U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: September 28, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-17574
CODED COMMUNICATIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 33-0580412
(State of Incorporation) (I.R.S. Employer Identification No.)
1939 Palomar Oaks Way, Carlsbad, California 92009
(Address of Principal Executive Offices)
(619) 431-1945
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of November 1, 1996, there were 72,445,201 shares of the Registrant's
common stock outstanding.
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-QSB QUARTERLY REPORT
QUARTER ENDED SEPTEMBER 28, 1996
INDEX
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 12
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 3,405,000 $ 2,589,000 $8,675,000 $ 7,115,000
Cost of sales 1,933,000 1,359,000 4,879,000 5,200,000
Gross margin 1,472,000 1,230,000 3,796,000 1,915,000
Operating expenses:
Selling and administrative
expense 696,000 987,000 2,004,000 2,928,000
Research and
development 562,000 220,000 1,338,000 902,000
Total operating
expenses 1,258,000 1,207,000 3,342,000 3,830,000
Income (loss) before interest,
income taxes and
extraordinary item 214,000 23,000 454,000 (1,915,000)
Interest expense 19,000 189,000 425,000 570,000
Provision for income
taxes 6,000 6,000 18,000 18,000
Income (loss) before
extraordinary item 189,000 (172,000) 11,000 (2,503,000)
Extraordinary item-gain
on extinguishment
of debt 643,000 1,256,000 858,000 1,256,000
Net income (loss) $ 832,000 $ 1,084,000 $ 869,000 $(1,247,000)
Net income (loss) per share:
Income (loss) before
extraordinary item $ -- $ (.01) $ -- $ (.18)
Extraordinary gain .01 .08 .02 .10
Net income (loss) $ .01 $ .07 $ .02 $ (.08)
Average shares
outstanding 74,761,000 15,146,000 34,728,000 13,605,000
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 28, December 31,
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 876,000 $ 201,000
Accounts receivable, net 2,045,000 1,828,000
Unbilled costs and earnings on contracts 260,000 817,000
Inventories 1,491,000 1,540,000
Prepaids and other current assets 332,000 314,000
Total current assets 5,004,000 4,700,000
Property and equipment, net 735,000 821,000
Other assets 277,000 300,000
$ 6,016,000 $ 5,821,000
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of debt $ 820,000 $ 6,151,000
Accounts payable 1,159,000 2,437,000
Accrued payroll and related benefits 531,000 431,000
Accrued interest 15,000 757,000
Accrued warranty 273,000 246,000
Contract invoicing in excess of revenue -- 270,000
Reserve for restructuring costs 271,000 295,000
Deferred revenue and progress payments 934,000 624,000
Other accrued liabilities 941,000 1,137,000
Total current liabilities 4,944,000 12,348,000
Long-term debt, net of current portion 5,419,000 1,044,000
Commitments and contingencies -- --
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 2,000,000 shares
authorized; issued and outstanding 8,000
shares 8% Series A preferred stock,
liquidation value 800,000 --
Common stock, $.01 par value, 100,000,000 shares
authorized; 72,445,201 shares outstanding in 1996
and 14,566,201 shares outstanding in 1995 725,000 146,000
Additional paid-in capital 24,306,000 23,330,000
Accumulated deficit (30,178,000) (31,047,000)
Total shareholders' equity (deficit) (4,347,000) (7,571,000)
$ 6,016,0000 $ 5,821,000
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Convertible
Additional Preferred Stock Total
Paid-in Liquidation Accumulated Shareholders'
Shares Par Capital Shares Value Deficit Equity (Deficit)
Value
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1994 12,538,324 $ 125,000 $ 22,191,000 --- $ --- $ (29,930,000) $ (7,614,000)
Conversion of 13.5%
debentures 1,319,997 13,000 977,000 --- --- --- 990,000
Issuance of common stock
for services 377,880 4,000 80,000 --- --- --- 84,000
Net loss for period --- --- --- --- --- (1,247,000) (1,247,000)
Balances, September 30,
1995 14,236,201 $ 142,000 $23,248,000 --- $ --- $ (31,177,000) $ (7,787,000)
Balances, December 31,
1995 14,566,201 $ 146,000 $ 23,330,000 --- $ --- $ (31,047,000) $ (7,571,000)
Issuance of common stock
for services 264,000 3,000 50,000 --- --- --- 53,000
Issuance of Series A preferred
stock in exchange for debt --- --- --- 8,000 800,000 --- 800,000
Issuance of common stock for
cash and other
consideration 57,615,000 576,000 926,000 --- --- --- 1,502,000
Net income for period --- --- --- --- --- 869,000 869,000
Balances, September 28,
1996 72,445,201 $ 725,000 $ 24,306,000 $8,000 $800,000 $(30,178,000) $ (4,347,000)
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION> Nine Months Ended
September 28, September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 869,000 $ (1,247,000)
Extraordinary item-gain on
extinguishment of debt (858,000) (1,256,000)
Depreciation and amortization 278,000 423,000
Other 115,000 100,000
Change in assets and liabilities, net (147,000) 977,000
Net cash provided (used) by operating
activities 257,000 (1,003,000)
Cash flows from investing activities:
Additions to property and equipment, net (180,000) (13,000)
Net cash provided (used) by
investing activities (180,000) (13,000)
Cash flows from financing activities:
Sale of common stock $ 1,400,000 $ --
Additions to debt -- 1,050,000
Payments on short-term and long-term debt (802,000) (226,000)
Net cash provided (used) by financing
activities 598,000 824,000
Net increase (decrease) in cash and
equivalents 675,000 (192,000)
Cash and equivalents, beginning of period 201,000 460,000
Cash and equivalents, end of period $ 876,000 $ 268,000
Supplemental cash flow information:
Cash paid for interest $ 105,000 $ 99,000
Cash paid for income taxes 18,000 15,000
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation
Coded Communications Corporation and its wholly-owned subsidiaries
(the "Company") develop, manufacture and market wireless digital
transmitting, receiving and processing equipment and systems for use in
two primary markets: mobile data communications and aerospace telemetry.
The Company's products employ similar technologies and techniques to
transmit, receive and process digitized information transmitted over
conventional voice radio channels and satellite communications links.
The Company's mobile include public safety, emergency medical services,
utilities and service fleets. The Company's aerospace telemetry products
and systems are marketed to the United States and foreign governments and
agencies, and to defense prime contractors for use in research, development,
test and evaluation programs for aircraft, space and weapons systems.
In September 1996, the Company completed a transaction with Grupo
Information Satellites and Advertising, S.A. de C.V. ("ISA") and certain of
the Company's secured creditors, pursuant to which ISA acquired a 75%
common stock ownership interest in the Company and the secured creditors
restructured their debt on terms considered by the Company to favorable.
See Note 3 "Investment by ISA and Restructuring of Debt."
The financial information of the Company included herein is unaudited;
however, such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of financial position and results of
operations for the interim periods.
The unaudited condensed consolidated financial statements do not
include footnotes and certain financial presentations normally required
under generally accepted accounting principles. It should be understood
that accounting measurement at interim dates inherently involves greater
reliance on estimates than at year-end. The results of operations for the
three month and nine month periods ended September 28, 1996 are not
necessarily indicative of results that can be expected for the full year.
The united consolidated balance sheet as of December 31, 1995.
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to a going concern, which contemplate, among other things,
realization of assets and payment of liabilities in the normal course of
business. The unaudited condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities or
the effects on existing shareholders' deficit that may result from any plans,
arrangements or other actions arising from the inability to continue as a
going concern. See Note 3 "Investment by ISA and Restructuring of Debt" and
Management's Discussion and Analysis or Plan of Operation - Cautionary
Statements".
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenues on engineering and systems contracts requiring contract
performance prior to commencement of deliveries are recorded using the
percentage-of-completion method, primarily based on contract costs incurred
to date compared to total estimated contract costs. Losses, if any, are
recorded when known. All other revenue is recognized upon shipment of
products or performance of services. The Company has provided loss reserves
for certain contracts based on the estimated cost to complete the contracts
increase in the contract loss reserves could be required within the next year.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation", effective for fiscal
years beginning after December 15, 1995. This Statement encourages entities
to use a fair value based method of accounting for stock-based compensation
plans. This Statement also requires certain disclosures about stock-based
employee compensation arrangements regardless of the method used to account
for them. Pro forma disclosures are required for entities that continue
to apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". The pro forma amounts will
reflect the difference between compensation cost, if any, included in
net income and the related cost measured by the fair value based method
as defined in this Statement, including tax effects, if any, that would
have been recognized in the income statement if the fair value method
had been used. The Company adopted this Statement on a disclosure only
basis on January 1, 1996, as required.
Inventories
Inventories are valued at the lower of cost or market, but not in
excess of net realizable value. The Company has provided estimated
reserves for inventory in excess of the Company's current needs and for
product obsolescence. Due to the uncertainties inherent in the
evaluation process it is at least reasonably possible that reserves
for excess and obsolete inventories could be further revised within the
next year.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average
number of shares of common stock and dilutive common stock equivalent
shares outstanding. For purposes of calculating average common shares
outstanding, The 57,600,000 common shares issued in connection with
the ISA transaction are considered to be issued and outstanding as of
July 1, 1996.
Statements of Cash Flow
Non-cash financing activities in 1996 included (i) an increase of
$118,000 in the value of the creditors' note in exchange for the
settlement of unsecured credit claims valued at $236,000, (ii) the
issuance of 8,000 shares of Series A preferred stock in settlement of
$800,000 of the principal amount of the Bridge Loan and (iii) the
issuance of 264,000 shares of common stock in exchange for services
valued at $53,000. Non-cash financing and investing activities in 1995
were related to (i) the issuance of 377,880 shares of common stock
valued at $84,000 for consulting services, (ii) the conversion of
$990,000 principal amount of 13.5% convertible debentures into
1,319,997 shares of common stock, and (iii) the issuance of the
creditors note in the amount of $1,331,000 in exchange for the
settlement of unsecured creditors' claims.
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Management's Plan for Future Operations and Financing:
The Company has operated at a loss on a consolidated basis
since inception. At September 28, 1996, the Company had net
working capital of $60,000 and a shareholders' deficit of $4,347,000.
The continuation of operations of the Company is dependent upon
its ability to operate profitably over a sustained period of time
and to generate sufficient cash from operations and other sources
to meet working capital and other ongoing cash requirements in the
time frame required. Although the Company has reported five
consecutive quarters of operating income before interest expense and
income taxes, there is no assurance the Company will continue to
operate at a profit or that it will operate at a profit in the
current year. The Company may need additional equity or debt
financing in 1997 to continue its planned level of operations.
The Company believes, as a result of its recent financial
performance and the restructuring of secured debt, that financing
should be available at terms and conditions acceptable to the Company.
However, as a result of ISA acquiring a controlling common stock
ownership interest in the Company, it may become more difficult to
obtain financing in the near-term from sources other than ISA.
The potential sources of financing that may be required to be
provided by ISA include additional equity investments, loans or
guarantees of debt. See Note 3 "Investment by ISA and Restructuring
of Debt" and "Management's Discussion and Analysis or Plan or
Operation-Cautionary Statements."
3. Investment by ISA and Restructuring of Debt
On September 27, 1996 the Company consummated an agreement with
Grupo Information, Satellites and Advertising S.A. de C.V. ("ISA") and
certain of the Company's senior secured creditors pursuant to which ISA
(through its subsidiary, ISA Investments Corporation) acquired a
controlling common stock ownership interest in the Company, and the
Company's senior secured debt holders restructured their debt.
Under the terms of agreements entered into on May 1, 1996 and July 17,
1996, ISA received approximately 54,400,000 shares of the Company's
common stock, or a common stock ownership interest of approximately 75%,
and the Company received (i) $1,400,000 in cash; (ii) a guarantee that
ISA will place not less than $10,000,000 in orders for the Company's
products over an 18 month period, secured by up to one-half of ISA's
shares in the Company; and (iii) the agreement of senior secured creditors
for the restructuring of their debt (as described below). As of
September 28, 1996, ISA had placed approximately $3,400,000
in orders for the Company's mobile data products and systems.
Holders of the Company's senior secured $1,800,000 Bridge Loan,
which was due on April 17, 1996, canceled the Bridge Loan in exchange
for a cash payment of $400,000; a new $600,000 principal amount, 6%
interest rate one-year term note, convertible into common shares at a
price of $.25 per share; and 8,000 shares of newly issued Series A
Preferred Stock. The Series A Preferred Stock has a liquidation
preference of $800,000, a dividend of 8% per year, and is convertible
into 2,400,000 shares of common stock. Dividends on the Series A
Preferred Stock will be paid 50% in cash and 50% in shares of common
stock. The 6% Term Note is collateralized by a security interest
in the assets of the Company. Warrants to purchase 3,600,000 shares
of common stock issued to holders of the Bridge Loan in 1995 were
canceled. See Note 6 "Short-Term and Long-Term Debt."
Renaissance Capital Partners II, holders of the Company's
secured $4,000,000 principal amount, 12% Convertible Debentures
(the "12% Debentures") exchanged their 12% Debentures and accrued
interest of $902,000 for a new seven-year, $4,800,000 principal
amount, 6% Convertible Debenture and 200,000 shares of common stock.
