, pursuant to Federal
regulations, has been granted a classified security clearance. In the
event ISA exercises its Option, resulting in ISA's control of the
Company and its Board of Directors, the Company is required to report
the ownership change to the Department of Defense. As a result of
ISA's foreign ownership control and influence, the Department of Defense
will review the Company's organization, operations and management and,
subject to this review, it may revoke Decom's classified security
clearance. The revocation of Decom's classified security clearance
could have an adverse impact on Decom's future operations. Decom was
not awarded any contracts requiring a classified security clearance in
the last 12 months.
The Company and ISA intend, pursuant to the regulations generally
referred to as the "Exon-Florio Regulations", to file a joint notice
describing the Investment Proposals with the Committee on Foreign
Investment in the United States ("CFIUS"). Under the Exon-Florio
Regulations, if CFIUS does not determine to undertake such an
investigation, or if an investigation is undertaken but there is no
finding by the President within sixty (60) days that the Investment
Proposals threaten to impair the national security of the United States,
then the Investment Proposals will no longer be subject to any
governmental action under the Exon-Florio Regulations. However, if
there is an investigation and an adverse presidential finding, the
Investment Proposals may be suspended temporarily or prohibited.
<PAGE>
Section 203 of the Delaware General Corporation Law limits business
combinations (as therein defined) between corporations and interested
persons (as therein defined, which would include ISA with respect to the
Company following the exercise of the ISA Option). However, the statute
exempts business combinations with interested stockholders who became
such in a transaction approved by the board of directors. Accordingly,
this statute will not apply to ISA.
Blank Check Preferred Stock. As part of the proposals comprising
the Investment Proposal, the Company's Certificate of Incorporation will
be amended to authorize the issuance by the Company's Board of
Directors, without the necessity of further notice or authorization by
stockholders, of up to 2,000,000 shares of preferred stock. The
Preferred Stock may be issued from time to time in one or more series
and may have such voting powers, preferences and relative rights,
designations, qualifications and limitations as the Board of Directors
may fix by resolution at the time of issuance. The Preferred Stock
could be used to deter or discourage an unsolicited attempt by another
person or entity to acquire control of the Company. Such stock could be
issued, for example, with voting or conversion privileges intended to
make an acquisition of the Company more difficult or more costly. The
Company has no present intention to issue such stock to deter such a
takeover bid. Pursuant to the Investment Proposals, upon the exercise
of the ISA Option pursuant to the Investment Agreement, the Board of
Directors will authorize 8,000 shares of Series A Preferred Stock and
48,000 shares of Series B Preferred Stock for issuance by the Company.
See "Investment Agreement - Authorization of Preferred Stock".
INVESTMENT AGREEMENT
SUMMARY OF INVESTMENT AGREEMENT
The material provisions of the Investment Agreement between the
Company, ISA, RenCap and the Bridge Lenders are described below. The
following discussion is qualified in its entirety by reference to the
text of the Investment Agreement, a copy of which is attached as Exhibit
A to the proxy statement.
Pursuant to the Investment Agreement entered into among the
Company, ISA, RenCap, and the Bridge Lenders on May 1, 1996, ISA has the
right, as of the date of the Investment Agreement or pursuant to the
exercise of its Option thereunder, to the following: (i) to receive
approximately 49,009,000 shares of newly issued Common Stock,
representing approximately a 67% Common Stock ownership interest in the
Company (assuming the conversion of Series A and Series B Preferred
Stock into shares of Common Stock); (ii) to be appointed as the
Company's exclusive distributor of mobile data products in Mexico and
Central and South America for 18 months; (iii) to appoint and thereafter
nominate the majority of the members of the Company's Board of
Directors, including the Chairman of the Board; (iv) and to manage and
control the day-to-day operations of the Company. Except for the right
to manage and control the day-to-day operations of the Company and the
appointment as the Company's exclusive distributor of mobile data
products in Mexico, and Central and South America, which were effective
on May 1, 1996, all other rights will become effective at the time ISA
exercises its Option under the Investment Agreement. Since May 1, 1996,
ISA has been primarily involved with assisting the Company to
restructure and reduce its secured and unsecured debt, and ISA is
working with the Company's current management to improve operating
efficiencies. The Option is exercisable by ISA for a period of up to
<PAGE>
twenty days after the date of shareholder approval of the Investment
Proposals, or as extended by ISA. The Investment Agreement requires
shareholder approval on certain matters on or before June 30, 1996. ISA
has extended this date to August 15, 1996.
Under the Investment Agreement, the Company received or is to
receive, (i) a deposit from ISA of $500,000 as advance payment for
$1,000,000 in orders for the Company's mobile data products; (ii) a
deposit from ISA of $400,000 placed in a third-party escrow,
representing a contribution to the capital of the Company, such deposit
to be released to the Company at the time ISA exercises its Option;
(iii) a commitment to loan the Company $1,000,000 for working capital
(the "Working Capital Loan"), with funding of the loan to be made at the
time ISA exercises its Option; (iv) the agreement of RenCap and the
Bridge Lenders to restructure their secured debt (described below) at
the time ISA exercises its Option; and (v) a commitment from ISA to
place $10,000,000 in orders for the Company's products, over an 18-month
period commencing on the date of the Investment Agreement. ISA's
commitment to place $10,000,000 in orders for the Company's products
will be secured by ISA placing in escrow, pursuant to the Investment
Agreement, 50% of the shares of the Company's Common Stock to be issued
to ISA. If ISA places less than $10,000,000 in orders for mobile data
products with the Company, then ISA shall forfeit 2.4 shares of the
Company's Common Stock for each dollar in orders less than $10,000,000.
Further, if ISA does not exercise its Option and the shareholders
approve the transaction, the Company has the right to retain $200,000 of
the $400,000 capital contributions. The Working Capital Loan will be due
one year from the date made and will pay interest at the rate of 6% per
year. The Working Capital Loan is convertible into shares of the
Company's Common Stock at a price of $.25 per share, and will be
collateralized by a security interest in substantially all of the assets
of the Company, subject to a more senior priority security interest in
the Company's assets collateralizing the 6% Note to be issued to the
Bridge Lenders and any other future working capital loans from third
party lenders. The final terms and conditions of the Working Capital
Loan are subject to the review and approval by ISA and the Company.
ISA and RenCap have agreed that during the period before the
exercise of the Option by ISA, ISA and RenCap will not commence
foreclosure pursuant to any of their respective security agreements
without the written consent of the other party. ISA and Bridge Lenders
also have agreed not to commence foreclosure pursuant to any of their
respective security agreements during the period before ISA exercises
its Option without the mutual consent of the other party.
Restructure of RenCap Secured Debt
Upon the exercise of ISA's Option, RenCap will amend its $4,000,000
principal amount, 12% Convertible Debenture, and all interest accrued
and payable thereon, totalling approximately $4,800,000, to a 6%
Debenture ("6% Debenture"), principal payable in seven years, with
interest of 6% per year payable semi-annually. Interest is to be paid
50% in cash and 50% in shares of the Company's Common Stock. The 6%
Debenture is to be collateralized by substantially all of the assets of
the Company; however, this security interest is to be subordinated to
existing senior debt, future working capital debt, the 6% Note and the
Working Capital Loan. The 6% Debenture is convertible into 48,000
shares of Series B Preferred Stock (described below), at such time as
(i) the value of the shares of Common Stock to be issued upon the
<PAGE>
conversion of Series B Preferred Stock is equal to 70% or more of the
principal amount of the 6% Debentures (approximately $3,380,000 if the
principal amount of the 6% Debenture is $4,800,000); or (ii) at such
time as the Company's shareholders' equity shall equal or exceed
$1,000,000. In addition, based on certain increases in the market price
of the Company's Common Stock ranging from a base of $.25 per share to
$1.00 per share, as set out in the Investment Agreement, RenCap may
receive up to an additional 2,400,000 shares of Common Stock.
Currently, the original 12% Convertible Debenture is in default due
to the Company's failure to pay interest and principal when due.
The Company can require RenCap to convert the Series B Preferred
Stock into 7,344,100 shares of Common Stock at such time as the value of
the shares of Common Stock, as determined by the average per share price
as quoted by NASDAQ for the 20 trading days following the filing of the
Company's Form 10-QSB or Form 10-KSB with the Securities and Exchange
Commission, are equal to or exceed 1.5 times the liquidation preference
of the Series B Preferred Stock (approximately $7,200,000 if the
liquidation preference of the Series B Preferred Stock is $4,800,000).
ISA has agreed to transfer shares of the Company's Common Stock to
RenCap if the market value of the 7,344,101 shares of Common Stock into
which the Series B Preferred Stock is convertible falls below $3,360,000
on the date three years from the date of the closing of the Investment
Agreement. ISA has further agreed to place into an escrow account
7,344,000 shares of the Company's Common Stock concurrently with the
conversion of the 6% Debenture into the Series B Preferred Stock.
Restructure of Bridge Loan
Upon the exercise of ISA's Option, the Bridge Lenders will cancel
the $1,800,000 principal amount Bridge Loan in exchange for the
following: (i) the payment of $400,000 in cash, (ii) the issuance of a
new $600,000 principal amount promissory note (the "6% Note"), with
interest at 6% per year; and (iii) the issuance of 8,000 shares of
Series A Preferred Stock (described below), In addition, based on
certain increases in the market price of the Company's Common Stock
ranging from a base of $.25 per share to $1.00 per share, as set out in
the Investment Agreement, the Bridge Lenders could receive up to an
additional 3,000,000 shares of Common Stock.