The 6% Convertible Debenture is convertible into 48,000 shares of
Series B Preferred Stock. The Series B Preferred Stock will have
a liquidation preference of $4,800,000, a dividend rate of 6% per year,
and will be convertible into approximately 7,407,000 shares of common stock.
The 6% Convertible Debenture is collateralized by a security interest in
the assets of the Company. See Note 6 "Short-Term and Long-Term Debt."
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ISA is one of a privately-held group of 10 affiliated companies
(collectively, "Grupo ISA"), each of which is incorporated under
the laws of Mexico. The combined unaudited revenues of Grupo ISA
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, Grupo ISA
is engaged in the distribution of mobile data products, satellite
communications, computer network systems, electronic signage and
advertising. ISA designs, installs, distributes and operates
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 Grupo ISA 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. Grupo ISA also operates over 1,000 billboards
throughout Mexico. ISA and Grupo ISA's principal executive offices
are located at Orizaba No.182 Col., Roma 06700, Mexico, D.F.
4. Extraordinary Gain on Extinguishment of Debt:
In the three and nine month periods ended September 28, 1996
and September 30, 1995, agreements were reached with certain
unsecured creditors on the extinguishment of debt resulting in
gains of $643,000, $858,000, $1,256,000 and $1,256,000,
respectively, net of expense. The gains on the extinguishment
of debt are reflected as extraordinary items in the accompanying
consolidated financial statements. See Note 6 to the condensed
consolidated financial statements regarding the agreement of
certain unsecured creditors to participate in a
composition settlement plan.
<TABLE>
5. Inventories and Accounts Receivable:
<CAPTION>
Inventories consisted of: September 28, December 31,
1996 1995
<S> <C> <C>
Purchased parts, net $ 446,000 $ 548,000
Work in process 1,020,000 977,000
Finished goods 25,000 15,000
Total inventories $ 1,491,000 $ 1,540,000
</TABLE>
Included in accounts receivable at September 28, 1996,
was approximately $887,000 due from ISA for September 1996
mobile data product shipments.
<TABLE>
6. Short-Term and Long-Term Debt:
<CAPTION>
Short-term and long-term debt consisted of: September 28, December 31,
1996 1995
<S> <C> <C>
Bridge loan, due April 17, 1996 $ -- $ 1,800,000
12% Debentures -- 4,000,000
6% Term Note 600,000 --
6% Convertible Debenture 4,800,000 --
Creditors' Note 832,000 1,394,000
Other obligations 7,000 1,000
6,239,000 7,195,000
Less amount due within one year (820,000) (6,151,000)
Long-term due after one year $ 5,419,000 $ 1,044,000
</TABLE>
CODED COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In September 1996, holders of the $1,800,000 Bridge Loan
canceled their notes in exchange for a cash payment of $400,000;
a new one-year $600,000 principal 6% Term Note (convertible
into an aggregate of 2,400,000 shares of common stock); and
8,000 shares of Series A Preferred Stock with a liquidation
preference of $800,000. The 6% Term Note is due on September
27, 1997 and is collateralized by a security interest in the
assets of the Company. Interest on the 6% Term Note is payable
quarterly, with 50% of the interest payable in shares of
common stock and 50% of the interest payable in cash. See
Note 3 "Investment by ISA and Restructuring of Debt."
In September 1996, the holder of the $4,000,000 principal
amount, 12% Convertible Debentures exchanged the 12%
Convertible Debentures and $800,000 in accrued interest for a
new 6% Convertible Debenture. The 6% Convertible Debenture
is due September 27, 2003 and is collateralized by a security
interest in the assets of the Company. Interest on the 6%
Convertible Debenture is payable quarterly, with 50% of the
interest payable in shares of common stock and 50% of the
interest payable in cash. The 6% Convertible Debenture is
convertible into 48,000 shares of Series B Preferred Stock
(the Series B Preferred Stock is convertible into
approximately 7,407,000 shares of common stock).
Under the terms and conditions of the 6% Convertible Debenture,
the Company may force the conversion of the 6% Convertible
Debenture into Series B Preferred Stock at such time as the
shares of common stock into which the Series B Preferred Stock
is convertible, have a fair market value of 70% of the principal
amount of the 6% Convertible Debenture, or $3,360,000.
For purposes of the conversion provision, fair market value
is the average bid price of a share of the Company's common
stock for the 20 trading days following the filing of the
Company's Quarterly Report on Form 10-QSB or its Annual Report
on Form 10-KSB. At September 28, 1996, the value of the
common shares underlying the Series B Preferred Stock was
in excess of $3,360,000 based on the closing per share
bid price quoted on the NASDAQ Electronic Bulletin Board.
In the event the fair market value of the common shares
underlying the Series B Preferred Stock is in excess of
$3,360,000 for the required period of time following the
filing of the Company's Form 10-QSB or Form 10-KSB, the
Company intends to exercise its right to force the
conversion of the 6% Convertible Debenture into 48,000
shares of Series B Preferred Stock. See Note 3 "Investment
by ISA and Restructuring of Debt."
In 1995, the Company engaged the San Diego Wholesale
Credit Association to assist in the formation of an out-of-court
composition settlement plan for the voluntary settlement of
unsecured creditors' claims. Under the composition settlement
plan, certain of the Company's unsecured creditors accepted
50% of their credit claims in full settlement of their claims
(the "settlement value"), with quarterly payments beginning
in September 1995 at a fixed rate of 5% of the settlement value.
The unpaid balance of the settlement value si to be paid in
December 1997. As of September 28, 1996, unsecured creditors
with original claims of approximately $3,153,000
had agreed to participate in the composition settlement plan.
In the nine month period ended September 28, 1996, creditors
with original claims of approximately $236,000 agreed to
participate in the composition settlement plan, accepting
future payments totaling approximately $118,000 in full
settlement of their claims. In September 1996, the Company
offered all participants in the composition settlement plan
a lump sum cash payment equal to 35% of the remaining
balance of their settlement claim as an early settlement.
Participants in the composition settlement plan holding
$435,000 in claims accepted the Company's offer and were
paid approximately $152,000 in full settlement of the unpaid
balance of their settlement value. A gain of $283,000 on the
settlement of debt is included as an extraordinary gain in the
consolidated financial statements. The Creditors' Note is
collateralized by a subordinated security interest in the
assets of the Company.
__________________________
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
The Company operates in a single industry - the design,
manufacture and integration of digital communications products
and systems used primarily in terrestrial radio systems. The
two principal markets in which the Company competes are wireless
mobile data communications and aerospace telemetry systems.
The Company restructured its business operations and
management in the first quarter of 1995. These actions included
the closing of the Company's VSAT product line and the international
mobile data sales organization. In addition, the Company's CEO
resigned and a number of management positions were eliminated
to streamline operations. As a result of the restructuring,
operating expenses in the year ended December 31, 1995 were
reduced by approximately $8,383,000 compared to 1994.
The Company, following the restructuring, reported an
operating profit before interest and income taxes of
approximately $250,000 in the last six months of 1995 and
approximately $454,000 in the first nine months of 1996.
Although the Company has reported an operating profit before
interest and income taxes for the last five consecutive quarters,
there is no assurance the Company will continue to operate at a
profit or that it will operate at a profit in the current year.
In addition, as a result of the restructuring of business
operations in the first quarter of 1995, any comparison of
sales and operating expenses for the nine month periods in 1996
and 1995 may not represent a meaningful analysis. Sales by
the Company's major product lines are presented below.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
<S> <C> <C> <C>
Mobile data communications
products $6,152,000 $4,425,000 $2,704,000 $1,577,000
Aerospace telemetry
products 2,523,000 2,690,000 701,000 1,012,000
$8,675,000 $7,115,000 $3,405,000 $2,589,000
</TABLE>
Nine Months Ended September 28, 1996 ("1996") Compared to
Nine Months Ended September 30, 1995 ("1995")
Operating Income
For the first nine months of 1996, operating income before
interest, income taxes and extraordinary gain was $454,000,
compared to an operating loss of $(1,915,000) in 1995. Income
before extraordinary gain in 1996 was $11,000, the Company's
first year-to-date profit in its history, compared to a loss
of $(2,503,000) in 1995. The sharp turnaround in operating
performance resulted primarily from increased sales, improved
gross margin on sales and a reduction in operating expense.
The Company's sales in the second and third quarter
of 1996 were favorably impacted by sales of mobile data
products to customers in Mexico. The pilot phase and
initial system evaluations on these contracts are expected
to start in the fourth quarter of 1996 and be completed
before the end of the year. However, until the pilot phase
and system evaluations are complete, no significant new
orders from customers in Mexico are expected. As a result,
sales in the last quarter of 1996 could be negatively
impacted and fall below the sales levels of the third
quarter of 1996. In that case, the Company may operate
at break-even or an operating loss in the fourth quarter
of 1996. Future sales of mobile data products to customers
in Mexico, if delayed, are expected to resume in the first
quarter of 1997 and could represent a significant portion
of mobile data product revenue in 1997.
Sales and New Orders
Sales for the nine months ended September 28, 1996 were
$8,675,000, an increase of 22% over sales of $7,115,000 in
the comparable period in 1995. Sales of mobile data communications
products and systems increased by 39% and sales of aerospace
telemetry products and systems decreased by 6%, compared to sales
in the same period last year. The increase in sales of mobile
data products resulted from export sales of approximately
$3,000,000 to ISA for customers in Mexico. Included in mobile
data sales in 1996 and 1995 is $288,000 and $375,000, respectively,
in revenue recognized from the licensing of manufacturing rights
of the Company's MPT 1327 modem to GEC-Marconi Communications.
The MPT 1327 modem is used in trunked radio systems in the
United Kingdom using the UK standard MPT 1327 transmission protocol.
Under the license agreement, the Company will receive future
royalties for each MPT 1327 modem manufactured and sold by the
licensee.
New order levels in 1996 increased approximately 47%
compared to order levels in the same period in 1995. New
orders for mobile data and aerospace telemetry products
increased 51% and 41%, respectively, over order levels in
the prior year. The increase in orders for mobile data
products resulted from orders placed by ISA for customers
in Mexico. The Company believes new orders for domestic
mobile data communications systems in the second half of
1995 and the first half of 1996 were adversely affected
by the Company's financial condition. However, bid
and order activity has recently improved, the Company
believes, as a result of the Company's improving financial
performance.
The Company's business is generally concentrated in large,
single orders for communications systems, with contract
performance periods of up to 12 months or longer. As a result,
new order levels and sales can fluctuate significantly on a
quarter-by-quarter basis. The backlog of orders for mobile
data and aerospace telemetry products and systems at September 28,
1996 was approximately $4,690,000, compared to backlog of
$5,703,000 at December 31, 1995, and $7,672,000 at September 30, 1995.
Gross Margin
Gross margin, as a percentage of sales, improved to 44%
of sales in 1996 from 27% of sales in 1995. Improved gross
margin resulted primarily from a change in product mix and
improved pricing on mobile data system contracts. Gross
margin in the first nine months of 1995 was adversely
impacted by adjustments to major contracts which resulted
in contract losses of approximately $395,000. Gross margin,
as a percentage of sales, can be expected to fluctuate from
quarter-to-quarter due to, among other factors, sales levels,
the sales mix of products and services and adjustments to
contracts reported under the percentage-of-completion method of accounting.
Extraordinary Item - Gain on Extinguishment of Debt
In the first nine months of 1996, creditors with unsecured
claims of approximately $1,273,000 agreed to settle their claims
for current and future payments of approximately $345,000.
The Company recognized a gain on extinguishment of debt of
$858,000, net of related settlement expense. In the first
nine months of 1995, creditors with claims of approximately
$2,891,000 agreed to settle their claims for approximately
$1,535,000, and the Company recognized a gain on extinguishment of
debt of $1,256,000, net of expense.
Operating Expenses and Income Taxes
Operating expenses in the first nine months of 1996
were $3,342,000, a decrease of $488,000 or 13% compared to
operating expense levels in the first nine months of 1995.
In the first half of 1995, the Company restructured its
business and significantly reduced operating expenses.
The restructuring efforts in 1995 included reorganizing
management, reducing personnel levels, closing all
international sales offices and the VSAT earthstation product
line, and focusing marketing and selling activities on
selected market segments.
Selling and marketing expense in the first nine months
of 1996 was approximately 9% less than the expense level in
the same period in 1995, primarily as a result of reductions
in personnel costs and discretionary selling expenses such
as travel, advertising and trade show expense. General
and administrative expenses were approximately 53% less
than the expense levels in 1995, primarily as a result
of reductions in personnel expense and overhead costs incurred
in 1995 to support international operations and higher
projected sales levels. For the balance of 1996, the Company
believes operating expenses will continue at the present levels.
Research and development expense in 1996 increased
by $436,000 or 48% compared to 1995. The increase in
research and development expense resulted primarily from
investments in the continuing development of the Quad 7
integrated telemetry system and mobile data communications
system software. For the balance of 1996, the Company
believes that research and development expense will continue
at its present level.
The Company has net operating loss carryforward tax
benefits to offset future federal taxable income. Income
tax expense in 1996 and 1995 represents a provision for
state income tax expense.
Three Months Ended September 28, 1996 ("1996") Compared
to Three Months Ended September 30, 1995 ("1995")
Sales and New Orders
Sales in the third quarter of 1996 were $3,405,000,
an increase of 32% over sales of $2,589,000 in the same
period in 1995. Sales of mobile data products in 1996
increased by 72% or $1,127,000 over 1995, as a result of
export sales to ISA customers in Mexico. Sales of mobile
data products and systems in 1996, to customers other than
ISA, decreased by 62% compared to 1995, primarily as a
result of a reduction in new order bookings experienced in
the last half of 1995 and the first quarter of 1996.
Aerospace telemetry sales in 1996 decreased by $311,000
or 31% compared to 1995, primarily as a result of the
timing of new orders in the first half of 1996.
New orders in the third quarter of 1996 increased
significantly over orders in the first and second quarters
of 1996, primarily as a result of orders for mobile data
products from ISA for customers in Mexico. Orders for
aerospace telemetry products in the third quarter of 1996
were nearly equal to the orders received in the first and
second quarters of 1996.
Gross Margin
Gross margin, as a percentage of sales, decreased to 43%
from 48% in 1995. The decrease in gross margin resulted
primarily from a change in product mix and increased costs
on mobile data system contracts in the third quarter of 1996.
Gross margin, as a percentage of sales, can be expected to
fluctuate from quarter-to-quarter due to, among other
factors, sales volume, the mix of products and services
and adjustments to contracts recorded under the
percentage-of-completion method of accounting.
Operating Expenses, Interest Expense and Income Tax
See results of operations for the nine months ended
September 28, 1996 for a discussion of operating expenses.
In the third quarter of 1996, interest expense decreased
by $170,000, to $19,000 from $189,000. The decrease resulted
from a decrease in the weighted average annual interest rate
to 6 percent in 1996 from nearly 12 percent in 1995.
In addition, as a result of the debt restructuring completed
in the third quarter of 1996, the Company negotiated a
settlement of a portion of interest expense, accrued at an
annual interest rate of 12 percent, at an interest rate of
6 percent. The adjustment in interest expense was reflected in
interest expense in the third quarter of 1996.
Liquidity and Capital
Since its inception, the Company has financed its net
losses, investments in new product development and met its
working capital requirements through the sale of common stock,
convertible debentures and other financing. In the first nine
months of 1996, cash requirements were met by $257,000 in
cash flow from operating activities and proceeds of
$1,400,000 from the sale of common stock.
At September 28, 1996 and December 31, 1995, the
Company had a shareholders' deficit of $4,347,000 and
$7,571,000, respectively; and net working capital of
$60,000 at September 28, 1996. The continuation of
operations of the Company is dependent, in part, on
the Company's ability to operate profitably over a
sustained period of time; to generate sufficient cash
from operations and other sources to increase working
capital and meet other ongoing cash needs in the time
frame required; and the market acceptance of the Company's
mobile data communications products in light of
the Company's past financial instability.
In the third quarter of 1996, the Company consummated
its agreements with ISA and certain of the Company's secured
creditors. Under these agreements ISA acquired a 75%
ownership interest in the Company's outstanding common
shares for a cash investment of $1,400,000, and secured
creditors holding debt in the amount of $6,600,000 agreed
to restructuring their debt on terms considered by the
Company to be favorable. Approximately $745,000 of the
cash proceeds received from the ISA investment were used to
retire $400,000 in principal of the Bridge Loan and $345,000
was used to settle unsecured and secured claims aggregating
$1,273,000. See Note 3 "Investment by ISA and Restructuring
of Debt" and Note 6 "Short-Term and Long-Term Debt."
At September 28, 1996 and December 31, 1995, there
were additional unsecured claims of approximately $700,000
and $1,600,000, respectively, outstanding, including disputed
claims, that were not paid in accordance with their respective
credit terms. A significant portion of these obligations were
incurred prior to March 1995. Discussions are continuing with
the major unsecured creditors with past due or disputed claims
and the Company is of the opinion that satisfactory arrangements
can be reached with a majority of these creditors for the
settlement of their claims prior to the end of the year.
However, there is no assurance that remaining unsecured creditors
with past due or disputed claims will agree to any settlement of
their claims or that such creditors will not take legal
action against the Company.
In 1996, accounts receivable increased by $217,000 from
1995 primarily as a result of higher sales in the third quarter
of 1996 compared with the level of sales in the last quarter
of 1995. Included in accounts receivable at September 28,
1996 was $887,000 due from ISA. Unbilled costs and earnings
on contracts, net of related contract invoicing in excess
of revenue, decreased by $287,000 in 1996 to $260,000 from
$547,000 in 1995. The decrease is a result of the difference
in the timing of revenue recognition for financial statement
purposes and actual contract invoicing which is typically
determined by contract terms. Inventories in 1996
decreased by $49,000, from $1,540,000 to $1,491,000,
primarily as a result of a reduction in parts inventories.
Accounts payable in 1996 decreased by $1,278,000
compared to 1995, primarily as a result of the settlement
of unsecured creditors claims with a value of $838,000.
The Company at times throughout 1995 was unable to make
timely payments to its trade and other creditors. In
the second half of 1995 and in the first nine months of
1996, substantially all vendors required cash on delivery
as their terms of sale and the Company was generally
meeting its obligations in a timely manner.
As a result of the Company's inability in 1994 and early
1995 to meet its obligations to suppliers in accordance with
their respective credit terms the Company is a party to legal
actions and creditor judgments. In the event the Company
does not have the funds required to defend against these claims
or is unable to settle the legal actions on terms and conditions
favorable to the Company, the Company's operations could be
adversely affected. At September 28, 1996, the Company was of
the opinion that legal actions existing as of that date did not
represent an immediate and significant risk to the Company's business.
See Note 1. "Summary of Significant Accounting Policies --
Basis of Presentation" and Note 2. "Management's Plan for
Future Operations and Financing" to the condensed consolidated
financial statements.
Cautionary Statements
In the interest of providing the Company's shareholders
and potential investors with certain Company information,
including management's assessment of the Company's future
potential, certain statements set forth herein or elsewhere
in the condensed unaudited consolidated financial statements,
contain or are based on projections of new order levels,
revenue, gross margin, income, operating expenses, the
realization of assets and other financial items or relate
to management's future plans and objectives or to the Company's
future economic performance. Such statements are "forward-
looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and in Section 21E of the
Securities Exchange Act of 1934, as amended.
Although any forward-looking statements contained herein
or otherwise expressed by or on behalf of the Company are to
the knowledge and in the judgment of the management of the
Company, expected to prove true and to come to pass, management
is not able to predict the future with absolute certainty.
Accordingly, shareholders and potential investors are hereby
cautioned that certain events or circumstances could cause
actual results to differ materially from those projected or
predicted herein. In addition, the forward-looking
statements herein are based on management's knowledge and
judgment as of the date hereof, and the Company does not intend
to update any forward-looking statements to reflect events
occurring or circumstances existing hereafter.
In particular, the Company believes that the following
factors could impact forward-looking statements made herein
or in future written or oral releases and by hindsight,
prove such statements to be overly optimistic and unachievable:
The Company has operated at a loss on a consolidated basis
since inception. Although the Company has improved its operating
results and reported five consecutive quarters of operating
profit before interest and income taxes, there is no assurance
that the Company will report profitable operations in the future
or for the current year. The continuation of operations of the
Company is dependent upon its ability to operate profitably
over a sustained period of time and to generate sufficient
cash from operations and other sources to increase working
capital and meet other ongoing cash requirements as the
requirements arise.
The Company's common stock is subject to significant
volatility in both market price per share and trading volume.
Factors such as new product announcements and contract
awards by the Company or its competitors; fluctuations
in operating results, new orders and backlog levels; and
general market conditions may have an immediate and significant
impact on the market price and trading volume of the Company's
common stock.
As a result of the consummation of the agreements with
ISA and the Company's secured creditors, ISA appointed a
majority of the Company's board of directors and ISA holds
a controlling interest in the Company's outstanding shares
of common stock. As a result of its representation on the
Board of Directors and its common stock ownership, ISA
controls the Company. Accordingly, ISA has the ability to
approve significant transactions without the approval of the
other minority shareholders, such as a sale of all the
Company's assets or transactions designed to take the
Company private. ISA has stated its present intent to keep
the Company a publicly-held and traded entity, and ISA has
no present intent to take the Company private. In addition,
as a result of ISA's ownership control of the Company, it may
be difficult to obtain debt or equity financing from third
party investors and lenders. To the extent that ISA does not
or cannot provide financing for the Company's working capital
requirements, when needed, the Company's operations would be
adversely affected.
At September 28, 1996, the Company employed approximately
70 personnel, all of whom were located in the United States.
A number of employees are considered by the Company to be
highly skilled and critical to particular aspects of its business.
Primarily as a result of the Company's financial condition,
the Company may be unable to retain personnel with the experience
and skills that are critical to its operations, or hire qualified
and experienced replacements in the time frame required. In the event
key personnel leave the employment of the Company and cannot be
replaced in the time frame required, the operations of the Company
would be adversely affected.
The Company generally competes for large, special order
contracts for mobile data and aerospace telemetry systems.
As a result of the Company's financial condition and limited
working capital, the Company believes that certain customers
awarded contracts in 1995 and the first half of 1996, that
would have otherwise been awarded to the Company, to other
competitors with substantially greater financial resources.
The Company believes its financial condition has caused delays
in and the loss of customer contracts in the past twelve months,
and continuing delays in or the loss of contract awards will
adversely affect the operations of the Company.
The market for the Company's mobile data communications and
aerospace telemetry products are characterized by rapid change
driven by advancements in digital signal processing technology,
the miniaturization of electronic components and the construction
of new wireless terrestrial and satellite communications systems.
The Company's ability to compete successfully depends, in part,
on its knowledge of the wireless mobile communications and
aerospace telemetry markets, its ability to anticipate and react
to such changes, and its ability to implement technological
advancements in new products and software to meet customer
requirements. The Company intends to spend approximately 15%
of consolidated sales on research and development in 1996 and
not more than 12% of consolidated sales in 1997. The Company
believes this level of investment should be sufficient to
maintain the competitive position of the Company's present core
technologies in the near term. However, higher investment
rates could be required thereafter to maintain the competitive
position of the Company's products and technology. In the
event the Company's cash flow or the award of new business is
less than anticipated, the Company may be required to
significantly reduce its investment in research and development.
___________________________
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
In February 1995, the holder of the $4,000,000 principal
amount 12% Convertible Debenture declared the securities in
default and accelerated the payment of principal and interest
because the Company (i) failed to pay interest when due and
(ii) was not in compliance with the financial covenants of the
12% Convertible Debenture Loan Agreement. On April 17, 1996,
the Company did not repay, as scheduled, the $1,800,000
principal amount Bridge Loan. The 12% Convertible Debentures
and the Bridge Loan were collateralized by a security interest
in substantially all of the Company's assets. On September 27,
1996, the 12% Convertible Debentures and the Bridge
Loan were restructured under terms considered by the Company
to be favorable. See Note 3 "Investment by ISA and Restructuring
of Debt" and Note 6 "Short-Term and Long-Term Debt."
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held
September 19, 1996 (the "Meeting"). At the Meeting, shareholders
approved the Investment Agreement by and between ISA, the Company
and certain secured creditors; and amendments to the Company's
Certificate of Incorporation (i) to increase the number of
authorized common shares to 100,000,000 shares and (ii) authorize
2,000,000 shares of $.01 par value, preferred stock.
Shareholders also ratified the appointment of Coopers & Lybrand, LLP,
as independent auditors for the year ending December 31, 1996.
Following the Meeting, Board of Director members Steven Borgardt
and James Kenney resigned as directors pursuant to the Investment Agreement.
Appointed to the Board of Directors were Messrs. Hugo R. Camou,
Fernando Molina and Fernando Pliego. John Robinson, the Company's CEO
and president, continues as a director.
Hugo R. Camou is the Chairman of the Board, CEO and controlling
shareholder of Grupo ISA. Mr. Camou founded Grupo ISA in 1988.
He is 39 years old and holds a degree in mathematics and physics from
the Instituto Poletecnico Nacional in Mexico. Prior to founding
Grupo ISA, Mr. Camou taught computer science and mathematics for
undergraduate and graduate university programs in Mexico.
Fernando Molina is the Executive Vice President of Grupo
Embotellador Mexicano, S.A. de C.V., the largest Pepsi Cola
bottling plant and distributor in Mexico. He also serves on
the Board of Directors of Banco Nacional de Mexico and Consorcio
Azucarero Escorpion. Mr. Molina is a public accountant with a
degree from the ITAM University, and he is 56 years old.
Fernando Pliego serves as the Chief Executive Officer of three
of the companies comprising Grupo ISA. Mr. Pliego has more than
twenty years of experience in telecommunications in Mexico. Mr.
Pliego holds a degree in Chemical Engineering from the Universidad
Nacional Autonoma de Mexico, and he is 56 years old.
Jack Robinson is the Company's CEO and president, assuming
those positions in March 1995. Prior to that time, Mr. Robinson
served in various capacities as an officer of the Company, and
as its chairman of the board from 1987. In addition, Mr. Robinson
served as the chairman of the board, CEO and president of the
Company's wholly-owned subsidiary, Decom Systems, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
2.4 Mutual Agreement of Terms and Conditions, dated
May 1, 1996 and the Second Agreement, dated July 17, 1996 (filed as Exhibits
to the Company's Definitive Proxy Statement dated July 26, 1996).