The 6% Note is due in full one year from the date made, and is
collateralized by a security interest in the assets of the Company's
wholly-owned subsidiary Decom Systems, Inc. and Coded Mobile
Communications, Inc. This security interest will be senior to the
security interest collateralizing the Working Capital Loan and the 6%
Debenture. The 6% Note is convertible into shares of the Company's
Common Stock at a price of $.25 per share.
The Bridge Loan is currently in default due to the Company's
failure to pay interest and principal when due.
<PAGE>
Bonus Shares
Pursuant to the terms of the Investment Agreement, the Company will
place into an escrow account 3,000,000 shares of the Company's Common
Stock for the benefit of RenCap and the Bridge Lenders. The shares will
be delivered to RenCap and the Bridge Lenders upon the exercise of the
ISA Option and the Company's Common Stock reaching certain minimum
trading prices as follows. If the market value of the Company's Common
Stock is at or above $.25 per share, the holders of the Series A
Preferred Stock will receive 200,000 shares and RenCap will receive
800,000 shares of Common Stock. If the market value of the Company's
Common Stock is at or above $.50 per share, the holders of the Series A
Preferred Stock will receive an additional 200,000 shares and RenCap
will receive an additional 800,000 shares of Common Stock. If the
market value of the Company's Common Stock is at or above $1.00 per
share, the holders of the Series A Preferred Stock will receive an
additional 200,000 shares and RenCap will receive an additional 800,000
shares of Common Stock. The market value of the Common Stock is to be
determined by the average per share bid price as quoted by the NASD,
NASDAQ or other applicable over the counter market or stock exchange for
the 20 trading days following the filing of the Company's Form 10-QSB or
Form 10-KSB with the Securities and Exchange Commission.
Change of Control of the Company
Upon the execution of the Investment Agreement, and subject to any
restrictions imposed by the Department of Defense regarding the
management of Decom Systems, Inc., ISA was given the right to manage
and control the daily operations of the Company. As part of its
management control, ISA has the authority to negotiate, and subject to
Board approval where required by law, enter into agreements with
creditors an behalf of the Company.
Following shareholder approval of the Investment Proposals, and
the exercise of the Option by ISA, ISA will hold approximately
49,009,000 shares of the Company's Common Stock, or approximately 77% of
the outstanding shares of Common Stock, excluding the issuance of any
shares of Common Stock upon the conversion of Series A and Series B
Preferred Stock and the exercise of outstanding options to purchase
shares of Common Stock under the Company's 1992 Stock Option Plan.
Assuming only the issuance of 9,744,100 shares of Common Stock on the
conversion of Series A and Series B Preferred Stock, ISA will hold
approximately 67% of the issued and outstanding shares of Common Stock.
As a result of its Common Stock ownership and the organization of the
Board of Directors, ISA will effectively control the Company.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
The Investment Agreement requires shareholder approval of an
increase in the Company's authorized shares of Common Stock and the
authorization of a class of Preferred Stock. The Board of Directors has
adopted, subject to shareholder approval, amendments to the Certificate
of Incorporation (the "Amendment" or "Amendments") providing for (i) an
increase in the authorized number of shares of Common Stock, $.01 par
value, to 100,000,000 common shares from 50,000,000 common shares and
(ii) the authorization of 2,000,000 shares of preferred stock, $.01 par
value. The Company's current Certificate of Incorporation authorizes
50,000,000 shares, $.01 par value Common Stock. If the Investment
<PAGE>
Proposals are approved by the shareholders and ISA exercises its Option,
the Amendments will become effective at the time the Company files the
Amendments with the Secretary of the State of Delaware. It is
anticipated that such action will occur as soon as practical after the
Investment Proposals are approved by shareholders and then only if ISA
exercises its Option.
The text of the Amendments to the Certificate of Incorporation is set
out below:
A.
"The total number of shares of capital stock which the Corporation shall
have authority to issue is one hundred two million (102,000,000) shares,
of which one hundred million (100,000,000) shares shall be common stock,
$.01 par value per share, and two million (2,000,000) shares shall be
preferred stock, $.01 par value per share (the "Preferred Stock").
B.
Shares of the Preferred Stock of the Corporation may be issued from time
to time in one or more classes or series, each of which class or series
shall have such distinctive designation or title as shall be fixed by
the Board of Directors of the Corporation (the "Board of Directors")
prior to the issuance of any shares thereof. Each such class or series
of Preferred Stock shall have such voting powers, full or limited, or no
voting powers, and such preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated in such resolution or
resolutions providing for the issue of such class or series of Preferred
Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority
hereby expressly vested in it, all in accordance with the laws of the
State of Delaware."
INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The increase in the authorized number of shares of Common Stock
from 50,000,000 shares to 100,000,000 shares is necessary to complete
the Investment Agreement. Further, the Company has financed its
operations primarily through the private sale of Common Stock, Common
Stock purchase warrants, and debt convertible into shares of Common
Stock. The Board believes that the Company, in the future, will need
the additional shares of Common Stock not issued pursuant to the
Investment Agreement for additional capital, including the private or
public sale of Common Stock and or debt convertible into shares of
Common Stock.
The increase in authorized Common Stock will allow the Company the
flexibility to issue additional shares in a timely manner at the most
favorable market conditions without further shareholder approval.
Additional Common Stock could also be used for employee benefit plans,
as consideration in connection with the acquisition of products or
technology, and for the issuance of warrants by the Company in special
purpose financing. In the event of a potential takeover, additional
shares could be issued at terms and conditions that might be less
favorable to shareholders; however, the increase in authorized capital
is not intended as an anti-takeover measure.
If the shareholders approve the Investment Proposals, but ISA does
not exercise its Option, the Board will proceed with the amendment to
the Certificate of Incorporation so that the Certificate will authorize
100,000,000 shares of Common Stock. Therefore, the Board will have the
flexibility to issue additional shares of Common Stock without further
shareholder approval.
<PAGE>
AUTHORIZATION OF PREFERRED STOCK
Under the Amendment to authorize 2,000,000 shares of preferred
stock, preferred stock could be issued in one or more classes or series
upon adoption by the Board of Directors of an amendment to the
Certificate of Incorporation, without any further action by the
shareholders. The Amendment gives the Board of Directors the authority
to determine the designation, rights, preferences, privileges and
restrictions, including voting rights, conversion rights, right to
receive dividends, right to assets upon any liquidation, and other
relative benefits, restrictions and limitations of any series of
preferred stock. The Board of Directors will also determine whether
such preferred stock will be convertible into other securities of the
Company, including Common Stock. Accordingly, the issuance of preferred
stock, while promoting flexibility in connection with possible
recapitalization and other corporate purposes, could adversely affect
the voting rights of the holders of, or the market price of Common
Stock. The holders of preferred stock may also have the right to vote
separately as a class on any proposal involving fundamental changes in
the rights of holders of preferred stock pursuant to the Delaware
Corporation Law.
In addition, the authorization of a class of preferred stock may be
viewed as potentially having the effect of discouraging an unsolicited
attempt by any person or entity to acquire control of the Company.
Authorized shares of preferred stock can be issued, and have in the past
been issued by some corporations, with voting or conversion privileges
intended to make the acquisition of the issuer more difficult or costly.
By allowing the Board of Directors to establish a class or series of
preferred stock without shareholder approval, the Amendment could in the
future discourage such an attempt to acquire control of the Company or
limit the shareholders' ability to participate in certain types of
transactions (such as a tender offer), whether or not such transactions
are favored by a majority of the shareholders, and, as a result, could
enhance the ability of officers and directors to retain their positions.
The Company has no present agreements, understandings, arrangements
or other plans to issue any shares of preferred stock, except as
provided by the Investment Agreement pursuant to which shares of Series
A Preferred Stock and Series B Preferred Stock are to be authorized by
the Board of Directors.
If the shareholders approve the Investment Proposals, but ISA does
not exercise its Option, the Board will proceed with the amendment to
the Certificate of Incorporation so that the Certificate will authorize
2,000,000 shares of Preferred Stock. Therefore, the Board will have the
flexibility to issue additional shares of Preferred Stock without
further shareholder approval.
Series A Preferred Stock
The Bridge Lenders will receive 8,000 shares of Series A Preferred
Stock in partial consideration for the cancellation of the Bridge Loan.
The Board of Directors of the Company will adopt a Certificate of
Designation defining the terms of the 8,000 shares of the Series A
Preferred Stock. The Company intends to cause the Certificate of
Designation to become effective immediately following the shareholder
approval of the Amendment and ISA's exercise of its Option. The general
rights and provisions of the Series A Preferred Stock are described
below.
<PAGE>
Rank. With respect to the payment of dividends and the
distribution of assets on liquidation, dissolution and winding up of the
Company, the Series A Preferred Stock ranks senior to the Common Stock
and the Series B Preferred Stock, and on a parity with or senior to each
other series of preferred stock thereafter issued by the Company.
Liquidation Value. The liquidation value of the Series A Preferred
Stock is equal to $100 per share or $800,000 in the aggregate.
Dividends. Holders of Series A Preferred Stock are entitled to
receive when and as declared by the Board of Directors, dividends at the
rate of 8% of the liquidation value ($8 per share) per annum, payable in
equal semi-annual payments. Dividends shall accrue on a daily basis and
shall cumulate from the date of original issue of the Series A Preferred
Stock. Accrued but unpaid dividends shall accrue as of the semi-annual
dividend payment date on which they first became payable and will be
paid 50% in cash and 50% in shares of Common Stock having a market value
equal to the 50% of the dividend amount. No dividends may be paid to or
declared or set aside for the benefit of holders of any class or series
of stock ranking on a parity with the Series A Preferred Stock in the
payment of dividends if at the time there shall be any current or
accumulated cash dividends payable to the Series A Preferred Stock,
unless at the same time a like proportionate dividend, pro rata based on
the annual dividend rates of the Series A Preferred Stock and such
parity stock, shall at the same time be paid to or declared and set
aside for the benefit of holders of the Series A Preferred Stock
entitled to receive such dividend. As to dividends, the Series A
Preferred Stock will rank senior to the Series B Preferred Stock.
Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, holders of Series A Preferred
Stock will be entitled to receive in preference to holders of any stock
ranking junior to the Series A Preferred Stock, the liquidation value of
$100 per share or $800,000 plus an amount equal to all accrued but
unpaid dividends thereon on the date of final distribution to such
holders. If, upon any liquidation, dissolution or winding up of the
Company, such payment shall not have been made in full to the holders of
all outstanding shares of Series A Preferred Stock, the holders of
Series A Preferred Stock and all other classes or series of stock of the
Company ranking on a parity therewith in the distribution of assets,
shall share ratable in any distribution of assets in proportion to the
full amounts to which they would otherwise be respectively entitled.
The Series A Preferred Stock will rank senior to the Series A Preferred
Stock.
Voting Rights. Except as required by the Delaware General
Corporation Law, the holders of shares of Series A Preferred Stock shall
have the right to vote with the holders of Common Stock on all matters
as to which the holders of Common Stock are entitled to vote. The
number of votes per share which the holders of Preferred Stock may cast
(300 votes per share) shall be adjusted, upon any change in the
Conversion Ratio as described below, to equal the number of shares of
Common Stock into which it would then be convertible (whether or not
such conversion is restricted or prohibited for any reason).
<PAGE>
Conversion. Each share of Series A Preferred Stock is convertible
into 300 shares of the Company's Common Stock, subject to certain
adjustments. The Series A Preferred Stock provides for adjustments upon
the occurrence of certain events including, but not limited to, stock
dividends, stock subdivisions or reclassifications or combinations. In
addition, upon the occurrence of any merger or combination or similar
transaction, the Series A Preferred Stock is convertible into the
consideration received by the holders of the Common Stock in such
merger, combination or similar transaction. The Series A Preferred
Stock will be subject to mandatory conversion into Common Stock at any
time the market value of the shares of Common Stock into which the
Series A Preferred Stock is converted, equals to or exceeds 1.5 times
the liquidation preference of the Series A Preferred Stock
(approximately $1,200,000 if the liquidation preference is $800,000).
The market value of the Common Stock is to be determined by the average
per share bid price as quoted by the NASD, NASDAQ or other applicable
over the counter market or stock exchange for the 20 trading days
following the filing of the Company's Form 10-QSB or Form 10-KSB with
the Securities and Exchange Commission.
Registration. The shares of Series A Preferred Stock and the
shares of Common Stock into which the Series A Preferred Stock are
convertible, will not be registered under the 1933 Act and, therefore,
the shares may not be sold in a public market unless registered under
the 1933 Act. The Company has agreed to give the Bridge Lenders certain
registration rights with respect to the shares of Common Stock, with the
cost of such registration to be paid by the Company.
Series B Preferred Stock
RenCap will receive 48,000 shares of Series B Preferred Stock upon
conversion of the 6% Debenture. The Board of Directors of the Company
will adopt a Certificate of Designation defining the terms of the 48,000
shares of Series B Preferred Stock. The general rights and provisions
of the Series B Preferred Stock are described below.
Rank. With respect to the payment of dividends and the
distribution of assets on liquidation, dissolution and winding up of the
Company, The Series B Preferred Stock ranks senior to the Common Stock,
but ranks junior to the Series A Preferred Stock.
Liquidation Value. The liquidation value of the Series B Preferred
Stock is equal to $100 per share or $4,800,000 in the aggregate.
Dividends. Holders of Series B Preferred Stock are entitled to
receive when and as declared by the Board of Directors, dividends at the
rate of 6% of the liquidation preference per annum, per share, payable
in equal semi-annual payments. Dividends shall accrue on a daily basis
and shall cumulate from the date of original issue of the Series B
Preferred Stock. Accrued but unpaid dividends shall accrue as of the
semi-annual dividend payment date on which they first became payable and
will be paid 50% in cash and 50% in shares of Common Stock having a
market value equal to the 50% of the dividend amount. No dividends may
be paid to or declared or set aside for the benefit of holders of any
class or series of stock ranking on a parity with the Series B Preferred
Stock in the payment of dividends if at the time there shall be any
current or accumulated cash dividends payable to the Series B Preferred
Stock, unless at the same time a like proportionate dividend, pro rata
based on the annual dividend rates of the Series B Preferred Stock and
such parity stock, shall at the same time be paid to or declared and set
aside for the benefit of holders of the Series B Preferred Stock
entitled to receive such dividend. As to dividends, the Series B
Preferred Stock will rank junior to the Series A Preferred Stock.
<PAGE>
Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, holders of Series B Preferred
Stock will be entitled to receive in preference to holders of any stock
ranking junior to the Series B Preferred Stock, the liquidation value of
$100 per share or an aggregate of $4,800,000, plus an amount equal to
all accrued but unpaid dividends thereon on the date of final
distribution to such holders. If, upon any liquidation, dissolution or
winding up of the Company, such payment shall not have been made in full
to the holders of all outstanding shares of Series B Preferred Stock,
the holders of Series B Preferred Stock and all other classes or series
of stock of the Company ranking on a parity therewith in the
distribution of assets, shall share ratable in any distribution of
assets in proportion to the full amounts to which they would otherwise
be respectively entitled. The Series B Preferred Stock will rank junior
to the Series A Preferred Stock.
Voting Rights. Except as required by the Delaware General
Corporation Law, the holders of shares of Series B Preferred Stock shall
have the right to vote with the holders of Common Stock on all matters
as to which the holders of Common Stock are entitled to vote. The
number of votes per share which the holders of Preferred Stock may cast
(153 votes per share) shall be adjusted, upon any change in the
conversion ratio as described below, to equal the number of shares of
Common Stock into which it would then be convertible (whether or not
such conversion is restricted or prohibited for any reason).
Conversion. Each share of Series B Preferred Stock is convertible
into 153 shares of the Company's Common Stock, subject to certain
adjustments. The Series B Preferred Stock provides for adjustments upon
the occurrence of certain events including, but not limited to, stock
dividends, stock subdivisions or reclassifications or combinations. In
addition, upon the occurrence of any merger or combination or similar
transaction, the Series B Preferred Stock is convertible into the
consideration received by the holders of the Common Stock in such
merger, combination or similar transaction. The Series B Preferred
Stock will be subject to mandatory conversion into Common Stock at any
time the market value of the shares of Common Stock into which the
Series B Preferred Stock is convertible, equals or exceeds 1.5 times the
liquidation preference of the Series B Preferred Stock (approximately
$7,200,000 if the liquidation preference of the Series B Preferred Stock
is $4,800,000). The market value of the Common Stock is to be
determined by the average per share bid price as quoted by the NASD,
NASDAQ or other applicable over the counter market or stock exchange for
the 20 trading days following the filing of the Company's Form 10-QSB or
Form 10-KSB with the Securities and Exchange Commission.
Registration. The shares of Series B Preferred Stock to be issued
to RenCap upon conversion of the 6% Debenture, and the shares of Common
Stock to be issued upon the conversion of the Series B Preferred Stock,
will not be registered under the provisions of the 1933 Act, and
therefore, the shares may not be sold in the public market unless the
shares are so registered or unless the sale of shares are exempt from
registration. The Company has agreed to give RenCap certain
registration rights, with respect to the shares of Common Stock, with
the cost of such registration to be paid by the Company.
<PAGE>
EMPLOYEE STOCK OPTOIN PLAN
Pursuant to the Investment Agreement, the Company's 1992 Option
Plan will be continued for the benefit and incentive of the employees
of Coded. Under the Investment Agreement, the number of shares
available for grant to employees, including officers, is not to exceed
15% of the total number of outstanding shares of the Company's Common
Stock, calculated on a fully diluted basis. Prior to the issuance of
additional shares of Common Stock and Series A and Series B Preferred
Stock contemplated under the Investment Agreement, the number of shares
of Common Stock authorized under the 1992 Option Plan and available for
grant to employees equals approximately 15% of the total number of
outstanding shares of Common Stock calculated on a fully diluted basis.