3.2 Certificate of Amendment of Certificate of
Incorporation (filed herein as Exhibit 3.2).
3.3 Certificate of Correction of Certificate of
Designation of Preferred Stock, Series A and Certificate of
Designation of Preferred Stock, Series A (filed herein as Exhibit 3.3).
3.4 Certificate of Correction of Certificate of
Designation of Preferred Stock, Series B and Certificate of
Designation of Preferred Stock, Series B (filed herein as Exhibit 3.4).
4.1 6% Convertible Debenture and Fourth Amendment
to Loan Agreement by and between Coded Communications Corporation,
Coded Mobile Communications Corporation and Renaissance Capital
Partners II, Ltd. (filed herein as Exhibit 4.1).
27.1 Financial Data Schedule as of September 28, 1996
and the nine month period then ended (filed herein as Exhibit 27.1).
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CODED COMMUNICATIONS CORPORATION
(Registrant)
November 1, 1996 /s/ John A. Robinson, Jr.
Date John A. Robinson, Jr.
Chief Executive Officer
and President
EXHIBIT 2.4
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.
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.
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.
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:
o 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
o 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.
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:
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.
4.0 Other Terms and Conditions
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:
<TABLE>
<CAPTION>
Common shares
<S> <C> <C>
(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
o 200,000 pro rata to the holders of
Series A Preferred Stock
o 800,000 to Renaissance;
(b) one million shares when Coded common stock is
trading at or above $0.50 per share distributed as
follows
o 200,000 pro rata to the holders of
Series A Preferred stock
o 800,000 to Renaissance;
(c) one million shares when Coded common stock is
trading at or above $1.00 per share distributed as
follows
o 200,000 pro rata to the holders of
Series A Preferred Shares
o 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.
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 agreements 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 nominee 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.
Grupo Information, Satellites & Advertising, S.A. de
C.V.
By: /s/ Hugo R. Camou
Its: President
Dated: May 1, 1996
Coded Communications Corporation
By: /s/ John A. Robinson, Jr.
Its: President
Dated: May 1,1996
Renaissance Capital Partners II LTD.
(as Bridge Lender and as Debenture Holder)
By: /s/ Vance Arnold
Its: President
Dated: April 19, 1996
Bridge Lender
JERSEY INVEST, LTD.
By: /s/ James Curtis
Its: President & CEO
Dated: May 2, 1996
Bridge Lender
STEWART LEASING COMPANY
By: /s/ JoAnna McMichael
Its: Vice President, Secretary
Dated: May 2, 1996
Bridge Lender
MINDFUL PARTNERS, L.P.
By: /s/ Stuart Rudick
Its: General Partner
Dated: May 2, 1996
Bridge Lender
STUART L. RUDICK IRA
By: /s/ Stuart Rudick
Its:
Dated: May 2, 1996
Bridge Lender
MAHROOK DRIVER
By: /s/ Mahrookh Driver
Its:
Dated: May 3, 1996
Bridge Lender
HERMAN HODGES
By: /s/ Herman Hodges
Its:__________________________
Dated: May 2, 1996
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 expressed 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.
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 of its, 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
of any 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.
SECOND AGREEMENT
This Agreement is entered into as of July 17,
1996, by and among Grupo Information, Satellites &
Advertising, S.A. de C.V. ("ISA"), Renaissance Capital
Partners II Limited ("RenCap"), and Coded
Communications Corporation, a California corporation
("Coded"), each of whom agree as follows:
1. Recitals. This Agreement is entered into
based on the following essential facts, the accuracy of
which the parties acknowledge:
2. Coded is suffering severe cash flow problems
and needs financing for working capital and the
retirement of debt. In an attempt to satisfy its
financial needs, Coded entered into the Mutual
Agreement of Terms and Conditions as of May 1, 1996,
with ISA, RenCap, and others (the "Multi-Party
Agreement").
3. Because of the delays in closing the
transactions contemplated by the Multi-Party Agreement
and in restructuring the debt of Coded, ISA's
relationship with Coded has become strained and Coded's
potential business opportunities in Mexico and Latin
America are in jeopardy if it does not soon provide its
products and services.
4. To help meet Coded's needs, ISA is willing to
immediately make the $1,000,000.00 loan to Coded
described in Section 2.3 of the Multi-Party Agreement
(the "Loan"), and to concurrently convert the Loan into
equity in accordance with the Multi-Party Agreement.
By the conversion, Coded will avoid the burden of
additional debt, and improve its liquidity and capital
position.
5. ISA additionally is willing to accelerate its
purchase orders described in the Multi-Party Agreement
(to which ISA is not required to make). In accordance
with this Agreement, ISA will place $1,000,000.00 in
purchase orders with Coded (along with a $250,000.00
deposit in accordance with Coded's standard
international terms of sale), thereby raising the
amount of its purchase orders with Coded to
$2,000,000.00 (which is approximately 20 percent of its
total order requirement under the Multi-Party
Agreement). The parties intend that ISA receive Five
Million of the approximately Forty-Nine Million shares
to which ISA is entitled under the Multi-Party
Agreement (which represents about ten percent of the
shares released to ISA on account of ISA's potential
purchase orders).
6. The parties intend that ISA accelerate an
additional $1,000,000.00 of purchase orders to Coded
(along with an additional $250,000.00 advance in
accordance with Coded's standard international terms of
sale), on which Coded is expected to realize a gross
margin of $450,000.00, in exchange for the issuance to
ISA of an One Million shares of Coded's stock.
7. Upon consummation of this Agreement, Coded
will have received $3,000,000.00 of the $10,000,000.00
(i.e., Thirty Percent) worth of orders to which ISA may
ultimately be committed under the Multi-Party Agreement
(which includes $1,000,000.00 of ISA's orders placed
with Coded before the date of this Agreement), along
with total deposits on such orders in the amount of
$1,000,000.00, as well as $1,000,000.00 of additional
equity; and ISA will own Ten Million shares of Coded's
common stock.
8. ISA Orders to Coded.
9. Acceleration of Orders Under Multi-Party
Agreement. On or before July 24, 1996, ISA shall place
with Coded a binding purchase order for at least One
Million Dollars (US $1,000,000) worth of Coded's goods
and services, and shall deposit Two Hundred Fifty
Thousand Dollars (US $250,000) with Coded towards the
purchase order. The purchase order will be made
pursuant to the Multi-Party Agreement, and the order
will be credited towards the purchase orders required
by ISA under Section 2.1 of the Multi-Party Agreement.
Because ISA is accelerating the purchase orders to
Coded, promptly on Coded's receipt of the orders
described in this paragraph, Coded shall issue ISA or
its assignee Five Million shares of Coded's common
stock. Such shares will be credited towards the stock
to be issued to ISA under Section 1.3 of the Multi-
Party Agreement (i.e., Forty-Four Million Eight
Thousand Seven Hundred and Three [44,008,703] shares of
Coded's common stock will remain subject to the Option
described in the Multi-Party Agreement). The Shares
will be issued in the name of ISA or its permitted
assignee, in the form of five separate certificates,
each in the amount of One Million shares, and ISA or
its assignee will be entitled to one demand
registration right of the same nature to which ISA is
entitled in connection with the stock it receives under
the Multi-Party Agreement.
10. Additional Orders for Additional Shares. On
or before July 24, 1996, ISA shall place with Coded a
binding purchase order for an additional One Million
Dollars (US $1,000,000) worth of Coded's goods and
services and shall deposit Two Hundred Fifty Thousand
Dollars (US $250,000) with Coded towards the purchase
order. The purchase order will be credited towards the
purchase orders referenced in the Multi-Party
Agreement. In consideration of, and promptly on
receipt of, the additional purchase order and deposit
described in the preceding sentence, Coded shall issue
ISA or its assignee One Million shares of Coded's
common stock. Such shares do not apply to the stock to
be issued to ISA under Section 1.3 of the Multi-Party
Agreement. The shares will be issued in the form of a
single certificate in the name of ISA or its permitted
assignee, and ISA or its assignee will be entitled to
one demand registration right of the same nature to
which ISA is entitled in connection with the stock it
receives under the Multi-Party Agreement.
11. Production of ISA Orders. Ing. Fernando
Pliego, a representative of ISA, may inspect, monitor
and coordinate Coded's production and delivery of
products and services to ISA. Coded shall reimburse
ISA Ten Thousand Dollars (US $10,000) per month for
ISA's costs of retaining Mr. Pliego until Coded
completes the products and services under the purchase
orders made in accordance with Section 1.2 above. Mr.
Pliego will be granted access to the operations of
Coded as reasonably necessary to inspect, monitor and
coordinate such orders, except that Mr. Pliego will not
be provided access to any areas, documents, or
information relating to Coded's (or its subsidiaries')
operations pursuant to contracts with the United States
Department of Defense (the "DOD") or to any areas,
documents or information relating to material deemed
classified by the DOD. Mr. Pliego will have no right
to control any aspect of Coded's (or any of Coded's
subsidiaries') operations and in no way may Mr. Pliego
be deemed an agent or employee of Coded or any
subsidiary of Coded. ISA is solely responsible for Mr.
Pliego's employment and actions.
12. Funding of ISA Loan and Exercise of
Conversion Election. ISA shall make the Loan on or
before July 24, 1996. ISA elects that the Loan
immediately be converted to shares of Coded's common
stock in accordance with Section 2.3 of the Multi-Party
Agreement, so that immediately on Coded's receipt of
the Loan funds: (a) Coded shall issue ISA the shares of
Coded's common stock required under the conversion
provisions of Section 2.3 of the Multi-Party Agreement,
(i.e., four million shares); and (b) the Loan is
extinguished and Coded has no repayment obligation in
connection with the Loan funds.
13. No Shareholder Approval Required. This
Agreement is effective immediately on mutual execution
by ISA and Coded and no approval by Coded's
shareholders is required. The enforceability of this
Agreement is unaffected by any approval or disapproval
by Coded's shareholders of the transactions
contemplated by the Multi-Party Agreement.
14. ISA's Rights as Shareholder. Upon ISA's or
its assignee's receipt of the shares issued to it under
this Agreement, ISA will own all legal and beneficial
right, title and interest in and to the shares, subject
to the rights of no other person or entity, and ISA
will have all rights of a common-stock shareholder in
Coded, including the right to vote its shares.
15. Waiver of Conversion Price Reduction Under
Debenture. RenCap waives the provisions of
Paragraph 5(b)(i) and (ii) of the Coded 12% Convertible
Debentures as such provisions would apply to the
issuance of Coded's shares under this Agreement,
notwithstanding the fact that the shares being issued
to ISA in connection with this Agreement are at a value
per share less than the conversion price set forth in
the Coded 12% Convertible Debentures.
16. Miscellaneous.
17. Governing Law, Venue and Jurisdiction. This
Agreement is governed by and construed in accordance
with the laws of the State of California, irrespective
of California's choice-of-law principles. All actions
and proceedings arising in connection with this
Agreement must be tried and litigated exclusively in
the State and Federal courts located in the County of
San Diego, State of California, which courts have
personal jurisdiction and venue over each of the
parties to this Agreement for the purpose of
adjudicating all matters arising out of or related to
this Agreement. Each party authorizes and accepts
service of process sufficient for personal jurisdiction
in any action against it as contemplated by this
paragraph by registered or certified mail, return
receipt requested, postage prepaid, to its address for
the giving of notices set forth in this Agreement.
18. Further Assurances. Each party to this
Agreement shall execute and deliver all instruments and
documents and take all actions as may be reasonably
required or appropriate to carry out the purposes of
this Agreement.
19. Counterparts. This Agreement may be executed
in counterparts, each of which is deemed an original
and all of which together constitute one document.
20. Time of Essence. Time and strict and
punctual performance are of the essence with respect to
each provision of this Agreement.
21. Attorney's Fees. The prevailing party(ies)
in any litigation, arbitration, mediation, bankruptcy,
insolvency or other proceeding ("Proceeding") relating
to the enforcement or interpretation of this Agreement
may recover from the unsuccessful party(ies) all costs,
expenses, and actual attorney's fees (including expert
witness and other consultants' fees and costs) relating
to or arising out of (a) the Proceeding (whether or not
the Proceeding proceeds to judgment), and (b) any post-
judgment or post-award proceeding including, without
limitation, one to enforce or collect any judgment or
award resulting from the Proceeding. All such
judgments and awards shall contain a specific provision
for the recovery of all such subsequently incurred
costs, expenses, and actual attorney's fees.
22. Modification. This Agreement may be modified
only by a contract in writing executed by the party to
this Agreement against whom enforcement of the
modification is sought.
23. Prior Understandings. This Agreement and all
documents specifically referred to and executed in
connection with this Agreement: (a) contain the entire
and final agreement of the parties to this Agreement
with respect to the subject matter of this Agreement,
and (b) supersede all negotiations, stipulations,
understandings, agreements, representations and
warranties, if any, with respect to such subject
matter, which precede or accompany the execution of
this Agreement.
24. Partial Invalidity. Each provision of this
Agreement is valid and enforceable to the fullest
extent permitted by law. If any provision of this
Agreement (or the application of such provision to any
person or circumstance) is or becomes invalid or
unenforceable, the remainder of this Agreement, and the
application of such provision to persons or
circumstances other than those as to which it is held
invalid or unenforceable, are not affected by such
invalidity or unenforceability.