In April 1996, subject to the consummation of the Investment Agreement
and thereafter the approval of the Company's shareholders, the Company
granted to employees, including officers, options to purchase a total of
8,000,000 shares of Common Stock, at an exercise price of $.30 per
share. The exercise price approximates the NASD-quoted price per share
of the Company's Common Stock on the date of grant. The options vest
over a three year period. Under this grant, John Robinson, the
Company's CEO and President, was granted an option to purchase 1,000,000
shares of Common Stock, and the other officers of the Company, as a
group (4 persons), were granted options to purchase an aggregate of
4,000,000 shares of Common Stock.
INFORMATION ON ISA AND MANAGEMENT FOLLOWING
THE INVESTMENT PROPOSALS
Background
The information summarized below regarding ISA was provided by ISA
and the Company has not confirmed the accuracy of the information.
The Company was informed that ISA is one of a privately-held group
of 10 affiliated companies, all incorporated under the laws of Mexico.
The combined unaudited revenues of the affiliated group were
approximately $48,000,000 in 1995. Mr. Hugo R. Camou is the Chairman of
the Board and majority shareholder of ISA. In addition to the
distribution of the Company's mobile data products, ISA is engaged in
satellite communications, computer network systems, electronic signage
and advertising. ISA and its affiliates design, install, distribute and
operate electronic equipment for information display, visual
communications and advertising. ISA's products and systems include
airport flight information display systems, and information display
systems for stock exchanges and stockbrokers. In addition, ISA operates
a nationwide network of remote controlled electronic signs throughout
Mexico featuring full color, large format signs used for advertising.
Other affiliated companies include a provider of telecommunications
services in Mexico, primarily as a long-distance telephone carrier with
a teleport in Cancun, Mexico; and the largest producer in Mexico of
computerized, full color, large format images. The ISA group also
operates over 1,000 billboards throughout Mexico. Substantially all of
ISA's revenues are generated by customers in Mexico and Latin America.
Prior to the date of the Investment Agreement, ISA was the
Company's only distributor of mobile data products in Mexico. Starting
in November 1995, ISA has placed approximately $1,500,000 in orders for
the Company's mobile data products.
<PAGE>
MANAGEMENT AND DIRECTORS
Hugo Camou, age 39, is the Chairman of the Board of Directors and
the CEO of ISA. Mr. Camou also serves as Chairman of the Board for all
wholly-owned or majority-owned affiliated companies. Mr. Camou founded
ISA in 1988 and presently holds all of its capital stock. Mr. Camou
holds a degree in mathematics and physics from the Instituto Poletecnico
Nacional. Prior to organizing ISA, Mr. Camou taught computer science
and mathematics for undergraduate and graduate university programs.
In the event shareholders approve the Investment Proposals and ISA
exercises its Option under the Investment Agreement, then, Mr. Camou
will be appointed as Chairman of the Board of the Company. The Company
anticipates a Board of Directors initially composed of five members;
three of which will be appointed by ISA, including Mr. Camou; one of
which will be John Robinson, the Company's CEO and President; and one of
which will be appointed by RenCap. Other than Mr. Camou, ISA has not
made a decision on its appointment of the other two members of the Board
of Directors.
If the transactions contemplated by the Investment Proposals are
consummated, there is no commitment by ISA to retain the current
executive officers of the Company; however, ISA has expressed its
present intent to retain all of the Company's executive officers in
positions of responsibility. All of the Company's executive officers
have expressed their present intent to continue employment with the
Company. All of the executive officers of the Company have employment
agreements or letter arrangements which provide for severance benefits
in the event of termination and/or change of control. See "Executive
Compensation and Benefits - Employment Agreements."
Pursuant to the Investment Agreement and effective May 1, 1996, ISA
has the right to control the day-to-day operations of the Company. To
date, ISA has been primarily involved with assisting the Company to
restructure and reduce its secured and unsecured debt. In addition, ISA
is working with the Company's management to improve organizational and
operating efficiencies.
If the shareholders do not approve the Investment Proposals, then
the directors nominated by management and elected at the Annual Meeting
will serve as members of the Board of Directors. Also, it is
anticipated in that case that all present executive officers will
continue in their current positions. See "Election of Directors and
Information Concerning Directors and Executive Officers."
<PAGE>
INFORMATION CONCERNING THE COMPANY
PRICE RANGE OF COMMON STOCK
<TABLE>
The following table sets forth, for the fiscal quarter indicated,
the high and low closing price of the Company's common stock as reported
by the NASDAQ SmallCap Market and NASD OTC Electronic Bulletin Board, as
applicable. The Company was removed from the NASDAQ SmallCap Market on
December 8, 1994, so that any quotes subsequent to that date are from
the NASD OTC Electronic Bulletin Board. The Company is also traded on
Vancouver Stock Exchange.
<CAPTION>
High Low
Year ended December 31, 1994:
<S> <C> <C>
March quarter $ 5.13 $ 2.50
June quarter 3.56 2.38
September quarter 2.81 2.13
December quarter 2.38 .63
Year ended December 31, 1995:
March quarter $ 1.22 $ .47
June quarter .63 .19
September quarter .91 .44
December quarter .63 .20
Year ending December 31, 1996:
March quarter $ .42 $ .20
</TABLE>
The number of beneficial owners of the Company's common stock was
estimated to be in excess of 3,000 at June 3, 1996. As of June 3, 1996,
the Company had approximately 800 shareholders of record.
There have been no dividends or other distributions made by the
Company since its inception. The Company does not anticipate paying
cash dividends in the foreseeable future.
SELECTED FINANCIAL INFORMATION
The consolidated financial statements of the Company and related
notes thereto for the year ended December 31, 1996 and the financial
statements and related notes for the quarter ended March 31, 1996, are
being mailed to all shareholders of record with this Proxy Statement.
Shareholders may obtain a copy of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995, at the principal office of
the Company, 1939 Palomar Oaks Way, Carlsbad, California 92009.
<TABLE>
The consolidated statement of loss data for the fiscal years ended
December 31, 1994 and 1995, and the consolidated balance sheet data at
December 31, 1994 and 1995 are derived from audited consolidated
financial statements not included in this Proxy Statement. The
consolidated statement of loss data for the three month periods ended
April 1, 1995 and March 30, 1996, and the consolidated balance sheet
data at April 1, 1995 and May 30, 1996 are derived from unaudited
consolidated financial statements not included in this Proxy Statement.
The Company believes that the unaudited information at April 1, 1995 and
March 30, 1996 and for the three month periods then ended, contained all
adjustments, consisting of only normal recurring accruals, necessary for
the fair presentation of the financial position at such dates and the
results of operations for such periods. The results of operations for
the three months ended March 30, 1996 are not necessarily indications of
the results to be expected for the full year.
<CAPTION>
(Amounts in Thousands Except per Share)
Three Months Ended
Year Ended December 31, April 1, March 30,
1994 1995 1995 1996
(Unaudited)
Consolidated Statement of Loss:
<S> <C> <C> <C> <C>
Net sales $ 14,291 $ 10,171 $ 2,224 $ 12,696
Gross margin 3,803 2,788 (2) 1,082
Operating expenses 12,859 4,476 1,517 980
Restructuring expenses 3,151 0 0 0
Operating income (loss) (12,207) (1,688) (1,519) 102
Extraordinary item 0 1,367 0 52
Net loss $ (12,929) $ (1,117) $ (1,723) $ (55)
Net loss per share $ (1.07) $ (.07) $ (.14) $ (.01)
Average shares outstanding 12,127 14,244 12,568 14,688
<CAPTION>
December 31, April 1, March 30,
1994 1995 1995 1996
(Unaudited)
Consolidated Balance Sheet:
<S> <C> <C> <C> <C>
Total assets $ 8,175 $ 5,821 $ 6,309 $ 5,451
Current and long-term debt 6,051 7,195 5,920 7,183
Shareholders' deficit (7,614) (7,571) (9,318) (7,609)
Working capital (deficit) $ (9,232) $ 7,648) $ (10,776) $ (7,636)
</TABLE>
<PAGE>
CAPITALIZATION
<TABLE>
Set forth below is the consolidated capitalization of the Company as of
March 30, 1996 which is derived from the unaudited consolidated
financial statements of the Company, and the proforma capitalization of
the Company as of that date, adjusted only to give effect to the
Investment Proposal and the assumed conversion of the Series A and
Series B Preferred Stock into shares of Common Stock.
<CAPTION>
March 30, 1996
Actual As Adjusted
<S> <C> <C>
Bridge Loan, due April 17, 1996 $ 1,800,000 $ 600,000
Working Capital Loan 0 1,000,000
12% Convertible Debentures,
including accrued interest 4,786,000 0
Creditors' Note 1,383,000 1,383,000
7,969,000 2,983,000
Shareholders' deficit:
Preferred stock, $.01 par value,
2,000,0000 shares authorized;
no shares issued and outstanding 0 0
Common Stock, $.01 par value
50,000,000 shares authorized
(100,000,000 as adjusted);
issued and outstanding: 14,688,201
shares (73,441,301 shares as adjusted) 147,000 734,000
Additional paid in capital 23,346,000 28,745,000
Retained deficit (31,102,000) (31,102,000)
Total shareholders' deficit (7,609,000) (1,623,000)
Total capitalization $ 360,000 $ 1,360,000
</TABLE>
RATIFICATION OF SELECTION OF ACCOUNTANTS
(PROPOSAL 3)
Unless marked to the contrary, proxies received will be voted "FOR"
the ratification of the appointment of Coopers & Lybrand as independent
accountants for the current year. A representative of Coopers & Lybrand
is expected to attend the Annual Meeting and be available to respond to
appropriate questions. The representative will also have an opportunity
to make a statement if he or she desires to do so. Coopers & Lybrand
have been the Company's independent accountants since 1987.
OTHER MATTERS
The Board of Directors knows of no other business which will be
presented for consideration at the Annual Meeting other than as stated
in the Notice of Annual Meeting. However, if any other matters are
properly brought before the Annual Meeting or any adjournment thereof
(including the election of any substitute for any of the foregoing
nominees who is unable to, or for good cause will not, serve on the
Board of Directors), the proxyholders will have the discretionary
authority to vote the shares represented by proxy in accordance with
their best judgment.
<PAGE>
Any proposal of a shareholder intended to be presented at the
Company's 1997 Annual Meeting of Shareholders must submit such proposal
no later than February 25, 1997. Shareholder proposals should be
submitted to John Robinson, Coded Communications Corporation, 1939
Palomar Oaks Way, Carlsbad, CA 92009.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act") are incorporated into this
Proxy Statement by reference: (1) the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1995 and (2) the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
30, 1996, as filed with the Commission on April 29, 1996. Any statement
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
1995 ANNUAL REPORT ON FORM 10-KSB
The Company's Annual Report on Form 10-KSB, including the financial
statements and the financial schedules, required to be filed with the
Securities and Exchange Commission for the year ended December 31, 1995,
will be furnished without charge to any shareholders upon written
request to: Coded Communications Corporation, Investors Relations, 1939
Palomar Oaks Way, Carlsbad, California 92009.
By Order of the Board of Directors
/s/ John A. Robinson, Jr.
John A. Robinson, Jr., Chairman
Carlsbad, California
June 24, 1996
<PAGE>
CODED COMMUNICATIONS CORPORATION
PROXY
FOR THE ANNUAL MEETING TO BE HELD JULY 26, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE MANAGEMENT OF THE COMPANY.
The undersigned, being a shareholder of Coded Communications
Corporation (the "Company"), hereby appoint(s) John A. Robinson, Jr.,
and Steven E. Borgardt, as proxies with full power of substitution
and authorizes them or any of them, to attend the Annual Meeting of
the Company to be held on July 26, 1996, and at any
adjournment thereof, and to vote all the shares of common stock of
the Company registered in the name of the undersigned with respect
to the matters set forth below as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2, AND 3.
1. ELECTION OF DIRECTORS:
| | FOR ALL nominees listed below | | WITHHOLD AUTHORITY to vote
(except as marked to the for ANY of the nominees
contrary below) listed below
NOMINEES: Steven E. Borgardt, James W. Kenney, and
John A. Robinson, Jr.
INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's
name on the space provided below:
2. Investment Proposals (the effectiveness of each of the proposals below
is contingent on the approval of the others, and will not be effective unless
all three proposals are approved):
2(a) Proposal to approve the Investment Agreement.
| | FOR | | AGAINST | | ABSTAIN
2 (b) Amendment of the Certificate of Incorporation to increase number
of authorized shares of Common Stock, $.01 par value, from 50.000,000 to
100,000,000 shares.
| | FOR | | AGAINST | | ABSTAIN
2 (c) Amendment of the Certificate of Incorporation to authorize
2,000,000 shares of preferred stock, to be issued from time-to-time in such
amounts and designations as authorized by the Board of Directors.
| | FOR | | AGAINST | | ABSTAIN
3. Proposal to ratify the appointment of Coopers & Lybrand as independent
accountants for the current year.
| | FOR | | AGAINST | | ABSTAIN
4. With respect to the transaction of such other business as may properly
come before the Annual Meeting, as the proxyholders, in their sole discretion,
may see fit.
SHAREHOLDERS WHO ATTEND THE MEETING MAY VOTE
IN PERSON EVEN THOUGH THEY HAVE PREVIOUSLY
MAILED THIS PROXY. PLEASE DATE, SIGN AND
MAIL THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
Dated: , 1996
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
PRINT NAME PRINT NAME
IMPORTANT: Please date this Proxy and sign exactly as name(s)
appear(s) hereon. When signing as a fiduciary, please give
your full title. Return his Proxy promptly in the enclosed
envelope.
<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant | X |
Filed by a Party other than the Registrant | |
Check the appropriate box:
|X| Preliminary Proxy Statement | | Confidential for Use of the
Commission Only (as permitted
by Rule 14a-6(e_(2)
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Coded Communications Corporation (File No. 0 17574)
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
(Payment of Filing Fee (Check the appropriate box):
| | $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.\
| | $500 per each party to the controversy pursuant to Exchange
Act
Rule 14a-6(i)(3)/
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined);
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|X| Fee paid previously with preliminary materials.
| | Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
EXHIBIT A
MUTUAL AGREEMENT OF
TERMS AND CONDITIONS
This Mutual Agreement of Terms and Conditions is entered into by and between
Grupo Information, Satellites & Advertising, S.A. de C.V. ( ISA ), Renaissance
Capital Partners II Limited (Renaissance), certain holders of the $1.8
million Bridge Loan ( Bridge Lenders ) and Coded Communications Corporation
(Coded) this 1st day of May, 1996.
Whereas, all the parties to this agreement desire to recapitalize Coded so
as to enable Coded to operate efficiently and effectively for the benefit of
it customers, shareholders, investors and employees; and Whereas, the parties
have a desire to avoid the liquidation or foreclosure of the assets of Coded;
Now, therefore, in consideration of mutual promises by and between the
parties to this agreement, and for other valuable consideration, receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree
as follows:
1.0 Current Arrangements between Coded and ISA
1.1 ISA Order and Deposit.
Upon execution of this agreement and implementation of paragraph 1.2, ISA
shall immediately place an order for approximately One Million Dollars ($US)
worth of goods and/or services with Coded and shall deposit $500,000 ($US)
against this order placed with Coded.
1.2 Management and Control.
Upon receiving the approximately $1.0 million dollar ($US) order and
receiving the $500,000 ($US) deposit, Coded shall be deemed to have granted
ISA the right to manage and control the day to day operations of Coded,
including but not limited to the right to negotiate and enter into agreements
on behalf of Coded to restructure the trade payables and other debt of Coded.
ISA will work with Coded to preserve working relationships and vendor good
will to the extent that such can or should be preserved. Coded shall execute
such debt restructure agreements negotiated by ISA on Coded s behalf as
partial consideration for the order and deposit being placed by ISA and the
other provisions of this agreement. This grant to ISA shall terminate upon
the expiration of the Option period described below.
1.3 Grant of Option to ISA
Coded hereby grants to ISA an option to (1) acquire 66.7% of the Coded common
stock and (2) to become the exclusive distributor for Coded in all of Mexico,
Central and South America during the eighteen months following exercise of
the option (provided that while ISA is the exclusive distributor for Coded in
these areas ISA can not sell products competitive to the Coded product line),
all in exchange for $400,000 in cash, a loan of $1.0 million, the promise to
place at least $10.0 million in orders over eighteen months from the signing
of this agreement and for inducing Renaissance and the Bridge Lenders to make
modifications to their positions, the other consideration set forth herein,
all as more definitively set forth in this Agreement. This option may be
exercised if at all by faxing a written exercise of option to Coded at (619)
438-8796 within sixty days of execution of this agreement. ISA may, at its
sole option, extend this time period to a date twenty days after
shareholder approval is secured for those terms of this agreement that
require shareholder approval.
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<PAGE>
Upon exercise of the option, Coded shall immediately issue to ISA an amount of
Coded common shares on an "after-conversion" basis (see paragraph 4.1) equal to
66.7% of outstanding common shares. By way of example, ISA shall be issued
49,008,703 common shares if there are outstanding on an "after-conversion" basis
73,441,005 shares of common stock on the date of the closing of this
transaction as shown in paragraph 4.1. This common stock shall have one
demand registration right with reasonable registration costs to be borne by
Coded. The terms of the registration right will be at least as favorable as
the terms of the registration right agreement between Renaissance and Coded
entered into at the time of the original Debenture.
1.4 Contribution to Pay Bridge Loan. Upon signing of this agreement, ISA
shall place $400,000 into escrow at a United States banking or trust
institution selected by Renaissance in the name of Coded to be released as a
capital contribution to Coded or returned as follows:
(a) If the shareholders decline to approve the transactions described in this
agreement that require shareholder approval within sixty days (or as extended
at ISA s sole option), then the funds shall be returned to ISA immediately.
Notwithstanding any other provision of this agreement, if the shareholders
decline to so approve, then ISA shall be deemed to have been granted a three
year exclusive distributorship for Coded products for Mexico, Central and
South America without any performance requirements, but otherwise with terms
similar to distributorship agreements that Coded presently has with others.
(b) If the shareholders approve the transactions described in this agreement
within sixty days (or as extended at ISA s sole option) and ISA does not
exercise the Option, then $200,000 shall be released to Coded. Then
remaining $200,000 shall be immediately returned to ISA.
(c) If the shareholders approve the transactions described in this agreement
within sixty days (or as extended at ISA s sole option) and ISA exercises the
Option, then $400,000 shall be released to Coded.
Coded agrees the sum released to Coded will be used to pay down the Bridge
Loan. See paragraph 3.2.1. This provision will constitute irrevocable
instructions to the escrow holder.