25. Successors-in-Interest and Assigns. This
Agreement is binding on and inures to the benefit of
the successors-in-interest and assigns of each party to
this Agreement.
CODED COMMUNICATIONS CORPORATION,a California
corporation
By: /s/ John Robinson
John Robinson,
President and Chief Executive Officer
GRUPO INFORMATION, SATELLITES & ADVERTISING, S.A.
de C.V.
By: /s/ Hugo Camou
Hugo Camou, President
RENAISSANCE CAPITAL PARTNERS II LTD.
By: Renaissance Capital Group, Inc.,
its Managing General Partner
By: /s/ Gene Roelke,
Gene Roelke,
Executive Vice-President
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Coded Communications Corporation, a corporation organized
and existing under and by virtue of the General Corporation Law
of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Coded
Communications Corporation, resolutions were duly adopted setting
forth a proposed amendment of the Certificate of Incorporation of
said corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof
numbered "IV", so that, as amended said Article shall
be and read as follows:
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."
SECOND: That thereafter, pursuant to resolution of its
Board of Directors, an annual meeting of the stockholders of said
corporation was duly called and held, upon notice in accordance
with Section 222 of the General Corporation law of the state of
Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this
certificate to be signed by John A. Robinson, Jr., its President,
and Steven E. Borgardt, its Secretary, this _____ day of
September, 1996.
BY: /S/ JOHN A. ROBINSON, JR.
John A. Robinson, Jr.
President
SS:618431.DOC:58002.001
EXHIBIT 3.3
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION OF SERIES AND
DETERMINATION OF RIGHTS AND PREFERENCES
OF
CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES A
OF
CODED COMMUNICATIONS CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter
called the "corporation") is Coded Communications
Corporation.
2. The Certificate of Designation of Series and
Determination of Rights and Preferences of Cumulative
Convertible Preferred Stock, Series A of the
corporation, which was filed by the Secretary of State
of Delaware on September 24, 1996 is hereby corrected.
3. The inaccuracy to be corrected in said
instrument is as follows:
Article 1.(a) read as follows:
1. Dividends.
(a) The holders of the Series A Preferred
Stock shall be entitled to receive, out of
funds legally available therefor, cumulative
dividends at the rate of eight dollars
($8.00) (subject to appropriate adjustments
in the event of any stock dividend, stock
split, combination or other similar
recapitalization affecting such shares) per
share per annum, and no more, payable in
preference and priority to any payment of
any cash dividend on Common Stock or any
other shares of capital stock of the Company
other than the Series A Preferred Stock, or
other class or series of stock ranking on a
par with, or senior to the Series A
Preferred Stock in respect of dividends
(such Common Stock and other inferior stock
being collectively referred to as "Junior
Stock"), when and as declared by the Board
of Directors of the Company on a semi-annual
basis.
Article 2.(a) read as follows:
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or
involuntary liquidation, dissolution or
winding up of the Company, the holders of
shares of Series A Preferred Stock then out-
standing shall be entitled to be paid out of
the assets of the Company available for
distribution to its stockholders, after and
subject to the payment in full of all
amounts required to be distributed to the
holders of any other class or series of
stock of the Company ranking on liquidation
prior and in preference to the Series A
Preferred Stock, but before any payment
shall be made to the holders of Junior Stock
by reason of their ownership thereof, an
amount equal to one hundred dollars
($100.00) per share of Series A Preferred
Stock plus any accrued but unpaid dividends
(whether or not declared). If upon any such
liquidation, dissolution or winding up of
the Company the remaining assets of the
Company available for distribution to its
stockholders shall be insufficient to pay
the holders of shares of Series A Preferred
Stock the full amount to which they shall be
entitled, the holders of shares of Series A
Preferred Stock, and any class or series of
stock ranking on liquidation on a parity
with the Series A Preferred Stock shall
share ratably in any distribution of the
remaining assets and funds of the Company in
proportion to the respective amounts which
would otherwise be payable in respect of the
shares held by them upon such distribution
if all amounts payable on or with respect to
such shares were paid in full.
Article 3. read as follows:
3. Voting.
Each holder of outstanding shares of Series A
Preferred Stock shall be entitled to the
number of votes equal to the number of whole
shares of Common Stock into which the shares
of Series A Preferred Stock held by such
holder are convertible (as adjusted from time
to time pursuant to Section 4 hereof, at each
meeting of stockholders of the Company (and
written actions of stockholders in lieu of
meetings) with respect to any and all matters
presented to the stockholders of the Company
for their action or consideration. Except as
provided by law, or by the provisions
establishing any other series of Preferred
Stock, holders of Series A Preferred Stock and
of any other outstanding series of Preferred
Stock shall vote together with the holders of
Common Stock as a single class.
4. The portion of the instrument in corrected
form is as follows:
Article 1.(a) should read as follows:
1. Dividends.
(a) The holders of the Series A Preferred
Stock shall be entitled to receive, out
of funds legally available therefor,
cumulative dividends at the rate of eight
dollars ($8.00) (subject to appropriate
adjustments in the event of any stock
dividend, stock split, combination or
other similar recapitalization affecting
such shares) per share per annum, and no
more, payable in preference and priority
to any payment of any cash dividend on
Common Stock or any other shares of
capital stock of the Company other than
the Series A Preferred Stock (such Common
Stock and other inferior stock being
collectively referred to as "Junior
Stock"), when and as declared by the
Board of Directors of the Company on a
semi-annual basis.
Article 2.(a) should read as follows:
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or
involuntary liquidation, dissolution or
winding up of the Company, the holders of
shares of Series A Preferred Stock then out-
standing shall be entitled to be paid out of
the assets of the Company available for
distribution to its stockholders, but before
any payment shall be made to the holders of
Junior Stock by reason of their ownership
thereof, an amount equal to one hundred
dollars ($100.00) per share of Series A
Preferred Stock plus any accrued but unpaid
dividends (whether or not declared). If upon
any such liquidation, dissolution or winding
up of the Company the remaining assets of the
Company available for distribution to its
stockholders shall be insufficient to pay the
holders of shares of Series A Preferred Stock
the full amount to which they shall be
entitled, the holders of shares of Series A
Preferred Stock shall share ratably in any
distribution of the remaining assets and
funds of the Company in proportion to the
respective amounts which would otherwise be
payable in respect of the shares held by them
upon such distribution if all amounts payable
on or with respect to such shares were paid
in full.
Article 3 should read as follows:
3. Voting.
(a) Each holder of outstanding shares of
Series A Preferred Stock shall be entitled to
the number of votes equal to the number of
whole shares of Common Stock into which the
shares of Series A Preferred Stock held by
such holder are convertible (as adjusted from
time to time pursuant to Section 4 hereof, at
each meeting of stockholders of the Company
(and written actions of stockholders in lieu
of meetings) with respect to any and all
matters presented to the stockholders of the
Company for their action or consideration.
Except as provided by law, or by the
provisions establishing any other series of
Preferred Stock, holders of Series A
Preferred Stock and of any other outstanding
series of Preferred Stock shall vote together
with the holders of Common Stock as a single
class.
(b) The Company shall not amend, alter
or repeal preferences, rights, powers or
other terms of the Series A Preferred Stock
so as to affect adversely the Series A
Preferred Stock, without the written consent
or affirmative vote of the holders of at
least a majority of the then outstanding
shares of Series A Preferred Stock, given in
writing or by vote at a meeting, consenting
or voting (as the case may be) separately as
a class. For this purpose, without limiting
the generality of the foregoing, the
authorization or issuance of any series of
Preferred Stock which is on a parity with or
has preference or priority over the Series A
Preferred Stock as to the right to receive
either dividends or amounts distributable
upon liquidation, dissolution or winding up
of the Company shall be deemed to affect
adversely the Series A Preferred Stock.
Signed on October ___, 1996.
/S/ JOHN A. ROBINSON, JR.
John A. Robinson, Jr.
President
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES A
OF
CODED COMMUNICATIONS CORPORATION
Coded Communications Corporation, a Delaware
corporation (the "Company"), acting pursuant to 151 of
the General Company Law of Delaware, does hereby submit
the following Certificate of Designation of Series and
Determination of Rights and Preferences of its
Cumulative Convertible Preferred Stock, Series A.
FIRST: The name of the Company is Coded
Communications Corporation.
SECOND: By unanimous vote of the Board of
Directors of the Company at a meeting duly held on
September 19, 1996, the following resolutions were duly
adopted:
WHEREAS the Certificate of Incorporation of the
Company, as of September 24, 1996, will authorize
Preferred Stock consisting of two million (2,000,000)
shares, par value $.01 per share, issuable from time to
time in one or more classes or series; and
WHEREAS the Board of Directors of the Company is
authorized, subject to limitations prescribed by law
and by the provisions of Article IV of the Company's
Certificate of Incorporation, as amended, to establish
and fix the number of shares to be included in any
series of Preferred Stock and the designation, rights,
preferences, powers, restrictions and limitations of
the shares of such series; and
WHEREAS it is the desire of the Board of Directors
to establish and fix the number of shares to be
included in a new series of Preferred Stock and the
designation, rights, preferences and limitations of the
shares of such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to
Article IV of the Company's Certificate of
Incorporation, as amended, there is hereby established
a new series of eight thousand (8,000) shares of
cumulative convertible preferred stock of the Company
(the "Series A Preferred Stock") to have the
designation, rights, preferences, powers, restrictions
and limitations set forth in a supplement of Article IV
as follows:
1. Dividends.
(a) The holders of the Series A Preferred
Stock shall be entitled to receive, out of funds
legally available therefor, cumulative dividends at the
rate of eight dollars ($8.00) (subject to appropriate
adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization
affecting such shares) per share per annum, and no
more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other
shares of capital stock of the Company other than the
Series A Preferred Stock, or other class or series of
stock ranking on a par with, or senior to the Series A
Preferred Stock in respect of dividends (such Common
Stock and other inferior stock being collectively
referred to as "Junior Stock"), when and as declared by
the Board of Directors of the Company on a semi-annual
basis.
(b) Such dividends shall accrue with respect
to each share of Series A Preferred Stock from the date
on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not
there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be
cumulative so that if such dividends on the Series A
Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be
fully paid or declared and set apart for payment before
any dividend shall be paid or declared or set apart for
any Junior Stock and before any purchase or acquisition
of any Junior Stock is made by the Company, except the
repurchase of Junior Stock from employees of the
Company upon termination of employment. Upon the
liquidation, sale or merger of the Company, any accrued
but undeclared dividends shall be paid to the holders
of record of outstanding shares of Series A Preferred
Stock. No accumulation of dividends on the Series A
Preferred Stock shall bear interest.
(c) Each dividend shall be paid fifty
percent (50%) in shares of Common Stock and fifty
percent (50%) in cash. Dividends paid in shares of
Common Stock shall be paid in full shares only, with a
cash payment (based on a value calculated by reference
to the average of the closing price of Common Stock for
the twenty trading days previous to the declaration
date of the dividend) equal to the value of any
fractional shares. Each dividend paid in cash shall be
mailed to the holders of record of the Series A
Preferred Stock as their names and addresses appear on
the share register of the Company or at the office of
the transfer agent on the corresponding dividend
payment date.
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company,
the holders of shares of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the
assets of the Company available for distribution to its
stockholders, after and subject to the payment in full
of all amounts required to be distributed to the
holders of any other class or series of stock of the
Company ranking on liquidation prior and in preference
to the Series A Preferred Stock, but before any payment
shall be made to the holders of Junior Stock by reason
of their ownership thereof, an amount equal to one
hundred dollars ($100.00) per share of Series A
Preferred Stock plus any accrued but unpaid dividends
(whether or not declared). If upon any such
liquidation, dissolution or winding up of the Company
the remaining assets of the Company available for
distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A Preferred
Stock the full amount to which they shall be entitled,
the holders of shares of Series A Preferred Stock, and
any class or series of stock ranking on liquidation on
a parity with the Series A Preferred Stock shall share
ratably in any distribution of the remaining assets and
funds of the Company in proportion to the respective
amounts which would otherwise be payable in respect of
the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were
paid in full.
(b) The merger or consolidation of the
Company into or with another corporation which results
in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation
or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more
than fifty percent (50%) of the voting securities of
the Company), or the sale of all or substantially all
the assets of the Company, shall be deemed to be a
liquidation, dissolution or winding up of the Company
for purposes of this Section, unless the holders of a
majority of the Series A Preferred Stock then
outstanding vote otherwise. The amount deemed
distributed to the holders of Series A Preferred Stock
upon any such merger or consolidation shall be the cash
or the value of the property, rights and/or securities
distributed to such holders by the acquiring person,
firm or other entity. The value of such property,
rights or other securities shall be determined in good
faith by the Board of Directors of the Company.
3. Voting.
Each holder of outstanding shares of Series A
Preferred Stock shall be entitled to the number of
votes equal to the number of whole shares of Common
Stock into which the shares of Series A Preferred Stock
held by such holder are convertible (as adjusted from
time to time pursuant to Section 4 hereof, at each
meeting of stockholders of the Company (and written
actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the
stockholders of the Company for their action or
consideration. Except as provided by law, or by the
provisions establishing any other series of Preferred
Stock, holders of Series A Preferred Stock and of any
other outstanding series of Preferred Stock shall vote
together with the holders of Common Stock as a single
class.