2.0 Post Option Exercise Arrangements between ISA and Coded.
2.1 ISA Orders to Coded. During the 18 month period commencing on the date
of this agreement and provided the Option is exercised, ISA will cause to be
placed with Coded, orders for at least $10 million. Such orders shall be
negotiated at arms length with terms comparable to Coded's customary terms,
prices and conditions offered to its most favored customer, agent or dealer
similarly situated in any part of the world.
2.2 Escrow of Stock. ISA shall place 24 million shares of common stock
received through exercise of the Option into an escrow account. During such
time as the shares are held in escrow, ISA shall have the right to vote all
shares and will enjoy any other benefits derived from the beneficial
ownership of such shares including dividends. In the event ISA does not
cause to be placed with Coded over an 18 month period beginning on the
date of execution of this agreement (and provided the Option is exercised),
orders for $10,000,000 (which includes the initial $1.0 million order
referred to in paragraph 1.1 above) with terms and conditions as described
in paragraph 2.1 above, then any shares remaining in escrow shall be
transferred to Coded treasury and retired. The number of shares to be
transferred to Coded shall be equal to an amount calculated by multiplying the
difference between $10 million in orders and the actual amount of orders
placed with Coded over the 18 month period, times 2.4. By way of example, if
$8.5 million in orders are placed or caused to be placed by ISA over the
eighteen month period, then Coded shall receive and retire 3.6 million shares
from the escrow. During the 18 month period ISA shall receive shares
certificates on an as earned basis from the escrow with distribution of share
certificates to occur quarterly.
A-2
<PAGE>
2.3 ISA Loan to Coded. At the transaction closing, ISA shall advance cash
of $1,000,000 to Coded in exchange for a secured promissory note. The
promissory note shall have a maturity date of 12 months, with an interest
rate of 6%, interest payable quarterly. The promissory note shall be
collateralized by a senior security interest in the assets of Coded and its
subsidiaries Decom Systems Inc. and Coded Mobile Communications. The
amount of the funds advanced may be increased from time to time at the sole
discretion of ISA and such advance will be reflected in the secured
promissory note. ISA shall have the right to convert the entire amount of the
initial $1.0 million loan to common stock at the conversion rate of $0.25 to
one share of common. This conversion right will be protected from dilution
as follows:
Split up or Combination of Shares:
In case issued and outstanding shares of Common Stock
shall be subdivided or split up into a
greater number of shares of Common Stock, the
Conversion Price shall be proportionally decreased,
and in the case issued and outstanding shares of Common
Stock shall be combined into a smaller number of shares
of Common Stock, the Conversion Price shall be
proportionately increased, such increase or decrease, as the
case may be, becoming effective at the time of record of the
split-up or combination, as the case may be.
Adjustment for Mergers, Consolidations, Etc.:
(I) In case of any capital reorganization, reclassification
of the stock of Borrower (other than a change in par value
or as a result of a stock dividend, subdivision, split up or
combination of shares), or consolidation or merger of
Borrower with or into another person or entity (other than
a consolidation or merger in which Borrower is the
continuing corporation and which does not result in any
change in the Common Stock) or of the sale, exchange, lease,
transfer or other disposition of all or substantially all of
the properties and assets of Borrower as an entity or the
participation by Borrower in share exchange as the corporation
the stock of which is to be acquired, this shall be
convertible into kind and number of shares of stock or
other securities or property of Borrower (or of the
corporation resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been
sold, exchanged, leased, transferred or otherwise disposed,
or which was the corporation whose securities were
exchanged for those of Borrower), to which the holder herein
would have been entitled to receive if the Holder owned the
Common Stock issuable upon conversion of this instrument
immediately prior to the occurrence of such event. The
provisions of these foregoing sentence shall similarly
apply to successive organizations, reclassifications,
consolidations, mergers, sales, exchanges, leases, transfers
or other dispositions or other share exchanges.
2.4 Board. After the Option is exercised Coded shall cooperate to cause ISA to
have the right to appoint a majority of the members of the Coded Board of
Directors, including the Chairman of the Board.
2.5 Exclusive Distributorship. Provided ISA provides orders of at least $10
million during the eighteen month period following the execution of this
agreement then ISA s appointment pursuant to paragraph 1.3 as the exclusive
distributor for Coded in Mexico, Central and South America shall become an
exclusive distributorship for an additional three year period with
continuing three year extensions to ISA provided ISA s performance has
been reasonably satisfactory. While ISA is the exclusive distributor for
Coded in these areas ISA can not sell products competitive to the Coded
product line. This exclusive distributorship shall be on customary terms
similar to existing distributorship agreements that Coded presently has with
others. Should a dispute arise as to what are customary terms, it shall be
settled by arbitration.
A-3
<PAGE>
3.0 Modification of Senior Secured Debt Positions Upon Exercise of the Option.
Should ISA decide, in its sole discretion, that a restructure of the trade
payable and other debt of Coded is feasible, secures enforceable written
agreements evidencing reductions in those debts and it exercises the
Option, then Renaissance and the Bridge Lenders shall be deemed to have
immediately modified their positions with Coded as follows:
3.1 Restructuring of $4.0 Million Debenture
3.1.1 Amendment of Debenture. Upon exercise of the Option, Renaissance,
ISA and Coded agree that Renaissance will amend the $4.0 million principal
amount, 12% Convertible Debenture, and all interest accrued and payable
thereon through the date of execution of this agreement, totaling $4.8
million, for a 6% debenture convertible as set forth below into Series B
Preferred Stock of Coded.
3.1.2 Terms of New Debenture. The amended debenture shall include the
following terms and conditions and otherwise be in the specific form as
agreed upon and distributed to Renaissance, ISA and Coded which is attached
hereto as Exhibit A;
(a) principal amount of $4.8 million;
(b) Interest to accrue at 6% per annum, payable semi-annually with interest
to be paid 50% in the common stock of Coded and 50% in cash;
(c) maturity date to 7 years from the Transaction closing date;
(d) collateralized by existing security interests in assets of Coded and
its Coded Mobile Communications and Decom Systems subsidiaries such security
interest in the assets to be subordinated to existing senior debt, future
working capital debt, the Bridge Lenders as set forth herein and the ISA
promissory note described herein.
3.1.3 Conversion Right. The amended debenture shall be converted into
Series B Preferred Stock under the following conditions:
(a) at any time that the value of the shares of common stock to be issued
upon the conversion of Series B Preferred Stock is equal to 70% or more of
the principal amount of the 6% debenture ($3.36 million if the principal
amount of the 6% debenture is $4.8 million) or
(b) at a time prior to the Coded common stock being listed for trading
on the NASDAQ SmallCap Market or National Market System and Coded
shareholders equity, under generally accepted accounting principals
( GAAP ), shall equal or exceed $3.0 million, including the conversion
of the 6% debenture into common or preferred stock.
(c) Minimum Valuation. ISA agrees that Renaissance shall be
guaranteed against a market decline in the underlying value of the
7,344,101 Coded common shares so as to maintain a minimum valuation of $3.36
million dollars. Therefore, it is agreed that if at the end of three
years from the date of closing, the underlying Coded common stock market
value of the Series B Preferred Stock is less than $3.36 million, then
ISA will convey to Renaissance up to a maximum of 7,344,000 shares of
Coded common stock so as to compensate (as far as that number of shares goes)
for the market value deficit below $3.36 million. To assure performance,
ISA shall concurrently with the conversion of the Renaissance convertible
debenture into Series B Preferred Stock, escrow 7,344,000 shares of
Coded common owned by ISA with an independent party. ISA shall have the
right to vote all shares and will enjoy any other benefits derived from
the beneficial ownership of such shares including dividends.
Renaissance agrees that Coded may require the conversion of the
Debenture into Series B Preferred Stock any time after August 1, 1996
if either of the following two conditions occur:
A-4
<PAGE>
Coded s net worth equals or exceeds $1.0 million with no more than
$500,000 of that net worth attributable to reversal of balance sheet
reserves; or
at Renaissance s option Coded s net worth equals or exceeds
$500,000 with no reversal of balance sheet reserves.
Net worth as used in this paragraph shall not include any goodwill
arising on the balance sheet subsequent to the Closing of this
transaction and shall treat the convertible debenture as converted
and, thus, as equity.
(d) The Series B Preferred Stock is convertible into 7,344,101
shares of Coded common stock. With respect to Series B Preferred Stock,
it is callable by Coded at any time after the value of the shares of common
stock into which the Series B Preferred Stock is convertible is first equal
to or more than 1.5 times the liquidation preference of the Series B
Preferred Stock. Value per share shall be determined by the average of the
bid price of Coded common stock for the 20 trading days following the
filing of a Coded 10Q or 10K, as quoted by the NASD, NASDAQ or other
applicable over-the-counter market or applicable stock exchange.
(e) This conversion right will be protected from dilution as follows:
Split up or Combination of Shares:
In case issued and outstanding shares of Common
Stock shall be subdivided or split up
into a greater number of shares of Common Stock,
the Conversion Price shall be proportionally
decreased, and in the case issued and outstanding
shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the
Conversion Price shall be proportionately increased,
such increase or decrease, as the case may be,
becoming effective at the time of record of the
split-up or combination, as the case may be.