4. Optional Conversion.
The holders of the Series A Preferred Stock
shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series
A Preferred Stock shall be convertible, at the option
of the holder thereof, at any time and from time to
time, into three hundred (300) shares of fully paid and
nonassessable shares of Common Stock (the "Conversion
Ratio"). Such initial Conversion Ratio shall be
subject to adjustment as provided below.
In the event of a liquidation of the
Company, the Conversion Rights shall terminate at the
close of business on the first full day preceding the
date fixed for the payment of any amounts distributable
on liquidation to the holders of Series A Preferred
Stock.
(b) Fractional Shares. No fractional
shares of Common Stock shall be issued upon conversion
of the Series A Preferred Stock. In lieu of fractional
shares, the Company shall pay cash equal to such
fraction multiplied by the average of the closing price
of the Common Stock for the twenty trading days
preceding the Conversion Date.
(c) Mechanics of Conversion.
(i) In order to convert shares of
Series A Preferred Stock into shares of Common Stock,
the holder shall surrender the certificate or
certificates for such shares of Series A Preferred
Stock at the office of the transfer agent (or at the
principal office of the Company if the Company serves
as its own transfer agent), together with written
notice that such holder elects to convert all or any
number of the shares represented by such certificate or
certificates. Such notice shall state such holder's
name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Company,
certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the
Company, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date
of receipt of such certificates and notice by the
transfer agent or the Company shall be the conversion
date ("Conversion Date"). The Company shall, as soon
as practicable after the Conversion Date, issue and
deliver at such office to such holder, or to his
nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be
entitled, together with cash in lieu of any fraction of
a share.
(ii) The Company shall at all times
during which the Series A Preferred Stock shall be
outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred
Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series A
Preferred Stock.
(iii) Upon any such conversion, no
adjustment to the Conversion Ratio shall be made for
any accrued and unpaid dividends on the Series A
Preferred Stock surrendered for conversion or on the
Common Stock delivered upon conversion; the holder, by
converting, waives his right to such accrued but unpaid
dividends.
(iv) All shares of Series A Preferred
Stock, which shall have been surrendered for conversion
as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares,
including the rights, if any, to receive dividends,
notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right
of the holders thereof to receive shares of Common
Stock in exchange therefor. Any shares of Series A
Preferred Stock so converted shall be retired and
cancelled and shall not be reissued, and the Company
may from time to time take such appropriate action as
may be necessary to reduce the number of shares of
authorized Series A Preferred Stock accordingly.
(v) If the conversion is in connection
with an underwritten offer of securities registered
pursuant to the Securities Act of 1933, as amended, the
conversion may at the option of any holder tendering
Series A Preferred Stock for conversion be conditioned
upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Series A Preferred
Stock shall not be deemed to have converted such Series
A Preferred Stock until immediately prior to the
closing of the sale of securities.
(d) Adjustments to Conversion Ratio.
(i) 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 Ratio 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 Ratio 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.
(ii) In case of any capital
reorganization, reclassification of the stock of the
Company (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
the Company with or into another person or entity
(other than a consolidation or merger in which the
Company 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 the Company as an entity or the participation by the
Company in share exchange as the corporation the stock
of which is to be acquired, the Series A Preferred
Stock shall be convertible into the kind and number of
shares of stock or other securities or property of the
Company (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 the Company), to which the holder of the
Series A Preferred Stock would have been entitled to
receive if the Series A Preferred Stock had been
converted into Common Stock issuable upon conversion of
the Series A Preferred Stock immediately prior to the
occurrence of such event. The provisions of these
foregoing sentences shall similarly apply to successive
organizations, reclassifications, consolidations,
mergers, sales, exchanges, leases, transfers or other
dispositions or other share exchanges.
5. Mandatory Conversion.
(a) The Company may, at its option, require
some or all holders of shares of Series A Preferred
Stock then outstanding to convert their shares of
Series A Preferred Stock into shares of Common Stock,
at the then effective conversion rate pursuant to
Section 4, at any time on or after the market value of
the of the shares of Common Stock into which the Series
A Preferred Stock is convertible is equal to or greater
than one and one half (1.5) times the liquidation
preference of the Series A Preferred Stock. The market
value of the Common Stock shall be the average closing
bid price of the Common Stock as reported by the
National Association of Securities Dealers, Inc. or
applicable stock exchange for the twenty (20) trading
days following the filing by the Company with the
Securities and Exchange Commission of an annual report
on Form 10-KSB (or Form 10-K if appropriate) or a
quarterly report on Form 10-QSB (or Form 10-Q if
appropriate).
(b) All holders of record of shares of
Series A Preferred Stock then outstanding will be given
at least ten (10) days' prior written notice of the
date fixed and the place designated for mandatory or
special conversion of all such shares of Series A Pre-
ferred Stock pursuant to this Section 5. Such notice
will be sent by first class or registered mail, postage
prepaid, to each record holder of Series A Preferred
Stock at such holder's address last shown on the
records of the transfer agent for the Series A
Preferred Stock (or the records of the Company, if it
serves as its own transfer agent).
6. Sinking Fund.
There shall be no sinking fund for the
payment of dividends, or liquidation preferences on the
Series A Preferred Stock or the redemption of any
shares thereof.
7. Amendment.
This Certificate of Designation constitutes
an agreement between the Company and the holders of the
Series A Preferred Stock. It may be amended by vote of
the Board of Directors of the Company and the holders
of a majority of the outstanding shares of Series A
Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this
Certificate to be executed by its President and
attested to by its Secretary this 19th of September,
1996.
By:/S/ JOHN A. ROBINSON, JR.
John A. Robinson, Jr.
President
[Seal]
SS:768141.DOC:58002.015
EXHIBIT 3.4
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATION OF SERIES AND
DETERMINATION OF RIGHTS AND PREFERENCES
OF
CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES B
OF
CODED COMMUNICATIONS CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called
the "corporation") is Coded Communications Corporation.
2. The Certificate of Designation of Series and
Determination of Rights and Preferences of Cumulative
Convertible Preferred Stock, Series B of the
corporation, which was filed by the Secretary of State
of Delaware on September 24, 1996 is hereby corrected.
3. The inaccuracy to be corrected in said
instrument is as follows:
Article 1.(a) read as follows:
1. Dividends.
(a) The holders of the Series B Preferred
Stock shall be entitled to receive, out of funds
legally available therefor, cumulative dividends
at the rate of six dollars ($6.00) (subject to
appropriate adjustments in the event of any stock
dividend, stock split, combination or other
similar recapitalization affecting such shares)
per share per annum, and no more, payable in
preference and priority to any payment of any cash
dividend on Common Stock or any other shares of
capital stock of the Company other than the Series
B Preferred Stock or the Series A Preferred Stock,
which shall rank senior to the Series B Preferred
Stock, or other class or series of stock ranking
on a par with, or senior to the Series B Preferred
Stock in respect of dividends(such Common Stock
and other inferior stock being collectively
referred to as "Junior Stock"), when and as
declared by the Board of Directors of the Company
on a semi-annual basis.
Article 2.(a) read as follows:
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or
involuntary liquidation, dissolution or winding up
of the Company, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Company
available for distribution to its stockholders,
after and subject to the payment in full of all
amounts required to be distributed to the holders
of the Series A Preferred Stock or any other class
or series of stock of the Company ranking on
liquidation prior and in preference to the Series
B Preferred Stock, but before any payment shall be
made to the holders of Junior Stock by reason of
their ownership thereof, an amount equal to one
hundred dollars ($100) per share of Series B
Preferred Stock plus any accrued but unpaid
dividends (whether or not declared). If upon any
such liquidation, dissolution or winding up of the
Company the remaining assets of the Company
available for distribution to its stockholders
shall be insufficient to pay the holders of shares
of Series B Preferred Stock the full amount to
which they shall be entitled, the holders of
shares of Series B Preferred Stock, and any class
or series of stock ranking on liquidation on a
parity with the Series B Preferred Stock shall
share ratably in any distribution of the remaining
assets and funds of the Company in proportion to
the respective amounts which would otherwise be
payable in respect of the shares held by them upon
such distribution if all amounts payable on or
with respect to such shares were paid in full.
Article 3. read as follows:
3. Voting.
Each holder of outstanding shares of Series B
Preferred Stock shall be entitled to the number of
votes equal to the number of whole shares of
Common Stock into which the shares of Series B
Preferred Stock held by such holder are
convertible (as adjusted from time to time
pursuant to Section 4 hereof, at each meeting of
stockholders of the Company (and written actions
of stockholders in lieu of meetings) with respect
to any and all matters presented to the
stockholders of the Company for their action or
consideration. Except as provided by law, or by
the provisions establishing any other series of
Preferred Stock, holders of Series B Preferred
Stock and of any other outstanding series of
Preferred Stock shall vote together with the
holders of Common Stock as a single class.
4. The portion of the instrument in corrected form
is as follows:
Article 1.(a) should read as follows:
1. Dividends.
(a) The holders of the Series B Preferred
Stock shall be entitled to receive, out of funds
legally available therefor, cumulative dividends
at the rate of six dollars ($6.00) (subject to
appropriate adjustments in the event of any stock
dividend, stock split, combination or other
similar recapitalization affecting such shares)
per share per annum, and no more, payable in
preference and priority to any payment of any cash
dividend on Common Stock or any other shares of
capital stock of the Company other than the Series
B Preferred Stock or the Series A Preferred Stock,
which shall rank senior to the Series B Preferred
Stock, (such Common Stock and other inferior stock
being collectively referred to as "Junior Stock"),
when and as declared by the Board of Directors of
the Company on a semi-annual basis.
Article 2.(a) should read as follows:
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or
involuntary liquidation, dissolution or winding up
of the Company, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Company
available for distribution to its stockholders,
after and subject to the payment in full of all
amounts required to be distributed to the holders
of the Series A Preferred Stock, but before any
payment shall be made to the holders of Junior
Stock by reason of their ownership thereof, an
amount equal to one hundred dollars ($100) per
share of Series B Preferred Stock plus any accrued
but unpaid dividends (whether or not declared).
If upon any such liquidation, dissolution or
winding up of the Company the remaining assets of
the Company available for distribution to its
stockholders shall be insufficient to pay the
holders of shares of Series B Preferred Stock the
full amount to which they shall be entitled, the
holders of shares of Series B Preferred Stock
shall share ratably in any distribution of the
remaining assets and funds of the Company in
proportion to the respective amounts which would
otherwise be payable in respect of the shares held
by them upon such distribution if all amounts
payable on or with respect to such shares were
paid in full.
Article 3 should read as follows:
3. Voting.
(a) Each holder of outstanding shares of
Series B Preferred Stock shall be entitled to the
number of votes equal to the number of whole
shares of Common Stock into which the shares of
Series B Preferred Stock held by such holder are
convertible (as adjusted from time to time
pursuant to Section 4 hereof, at each meeting of
stockholders of the Company (and written actions
of stockholders in lieu of meetings) with respect
to any and all matters presented to the
stockholders of the Company for their action or
consideration. Except as provided by law, or by
the provisions establishing any other series of
Preferred Stock, holders of Series B Preferred
Stock and of any other outstanding series of
Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) The Company shall not amend, alter or
repeal preferences, rights, powers or other terms
of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without
the written consent or affirmative vote of the
holders of at least a majority of the then
outstanding shares of Series B Preferred Stock,
given in writing or by vote at a meeting,
consenting or voting (as the case may be)
separately as a class. For this purpose, without
limiting the generality of the foregoing, the
authorization or issuance of any series of
Preferred Stock, other than the Series A Preferred
Stock, which is on a parity with or has preference
or priority over the Series B Preferred Stock as
to the right to receive either dividends or
amounts distributable upon liquidation,
dissolution or winding up of the Company shall be
deemed to affect adversely the Series B Preferred
Stock.
Signed on October ___, 1996.
/S/ JOHN A. ROBINSON, JR.
John A. Robinson, Jr.
President
EXHIBIT 3.4
CERTIFICATE OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES B
OF
CODED COMMUNICATIONS CORPORATION
Coded Communications Corporation, a Delaware
corporation (the "Company"), acting pursuant to 151
of the General Company Law of Delaware, does hereby
submit the following Certificate of Designation of
Series and Determination of Rights and Preferences of
its Cumulative Convertible Preferred Stock, Series B.
FIRST: The name of the Company is Coded
Communications Corporation.
SECOND: By unanimous vote of the Board of
Directors of the Company at a meeting duly held on
September 19, 1996, the following resolutions were
duly adopted:
WHEREAS the Certificate of Incorporation of the
Company, as of September 24, 1996, will authorize
Preferred Stock consisting of two million (2,000,000)
shares, par value $.01 per share, issuable from time to
time in one or more series; and
WHEREAS the Board of Directors of the Company is
authorized, subject to limitations prescribed by law
and by the provisions of Article IV of the Company's
Certificate of Incorporation, as amended, to establish
and fix the number of shares to be included in any
series of Preferred Stock and the designation, rights,
preferences, powers, restrictions and limitations of
the shares of such series; and
WHEREAS it is the desire of the Board of Directors
to establish and fix the number of shares to be
included in a new series of Preferred Stock and the
designation, rights, preferences and limitations of the
shares of such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to
Article IV of the Company's Certificate of
Incorporation, as amended, there is hereby established
a new series of forty eight thousand (48,000) shares of
cumulative convertible preferred Stock of the Company
(the "Series B Preferred Stock") to have the
designation, rights, preferences, powers, restrictions
and limitations set forth in a supplement of Article IV
as follows:
1. Dividends.
(a) The holders of the Series B Preferred
Stock shall be entitled to receive, out of funds
legally available therefor, cumulative dividends at the
rate of six dollars ($6.00) (subject to appropriate
adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization
affecting such shares) per share per annum, and no
more, payable in preference and priority to any payment
of any cash dividend on Common Stock or any other
shares of capital stock of the Company other than the
Series B Preferred Stock or the Series A Preferred
Stock, which shall rank senior to the Series B
Preferred Stock, or other class or series of stock
ranking on a par with, or senior to the Series B
Preferred Stock in respect of dividends (such Common
Stock and other inferior stock being collectively
referred to as "Junior Stock"), when and as declared by
the Board of Directors of the Company on a semi-annual
basis.
(b) Such dividends shall accrue with respect
to each share of Series B Preferred Stock from the date
on which such share is issued and outstanding and
thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not
there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be
cumulative so that if such dividends on the Series B
Preferred Stock shall not have been paid, or declared
and set apart for payment, the deficiency shall be
fully paid or declared and set apart for payment before
any dividend shall be paid or declared or set apart for
any Junior Stock and before any purchase or acquisition
of any Junior Stock is made by the Company, except the
repurchase of Junior Stock from employees of the
Company upon termination of employment. Upon the
liquidation, sale or merger of the Company, any accrued
but undeclared dividends shall be paid to the holders
of record of outstanding shares of Series B Preferred
Stock. No accumulation of dividends on the Series B
Preferred Stock shall bear interest.
(c) Each dividend shall be paid fifty
percent (50%) in shares of Common Stock and fifty
percent (50%) in cash. Dividends paid in shares of
Common Stock shall be paid in full shares only, with a
cash payment (based on a value calculated by reference
to the average of the closing price of Common Stock for
the twenty trading days previous to the declaration
date of the dividend) equal to the value of any
fractional shares. Each dividend paid in cash shall be
mailed to the holders of record of the Series B
Preferred Stock as their names and addresses appear on
the share register of the Company or at the office of
the transfer agent on the corresponding dividend
payment date.
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or
involuntary liquidation, dissolution or winding up of
the Company, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to
be paid out of the assets of the Company available for
distribution to its stockholders, after and subject to
the payment in full of all amounts required to be
distributed to the holders of the Series A Preferred
Stock or any other class or series of stock of the
Company ranking on liquidation prior and in preference
to the Series B Preferred Stock, but before any payment
shall be made to the holders of Junior Stock by reason
of their ownership thereof, an amount equal to one
hundred dollars ($100) per share of Series B Preferred
Stock plus any accrued but unpaid dividends (whether or
not declared). If upon any such liquidation,
dissolution or winding up of the Company the remaining
assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders
of shares of Series B Preferred Stock the full amount
to which they shall be entitled, the holders of shares
of Series B Preferred Stock, and any class or series of
stock ranking on liquidation on a parity with the
Series B Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the
Company in proportion to the respective amounts which
would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in
full.
(b) The merger or consolidation of the
Company into or with another corporation which results
in the exchange of outstanding shares of the Company
for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation
or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more
than fifty percent (50%) of the voting securities of
the Company), or the sale of all or substantially all
the assets of the Company, shall be deemed to be a
liquidation, dissolution or winding up of the Company
for purposes of this Section, unless the holders of a
majority of the Series B Preferred Stock then
outstanding vote otherwise. The amount deemed
distributed to the holders of Series B Preferred Stock
upon any such merger or consolidation shall be the cash
or the value of the property, rights, and/or securities
distributed to such holders by the acquiring person,
firm or other entity. The value of such property,
rights or other securities shall be determined in good
faith by the Board of Directors of the Company.
3. Voting.
Each holder of outstanding shares of Series B
Preferred Stock shall be entitled to the number of
votes equal to the number of whole shares of Common
Stock into which the shares of Series B Preferred Stock
held by such holder are convertible (as adjusted from
time to time pursuant to Section 4 hereof, at each
meeting of stockholders of the Company (and written
actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the
stockholders of the Company for their action or
consideration. Except as provided by law, or by the
provisions establishing any other series of Preferred
Stock, holders of Series B Preferred Stock and of any
other outstanding series of Preferred Stock shall vote
together with the holders of Common Stock as a single
class.
4. Optional Conversion.
The holders of the Series B Preferred Stock
shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series B
Preferred Stock shall be convertible, at the option of
the holder thereof, at any time and from time to time,
into one hundred fifty three (153) shares of fully paid
and nonassessable shares of Common Stock (the
"Conversion Ratio"). Such initial Conversion Ratio
shall be subject to adjustment as provided below.
In the event of a liquidation of the
Company, the Conversion Rights shall terminate at the
close of business on the first full day preceding the
date fixed for the payment of any amounts distributable
on liquidation to the holders of Series B Preferred
Stock.
(b) Fractional Shares. No fractional shares
of Common Stock shall be issued upon conversion of the
Series B Preferred Stock. In lieu of fractional
shares, the Company shall pay cash equal to such
fraction multiplied by the average closing price of the
Common Stock for the twenty trading days preceding the
Conversion Date (as defined below).
(c) Mechanics of Conversion.
(i) In order to convert shares of Series
B Preferred Stock into shares of Common Stock, the
holder shall surrender the certificate or certificates
for such shares of Series B Preferred Stock at the
office of the transfer agent (or at the principal
office of the Company if the Company serves as its own
transfer agent), together with written notice that such
holder elects to convert all or any number of the
shares represented by such certificate or certificates.
Such notice shall state such holder's name or the names
of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock
to be issued. If required by the Company, certificates
surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Company, duly
executed by the registered holder or his or its
attorney duly authorized in writing. The date of
receipt of such certificates and notice by the transfer
agent or the Company shall be the conversion date
("Conversion Date"). The Company shall, as soon as
practicable after the Conversion Date, issue and
deliver at such office to such holder, or to his
nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be
entitled, together with cash in lieu of any fraction of
a share.
(ii) The Company shall at all times
during which the Series B Preferred Stock shall be
outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of
effecting the conversion of the Series B Preferred
Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series B
Preferred Stock.
(iii) Upon any such conversion, no
adjustment to the Conversion Ratio shall be made for
any accrued and unpaid dividends on the Series B
Preferred Stock surrendered for conversion or on the
Common Stock delivered upon conversion; the holder, by
converting, waives his right to such accrued but unpaid
dividends.
(iv) All shares of Series B Preferred
Stock, which shall have been surrendered for conversion
as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares,
including the rights, if any, to receive dividends,
notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right
of the holders thereof to receive shares of Common
Stock in exchange therefor. Any shares of Series B
Preferred Stock so converted shall be retired and
cancelled and shall not be reissued, and the Company
may from time to time take such appropriate action as
may be necessary to reduce the number of shares of
authorized Series B Preferred Stock accordingly.
(v) If the conversion is in connection
with an underwritten offer of securities registered
pursuant to the Securities Act of 1933, as amended, the
conversion may at the option of any holder tendering
Series B Preferred Stock for conversion be conditioned
upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Series B Preferred
Stock shall not be deemed to have converted such Series
B Preferred Stock until immediately prior to the
closing of the sale of securities.
(d) Adjustments to Conversion Ratio.
(i) 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 Ratio 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 Ratio 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.
(ii) In case of any capital
reorganization, reclassification of the stock of the
Company (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
the Company with or into another person or entity
(other than a consolidation or merger in which the
Company 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 the Company as an entity or the participation by the
Company in share exchange as the corporation the stock
of which is to be acquired, the Series A Preferred
Stock shall be convertible into the kind and number of
shares of stock or other securities or property of the
Company (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 the Company), to which the holder of the
Series A Preferred Stock would have been entitled to
receive if the Series A Preferred Stock had been
converted into Common Stock issuable upon conversion of
the Series A Preferred Stock immediately prior to the
occurrence of such event. The provisions of these
foregoing sentences shall similarly apply to successive
organizations, reclassifications, consolidations,
mergers, sales, exchanges, leases, transfers or other
dispositions or other share exchanges.
5. Mandatory Conversion.
(a) The Company may, at its option, require
some or all holders of shares of Series B Preferred
Stock then outstanding to convert their shares of
Series B Preferred Stock into shares of Common Stock,
at the then effective conversion rate pursuant to
Section 4, at any time on or after the market value of
the of the shares of Common Stock into which the Series
B Preferred Stock is convertible is equal to or greater
than one and one half (1.5) times the liquidation
preference of the Series B Preferred Stock. The market
value of the Common Stock shall be the average closing
bid price of the Common Stock as reported by the
National Association of Securities Dealers, Inc. or
applicable stock exchange for the twenty (20) trading
days following the filing by the Company with the
Securities and Exchange Commission of an annual report
on Form 10-KSB (or Form 10-K if appropriate) or a
quarterly report on Form 10-QSB (or Form 10-Q if
appropriate).
(b) All holders of record of shares of
Series B Preferred Stock then outstanding will be given
at least ten (10) days' prior written notice of the
date fixed and the place designated for mandatory or
special conversion of all such shares of Series B Pre-
ferred Stock pursuant to this Section 5. Such notice
will be sent by first class or registered mail, postage
prepaid, to each record holder of Series B Preferred
Stock at such holder's address last shown on the
records of the transfer agent for the Series B
Preferred Stock (or the records of the Company, if it
serves as its own transfer agent).
6. Sinking Fund.
There shall be no sinking fund for the payment
of dividends, or liquidation preferences on the Series
B Preferred Stock.
7. Amendment.
This Certificate of Designation constitutes an
agreement between the Company and the holders of the
Series B Preferred Stock. It may be amended by vote of
the Board of Directors of the Company and the holders
of a majority of the outstanding shares of Series B
Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this
Certificate to be executed
by its President and attested to by its Secretary this
19th of September, 1996.
By:/S/ JOHN A. ROBINSON, JR.
John A. Robinson, Jr.
President
[Seal]
SS:673963.DOC:58002.016
The Securities represented by this Debenture have not been
registered under the Securities Act of 1933, as amended
("Act"), or applicable state securities laws ("State
Acts") and shall not be sold, hypothecated, donated or
otherwise transferred unless the Corporation shall have
received an opinion of Legal Counsel for the Company, or
such other evidence as may be satisfactory to Legal
Counsel for the Company, to the effect that any such
transfer shall not require registration under the Act and
the State Acts.
EXHIBIT 4.1
CODED COMMUNICATIONS CORPORATION
(formerly known as CCC Coded Communications Corporation
and CCI Coded Communication, Inc.)
(A Delaware corporation)
and
CODED MOBILE COMMUNICATIONS, INC.
(formerly known as Coded Communications Corporation)
(A Delaware corporation)
6% CONVERTIBLE DEBENTURE
$4,800,000 No. 4
September 27, 1996
Coded Communications Corporation and Coded Mobile
Communications, Inc. (herein sometimes called
"Company", "Borrower" or "Borrowers") is indebted and
for value received, herewith promises to pay to:
RENAISSANCE CAPITAL PARTNERS II, LTD.
or to its order, (together with any assignee, jointly
or severally, the "Holder" or "Lender" ) on or before
September 27, 2003, (the "Due Date") (unless this
Debenture shall have been sooner converted as herein
provided), the sum of Four Million Eight Hundred
Thousand Dollars ($4,800,000) (the "Principal Amount",
all references to "Dollars", "dollars" or "$" are to
United States dollars) and to pay interest on the
Principal Amount at the rate of six percent (6%) per
annum as provided herein. In furtherance thereof, and
in consideration of the premises, the Borrower
covenants, promises and agrees as follows:
Interest: Interest on the Principal Amount
outstanding from time to time shall accrue at the rate
of six percent (6%) per annum and be payable in
quarterly installments commencing November 1, 1996, and
subsequent payments to be made on the first day of
February, May, August and November thereafter until the
Principal Amount and all accrued and unpaid interest
shall have been paid in full. Interest shall be
payable fifty percent (50%) in the common stock of the
Company and fifty percent (50%) in cash. All payments
of both principal and interest shall be made at the
address of the Holder hereof as it appears in the books
and records of the Borrower, or at such other place as
may be designated by the Holder hereof.
Maturity: If not sooner converted, this Debenture
shall mature on September 27, 2003, at which time all
then remaining unpaid principal, interest and any other
charges outstanding under the Loan Agreement shall be
due and payable in full.
Conversion Right: Borrower and Lender each has
the option to convert this Debenture in whole, or in
part, where such Principal converted shall be at least
One Hundred Thousand Dollars ($100,000), at a
conversion ratio of One Hundred Dollars ($100.00) of
Principal for one (1) share of Series B Preferred Stock
(the "Shares") if:
(a) the value of the shares of the
Company's common stock to be issued upon conversion of
the Shares is equal to seventy percent (70%) or more of
the principal amount of this Debenture; or,
(b) at a time prior to the Company's
common stock being quoted on the NASDAQ SmallCap Market
or National Market System the Company's shareholders'
equity, calculated in accordance with generally
accepted accounting principals, is at least equal to
Three Million Dollars ($3,000,000.00), assuming the
conversion of this Debenture into the Company's Series
B Preferred Stock or the subsequent conversion of the
Shares into the Company's common stock.