Adjustment for Mergers, Consolidations, Etc.:
In case of any capital reorganization,
reclassification of the stock of Borrower (other
than a change in par value or as a result of a
stock dividend, subdivision, split up or
combination of shares), or consolidation or merger
of Borrower with or into another person or entity
(other than a consolidation or merger in which
Borrower is the continuing corporation and which
does not result in any change in the Common Stock)
or of the sale, exchange, lease, transfer or other
disposition of all or substantially all of
the properties and assets of Borrower as an entity
or the participation by Borrower in share exchange
as the corporation the stock of which is to be acquired,
this Debenture shall be convertible into kind and
number of shares of stock or other securities or
property of Borrower (or of the corporation resulting
from such consolidation or surviving such merger or
to which such properties and assets shall have been sold,
exchanged, leased, transferred or otherwise disposed,
or which was the corporation whose securities were
exchanged for those of Borrower), to which the holder
of the Debenture would have been entitled to receive
if the Holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to
the occurrence of such event. The provisions of
these foregoing sentence shall similarly apply to
successive organizations, reclassifications,
consolidations, mergers, sales, exchanges, leases,
transfers or other dispositions or other share exchanges.
3.1.4 Non Conversion. Notwithstanding the above, the 6% debenture will not
be automatically converted into Series B Preferred Stock until such time as
not more than $1.0 million in past due and disputed vendor claims shall be
outstanding.
A-5
<PAGE>
3.1.5 Terms of Series B Preferred The Series B Preferred Stock shall
include the following terms and conditions:
(a) liquidation preference in the amount of $4.8 million or the principal
amount of the 6% debenture if lower;
(b) dividend rate of 6%, cumulative, payable semi-annually, 50% in common
stock and 50% in cash;
(c) no dividend shall be declared or accrue after such time that the
value of the shares of common stock into which the Series B Preferred Stock
is convertible is first equal to or more than 1.5 times the liquidation
preference of the Series B Preferred Stock;
(d) convertible into shares of Coded common stock in an amount equal
to 10% of the outstanding common shares, calculated on an "after-conversion"
basis as shown specifically in section 4.1 (by way of example, a total of
7,344,101 common shares assuming that the "after-conversion" number of
outstanding common shares is equal to 73,441,005 shares at the time of the
transaction closing date); and
(e) the common shares underlying the Series B Preferred Stock shall have
one demand registration right, with reasonable registration costs to be borne
by Coded.
For purposes of this Agreement, value per share shall be determined by the
average of the bid price of Coded common stock for the 20 trading days
following the filing of a Coded 10Q or 10K, as quoted by the NASD, NASDAQ
or other applicable over-the-counter market or applicable stock exchange.
3.1.6 Appointment of Director. Renaissance will have the right to appoint
one director to the Coded Board of Directors or to have one person attend
board meetings as an advisory member, until its preferred stock is converted
to common. It is the intent of Coded to initially have a five (5) person
Board of Directors.
3.2 Restructuring of $1.8 Million Bridge Loan
3.2.1 Restructure. The Bridge Lenders, ISA and Coded agree that
upon exercise of the Option, the $1.8 million principal amount Bridge
Loan shall be deemed to be restructured such that in lieu of all
existing rights against Coded, Bridge Lenders accept the following:
(a) principal in the amount of $400,000 shall be paid when all
shareholder approvals have been secured for the transactions
described in this agreement. This will be paid from escrowed funds
described in paragraph 1.4;
(b) principal amount of $600,000 payable with 6 percent annual
interest payable quarterly shall be all due one year from the
transaction closing date. The existing Bridge Lenders security interest
in the assets of Coded, including the interest in the assets of
Decom Systems, Inc. and Coded Mobile Communications, Inc. shall
continue as it presently exists to secure this $600,000 debt, except
the Bridge Lenders shall upon Option exercise subordinate its
security interest in the accounts receivable of Coded Communications
Corporation and Mobile Data Communications, Inc. to future working
capital debt. The security for the $1.0 million loan to Coded from
ISA shall be junior to the security for this $600,000 loan. If a sale
of Decom should occur earlier than the one year date, then the net
cash proceeds, after expenses of sale, will be applied to the obligation
up to the then unpaid balance. This would also be convertible to common
stock of Coded at the conversion rate of $0.25 to one share of common.
This conversion right will be protected from dilution as follows:
A-
<PAGE>
Split up or Combination of Shares:
In case issued and outstanding shares of Common Stock
shall be subdivided or split up into a greater number
of shares of Common Stock, the Conversion Price shall be
proportionally decreased, and in the case issued and
outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the
Conversion Price shall be proportionately increased,
such increase or decrease, as the case may be,
becoming effective at the time of record of the
split-up or combination, as the case may be.
Adjustment for Mergers, Consolidations, Etc.:
In case of any capital reorganization, reclassification
of the stock of Borrower (other than a change in par
value or as a result of a stock dividend, subdivision,
split up or combination of shares), or consolidation
or merger of Borrower with or into another person or
entity (other than a consolidation or merger in which
Borrower is the continuing corporation and which does
not result in any change in the Common Stock) or of the
sale, exchange, lease, transfer or other disposition of
all or substantially all of the properties and assets of
Borrower as an entity or the participation by Borrower in
share exchange as the corporation the stock of which is
to be acquired, this shall be convertible into kind and
number of shares of stock or other securities or property
of Borrower (or of the corporation resulting from such
consolidation or surviving such merger or to which such
properties and assets shall have been sold, exchanged,
leased, transferred or otherwise disposed, or which was
the corporation whose securities were exchanged for those
of Borrower), to which the holder herein would have been entitled
to receive if the Holder owned the Common Stock issuable
upon conversion of this instrument immediately prior to
the occurrence of such event. The provisions of these
foregoing sentence shall similarly apply to successive
organizations, reclassifications, consolidations, mergers,
sales, exchanges, leases, transfers or other dispositions
or other share exchanges.
(c) principal amount of $800,000 to be converted into Series A
Preferred Stock, first position liquidation preference of $800,000,
dividend rate of 8% payable semi-annually, payment to be made 50% in
common stock and 50% in cash. Series A Preferred Stock is to be
convertible into Coded common stock in an amount equal to 2,400,000 shares.
With respect to Series A Preferred Stock, it is callable by Coded at
any time after the value of the shares of common stock into which the
Series A Preferred Stock is convertible is first equal to or more than
1.5 times the liquidation preference of the Series A Preferred Stock.
Value per share shall be determined by the average of the bid price of
Coded common stock for the 20 trading days following the filing of
a Coded 10Q or 10K, as quoted by the NASD, NASDAQ or other applicable
over-the-counter market or applicable stock exchange.
(d) All rights under the Share Purchase Warrant Certificate or
any other rights other that set forth herein to acquire stock rights
cease to exist upon exercise of the Option by ISA.
3.2.2 Distribution to Bridge Lenders. All cash payments and shares
of Series A Preferred Stock shall be distributed by Coded to the
Bridge Lenders pro-rata based upon the principal amount of the Bridge
Loan, or in such other amounts and manner as the Bridge Loan lenders
shall mutually agree amongst themselves.
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<PAGE>
4.0 Other Terms and Conditions
<TABLE>
4.1 Post Transaction Stock Ownership. The respective "after-conversion"
common stock ownership interest of Coded, assuming the closing of this
transaction, will be the following:
<S> <C> <C>
Common shares outstanding March 1, 1996) 14,688,201 20.0%
ISA (including escrowed shares) 49,008,703 66.7%
Renaissance (for $4.8 million Series B Preferred) 7,344,101 10.0%
Bridge Loan lenders
(for $0.8 million Series A Preferred) 2,400,000 3.3%
73,441,005 100.0%
</TABLE>
4.2 Contracts and Instruments to Implement Agreement. The parties anticipate
that Coded shall remain a publicly-held Delaware corporation, and that the
contracts and instruments prepared to effect the terms of this agreement
will contain terms, conditions and obligations requiring compliance by
all parties with applicable United States and State securities laws and
regulations. Coded s shareholder approval will be required for certain
provisions of the final transaction which the board of Coded will use its
best efforts to secure as soon as possible. Coded represents and
warrants that to the best of its knowledge there is no provision of the
federal or state securities laws that would prevent them from carrying
out the terms of this agreement.
4.3 Bonus Shares. Coded shall cause to be issued and held in escrow
for the benefit of Renaissance and the Bridge Lenders, 3.0 million
authorized common shares to be delivered to Renaissance and the Bridge
Lenders upon exercise of the Option by ISA as follows:
(a) one million shares when Coded common stock is trading at or
above $0.25 per share, distributed as follows
200,000 pro rata to the holders of Series A Preferred Stock
800,000 to Renaissance;
(b) one million shares when Coded common stock is trading at or
above $0.50 per share distributed as follows
200,000 pro rata to the holders of Series A Preferred stock
800,000 to Renaissance;
(c) one million shares when Coded common stock is trading at or
above $1.00 per share distributed as follows
200,000 pro rata to the holders of Series A Preferred Shares
800,000 to Renaissance;
For purposes of this Agreement, Coded value per share shall be determined
by the average of the bid price of Coded common stock for the 20 trading
days following the filing of a Coded 10Q or 10K, as quoted by the
NASD, NASDAQ or other applicable over-the-counter market or stock exchange.
The issuance of these shares will dilute each of those shown on the table
in 4.1 above.
4.4 Stock Option Plans. ISA and Coded intend to install a stock option
plan for the benefit and incentive of the employees and management of Coded.
The options available under the Plan shall not exceed fifteen percent of
the total outstanding common stock of Coded, counting all conversion
rights to acquire common stock as if exercised. Options eventually
exercised, if any, under the stock option plan shall be dilutive of the
shareholders then existing.
A-8
<PAGE>
4.5 Authorized Shares. The parties understand that certain of the
share issuances contemplated herein are subject to shareholder approval
of the increase in the authorized shares. If the shareholders fail to
approve such increase ISA, may, at its sole option, withdraw from this
agreement and have no obligation to any party.
4.6 Disclosure of Employment Agreements. ISA and the senior management
of Coded shall immediately disclose to Renaissance any pending oral or
written agreements concerning compensation or other employment
arrangements that may go into effect during the Option period or at
exercise of the Option. After exercise of the Option Renaissance shall
be provided with reports and information consistent with its
representation on the board of directors.
4.7 Mutual Agreement. During the Option period Renaissance shall not
commence foreclosure under any of its security agreements with Coded
without first securing the written consent of ISA. Under the terms of
this agreement ISA cannot foreclose without Renaissance s written agreement.
4.8 Mutual Agreement. During the Option period the Bridge Lenders shall
not commence foreclosure under any of its security agreement with Coded
without first securing the written consent of ISA. Under the terms of
this agreement ISA cannot foreclose without the Bridge Lenders written
agreement.
4.9 Closing. The Closing date is hereby defined to be as soon as
possible but no later than the tenth day following execution and delivery
by fax of a writing evidencing ISA s approval of the debt restructuring
accomplished and exercise of the Option.
4.10 Time is of the Essence. The parties agree to use their best
efforts to close the transaction contemplated by this Agreement in a
timely manner with due haste.
4.11 Post Option Exercise Board of Directors. Upon exercise of the
ISA Option, the authorized number of Coded directors will be changed
by resolution of the board to five members. Then the present members
of the board of directors, except Jack Robinson, shall resign seriatim
so that ISA may appoint three directors and Renaissance may appoint
one director. Should Jack Robinson resign or be removed for any reason
from the board of directors, then a committee composed of one representative
of ISA and one representative of Renaissance shall submit a replacement
nomine to the board of directors.
5.0 Important Miscellaneous Provisions
Each of the parties hereto has read and agrees to the important
miscellaneous provisions which follows the signatory page of this contract.
6.0 Authority as Signatories
6.1 The individuals executing this Agreement for and on behalf of
the parties hereto hereby warrant and represent that they are duly
authorized to enter into this Agreement for and on behalf of said parties
by a resolution of the Board of Directors, or other governing body, of
the respective parties.
6.2 This Agreement may be signed in counterparts and when so signed
shall be fully enforceable as if each party signed one agreement.
IN WITNESS WHEREOF, this Agreement is executed by the parties
effective as of May 1, 1996.
A-9
<PAGE>
Grupo Information, Satellites & Advertising, S.A. de C.V.
By:
Its:
Dated:
Coded Communications Corporation
By:
Its:
Dated:
Renaissance Capital Partners II LTD.
(as Bridge Lender and as Debenture Holder)
By:
Its:
Dated:
Bridge Lender
JERSEY INVEST, LTD.
By:
Its:
Dated:
Bridge Lender
STEWART LEASING COMPANY
By:
Its:
Dated:
Bridge Lender
MINDFULL PARTNERS, L.P.
By:
Its:
Dated:
A-10
<PAGE>
Bridge Lender
STUART L. RUDICK IRA
By:
Its:
Dated:
Bridge Lender
MAHROOK DRIVER
By:
Its:
Dated:
Bridge Lender
HERMAN HODGES
By:
Its:
Dated:
A-11
<PAGE>
IMPORTANT MISCELLANEOUS PROVISIONS
Entire Agreement
This Agreement constitutes the entire Agreement between the parties
on the subject matter hereof and supersedes all previous discussions,
promises, representations or agreements respecting the subject matter
contained herein, except the parties acknowledge the continuing existence
of security agreements and registration rights agreements. There are
no representations, agreements, arrangements, promises or understandings,
oral or written, between and among the Parties relating to the subject
matter of this Agreement that are not fully ex-pressed herein. No
alteration or modification of this Agreement shall be valid unless
agreed to in writing and duly signed by both the parties. This Agreement
was drafted by representatives of both parties and shall not be construed
against either party on the basis of that party being the drafter of the
Agreement.
Amendments
The provisions of this Agreement may be amended by the written consent
of the Parties. Any amendment of this Agreement shall be in writing,
dated, and executed by all Parties. If any conflict arises between the
provisions of any amendment and the original Agreement as previously
amended, the most recent provisions shall control.
Successors
Subject to the restrictions against assignment contained herein,
this Agreement shall inure to the benefit of and shall be binding upon
the assigns, successors in interest, personal representatives,
estates, heirs, and legatees of each of the parties hereto.
Governing Law; Forum; Arbitration
All matters affecting the interpretation, form, validity, enforcement
and performance of this Agreement shall be decided under the laws of the
State of California and in a forum located in San Diego County,
California. This forum selection and choice of law selection are
material considerations for entering into this contract. Any and all
disputes concerning the rights and obligations of the parties hereto
except claims of monetary default or misrepresentation or fraud in the
inducement but including any other claimed breach shall be resolved
by binding arbitration under the rules of the American Arbitration
Association and if international problems are present using the
rules of the International Chamber of Commerce. The parties shall
have the right to conduct full discovery, as that term is commonly
used under California Law, in the arbitration. The decision of
the arbitrator(s) shall be final and binding upon the parties without
right of appeal.
Waiver and Estoppel
The failure of either party hereto to enforce, or the delay by either
party in enforcing, any of its rights under this Agreement shall not be
deemed a continuing waiver or a modification hereof and either party may,
within the time provided by applicable law, commence appropriate
legal proceedings to enforce any or all of such rights. Only an
admitted oral representation (or promise) or a writing clearly and
unequivocally expressing either a waiver of a known right or a promise
not to enforce a particular provision in the future shall be
sufficient to prevent any party from taking any action sanctioned or
allowed by this agreement. No party will be deemed to be estopped
from taking any action sanctioned by this agreement on account of
any other alleged conduct.
A-12
<PAGE>
Severability
In case any of the provisions contained in this Agreement should be
held invalid, illegal or unenforceable in any respect, then the validity,
legality and enforceability of the remaining provisions shall not in any
way be affected or impaired thereby unless the provision was a material
consideration inducing one or both of the parties to enter into this
agreement. In such a case the parties hereto agree to attempt to
negotiate a substitution for the provision held invalid, illegal
or unenforceable. Should that effort fail, then the matter shall be
referred to arbitration and the arbitrator is empowered to amend or modify
any of the terms of this agreement to compensate for the loss of the
provision held invalid, illegal or unenforceable.
Representations and Warranties.
The parties hereto, and each of them, represent and warrant to each
other and agree with each other, as follows:
(a) Each of the parties hereto has had the opportunity to receive
independent legal advice from attorneys ofits, or his own choice,
with respect to the advisability of entering into this contract
and, prior to the execution of this Agreement.
(b) In negotiating this Agreement, each party and its or his attorneys
have made various statements and representations to other parties and
their attorneys. Nevertheless, each party specifically does
not rely upon any statement, representation, legal opinion, or promise
of any other party in executing this Agreement, except as expressly
stated in this Agreement.
(c) There have been no other agreements or understandings between
the parties hereto concerning this restructuring, except as stated
in this Agreement.
(d) Each party, together with its or his attorneys, has had the
opportunity to make such investigation of the facts and of the law
pertaining to this Agreement, and of all the matters pertaining
thereto, as it or he deems necessary.
(e) The terms of this Agreement are contractual, not a mere recital.
(f) This Agreement has been carefully read by, the contents hereof
are known and understood by, and it is signed freely by each person
executing this Agreement.
(g) Each party hereto agrees that such party will not take any
action which would interfere with the performance of this Agreement
by the other party hereto or which would adversely affect any
of the rights provided for herein.
(h) The parties each represent and warrant that he has the right to
grant the rights granted to the other parties in this contract and
represents that no portion of the rights granted herein has been
assigned or transferred or given as security to a person, firm or
entity which is not a party to this agreement. In the event that any
claim, demand or suit shall be made or instigated against any party
because ofany such purported assignment, transfer or grant of security
interest, each party hereto as the case may be hereby indemnifies and
holds the other free and harmless from and against any such claim or demand.
Subsequent Attorneys' Fees.
(a) In the event that any action, suit, or other proceeding is
instituted to remedy, prevent, or obtain relief from a breach of
this Agreement, or arising out of a breach of this Agreement, the
prevailing party shall recover all of such party's attorneys' fees
incurred in each and every such action, suit, or other proceeding,
including any and all appeals or petitions therefrom.
(b) As used herein, attorneys' fees shall be deemed to mean the
full and actual cost of any legal services actually performed
in connection with the matters involved, calculated on the basis
of the usual fees charged by the attorneys performing such services
and shall not be limited to "reasonable attorneys' fees" as defined
in any statute or rule of court.
A-13