Notwithstanding the above, Borrower may exercise
its option to convert this Debenture only if not more
than One Million Dollars ($1,000,000.00) in past due
and disputed vendor claims are outstanding.
Split-up or Combination of Shares: If the
issued and outstanding shares of the Company's common
stock is subdivided or split up into a greater number
of shares of the Company's common stock, the conversion
price shall be proportionally decreased, and if the
issued and outstanding shares of the Company's common
stock are combined into a smaller number of shares of
the Company's common stock, the conversion price shall
be proportionately increased, such increase or decrease
becoming effective at the time of record of the split-
up or combination.
Adjustment for Mergers, Consolidations, Etc.:
In the event of any capital reorganization,
reclassification of the Company's common stock (other
than a change in par value as a result of a stock
dividend, subdivision, split-up or combination of
shares), or consolidation or merger of the Company with
or into another person or entity (other than a
consolidation or merger in which the Company is the
continuing corporation and which does not result in any
change in the Company's common stock) or of the sale,
exchange, lease, transfer or other disposition of, all
or substantially all of the properties and assets of
the Company as an entity, or the participation by the
Company in a share exchange as the corporation the
stock of which is to be acquired, this Debenture shall
be convertible into the kind and number of shares of
stock or other securities or property of the Company
(or of the corporation resulting from such
consolidation or surviving such merger or to which such
properties and assets have been sold, exchanged,
leased, transferred or otherwise disposed of, or which
was the corporation whose securities were exchanged for
those of the Company), to which the Holder of this
Debenture would have been entitled to receive if the
Holder owned the Company's common stock issuable upon
conversion of this Debenture and the subsequent
conversion of the Shares immediately prior to the
occurrence of such event. The provisions of this
section shall apply to successive reorganizations,
reclassifications, consolidations, mergers, sales,
exchanges, leases, transfers or other dispositions of,
or other share exchanges.
Notice of Adjustment. (A) In the event
Borrower shall propose to take any action which shall
result in an adjustment in the conversion price,
Borrower shall give notice to the holder of this
Debenture, which notice shall specify the record date,
if any, with respect to such action and the date on
which such action is to take place. Such notice shall
be given on or before the earlier of 30 days before the
record date or the date which such action shall be
taken. Such notice shall also set forth all facts (to
the extent known) material to the effect of such action
on the conversion price and the number, kind or class
of shares or other securities or property which shall
be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of this
Debenture. (B) Following completion of an event wherein
the conversion price shall be adjusted, Borrower shall
furnish to the holder of this Debenture a statement,
signed by the Chief Executive Officer of Borrower, of
the facts creating such adjustment and specifying the
resultant adjusted conversion price then in effect.
Reservation of Shares: Borrower warrants and
agrees that it shall at all times reserve and keep
available, free from preemptive rights, sufficient
authorized and unissued, or of treasury, shares of the
Company's Series B Preferred Stock to effect conversion
of this Debenture.
Registration Rights: Shares issued upon
conversion of this Debenture shall be restricted from
transfer by the holder except if the shares are duly
registered for sale pursuant to the Securities Act of
1933, as amended, or the transfer is duly exempt from
registration.
In accordance with the terms of the Convertible
Debenture Loan Agreement (the "Loan Agreement"), the
Holder has certain rights with respect to the
registration of shares of common stock issued upon the
conversion of this Debenture and the conversion of the
Shares. Borrower agrees that a copy of the Loan
Agreement with all amendments, additions or
substitutions therefor shall be available to the Holder
at the offices of Borrower.
Taxes: Borrower shall pay any documentary or
other transactional taxes attributable to the issuance
or delivery of this Debenture or the Shares issued upon
conversion by the Holder (excluding any federal, state
or local income taxes and any franchise taxes or taxes
imposed upon the Holder by the jurisdiction, or any
political subdivision thereof, under which such Holder
is organized or is qualified to do business).
Default:
Event of Default: An " Event of Default"
shall exist if any one or more of the following events
(herein collectively called "Events of Default") shall
occur and be continuing:
Borrower shall fail to pay (or shall state in
writing an intention not to pay or its inability to
pay), when due or not later than 10 days thereof, any
installment of interest on or principal of, any
Debenture or any fee, expense or other payment required
hereunder;
Borrower shall (A) apply for or consent to
the appointment of a receiver, trustee, custodian,
intervenor or liquidator of itself, or of all or
substantially all, of such Borrower's assets, (B) file
a voluntary petition in bankruptcy, admit in writing
that such Borrower is unable to pay Borrower's debts as
they become due or generally not pay such Borrower's
debts as they become due, (C) make a general assignment
for the benefit of creditors, (D) file a petition or
answer seeking reorganization of an arrangement with
creditors or to take advantage of any bankruptcy or
insolvency laws, (E) file an answer admitting the
material allegations of, or consent to, or default in
answering, a petition filed against such Borrower in
any bankruptcy, reorganization or insolvency
proceeding, or (F) take corporate action for the
purpose of effecting any of the foregoing;
An involuntary petition or complaint shall be
filed against Borrower, seeking bankruptcy or
reorganization of Borrower or the appointment of a
receiver, custodian, trustee, intervenor or liquidator
of such Borrower, or all or substantially all of such
Borrower's assets, and such petition or complaint shall
not have been dismissed within sixty (60) days of the
filing thereof or an order, order for relief, judgment
or decree shall be entered by any court of competent
jurisdiction or other competent authority approving a
petition or complaint seeking reorganization of
Borrower, or appointing a receiver, custodian, trustee,
intervenor or liquidator of such Borrower, or of all or
substantially all of such Borrower's assets; or
The failure of Borrower to issue and deliver
the Shares as provided herein upon conversion of this
Debenture.
Remedies Upon Event of Default: If an Event
of Default shall have occurred and be continuing, then
Lender may exercise any one or more of the following
rights and remedies, as Lender in its sole discretion,
may deem necessary or appropriate:
declare the unpaid Principal Amount (after
application of any payments or Installments received by
Lender) of, and all interest then accrued but unpaid
on, the Debentures and any other liabilities hereunder
to be forthwith due and payable, whereupon the same
shall forthwith become due and payable without
presentment, demand, protest, notice of default, notice
of acceleration or of intention to accelerate or other
notice of any kind, all of which Borrower hereby
expressly waives, anything contained herein or in this
Debenture to the contrary notwithstanding,
reduce any claim to judgment, and/or
without notice of default or demand, pursue
and enforce any of Lender's rights and remedies
provided under or pursuant to any applicable law or
agreement, all of which rights may be specifically
enforced.
Remedies Nonexclusive: Each right, power or
remedy of the holder hereof upon the occurrence of any
Event of Default as provided for in this Debenture or
now or hereafter existing at law or in equity or by
statute shall be cumulative and concurrent and shall be
in addition to every other right, power or remedy
provided for in this Debenture or now or hereafter
existing at law or in equity or by statute, and the
exercise or beginning of the exercise by the holder or
transferee hereof of any one or more of such rights,
powers or remedies shall not preclude the simultaneous
or later exercise by the holder of any or all such
other rights, powers or remedies.
Expenses: Upon the occurrence of a Default or
an Event of Default, which occurrence is not cured
within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all
costs and expenses (including Lenders attorney's fees
and expenses) reasonably incurred by Lender in
connection with the preservation and enforcement of
Lender's rights under this Debenture.
Failure to Act and Waiver: No failure or delay by
the holder hereof to require the performance of any
term or terms of this Debenture or nor to exercise any
right, or any remedy shall constitute a waiver of any
such term or of any right or of any default, nor shall
such delay or failure preclude the holder hereof from
exercising any such right, power or remedy at any later
time or times. By accepting payment after the due date
of any amount payable under this Debenture, the holder
hereof shall not be deemed to waive the right either to
require payment when due of all other amounts payable,
or to later declare a default for failure to effect
such payment of any such other amount. The failure of
the holder of this Debenture to give notice of any
failure or breach of the Borrower under this Debenture
shall not constitute a waiver of any right or remedy in
respect of such continuing failure or breach or any
subsequent failure or breach.
Consent to Jurisdiction: The Borrower hereby
agrees and consents that any action, suit or proceeding
arising out of this Debenture may be brought in any
appropriate court in the State of Texas including the
United States District Court for the Northern District
of Texas, or in any other court having jurisdiction
over the subject matter, all at the sole election of
the holder hereof, and by the issuance and execution of
this Debenture the Borrower irrevocably consents to the
jurisdiction of each such court. The Borrower hereby
irrevocably appoints CT Corporation, Dallas, Texas, as
agent for the Borrower to accept service of process for
and on behalf of the Borrower in any action, suit or
proceeding arising out of this Debenture.
Holders' Right to Request Multiple Debentures: The
Holder shall, upon written request and presentation of
this Debenture, have the right, at any interest payment
date, to request division of this Debenture into two or
more units, each of such to be in such amounts as shall
be requested; provided however that no Debentures shall
be issued in denominations of face amount less than One
Hundred Thousand Dollars ($100,000.00).
Transfer: This Debenture may be transferred on
the books of the Borrower by the registered Holder
hereof, or by Holder's attorney duly authorized in
writing, only upon (i) delivery to the Borrower of a
duly executed Assignment, substantially in the form
attached hereto as Exhibit Form A, of this Debenture,
or part thereof, to the proposed new Holder, along with
a current notation of the amount of payments received
and net Principal Amount yet unfunded, and presentment
of such Debenture to the Borrower for issue of a
replacement Debenture, or Debentures, in the name of
the new Holder and (ii) the designation by the new
Holder of the Lender's Agent for Notice, such agent to
be the sole party to whom Borrower shall be required to
provide notice when notice to Lender is required
hereunder and who shall be the sole party authorized to
represent Lender in regard to modification or waivers
under the Debenture, the Loan Agreement, or other Loan
Documents; and any action, consent or waiver, (other
than a compromise of principal and interest), when
given or taken by Lender's Agent for Notice, shall be
deemed to be the action of the holders of a majority in
amount of the Principal Amount of the Debentures, as
such holders are recorded on the books of the Borrower.
The Borrower shall be entitled to treat any holder
of record of the Debenture as the Holder in fact
thereof and of the Debenture and shall not be bound to
recognize any equitable or other claim to or interest
in this Debenture in the name of any other person,
whether or not it shall have express or other notice
thereof, save as expressly provided by the laws of
Texas.
Notices: All notices and communications under
this Debenture shall be in writing and shall be either
delivered in person and accompanied by a signed receipt
therefor; or mailed first-class United States certified
mail, return receipt requested, postage prepaid, and
addressed as follows: (i) if to the Borrower at its
address for notice as stated in the Loan Agreement or
alternatively, at the option of the holder, at
Borrower's registered address in the State of Texas;
and, (ii) if to the holder of this Debenture, to the
address (a) of such holder as it appears on the books
of the Borrower if, or (b) in the case of a partial
assignment to one or more holders, to the Lender's
Agent for Notice, as the case may be. Any notice of
communication shall be deemed given and received as of
the date of such delivery if delivered; or if mailed,
then three days after the date of mailing.
Rights under Loan Agreement: This Debenture is
issued pursuant to that certain Convertible Debenture
Loan Agreement dated as of October 9, 1992, by and
between CCI Coded Communications, Inc. and Coded
Communications Corporation as co-borrowers and
Renaissance Capital Partners II, Ltd. as Lender, as
amended from time to time, and the holder hereof is
entitled to all the rights and benefits, and subject to
all the obligations of Lender under said agreement,
including the maximum interest rates limitations as
specified in Section 10.07 thereof. Both Borrower and
Lender have participated in the negotiation and
preparation of the Loan Agreement and of this
Debenture. Borrower agrees that a copy of the Loan
Agreement with all amendments, additions and
substitutions therefor shall be available to the Holder
at the offices of Borrower.
GOVERNING LAW: THIS DEBENTURE SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS, OR, WHERE APPLICABLE, THE LAWS
OF THE UNITED STATES.
IN WITNESS WHEREOF, the undersigned Borrower have
caused this Debenture to be duly executed under its
corporate seal on the Date of Issue above stated.
Coded Communications
Corporation
By:/S/ JOHN A ROBINSON, J.R.
John A Robinson, Jr.
Chief Executive Officer
Attest:
By:
Coded Mobile
Communications, Inc.
By:/S/ JOHN A ROBINSON, JR.
John A. Robinson, Jr.
Chief Executive Officer
Exhibit Form A
[Assignment]
EXHIBIT 4.1
FOURTH AMENDMENT TO THE
CONVERTIBLE DEBENTURE LOAN AGREEMENT
BY AND BETWEEN
CODED COMMUNICATIONS CORPORATION
(formerly known as CCC Coded Communications Corporation
and CCI Coded Communications, Inc.)
AND ITS SUBSIDIARY
CODED MOBILE COMMUNICATIONS, INC.
(formerly known as Coded Communications Corporation)
AS CO-BORROWERS
AND
RENAISSANCE CAPITAL PARTNERS II, LTD.
AS LENDER
This, the fourth amendment to the Convertible
Debenture Loan Agreement ("Fourth Amendment") is
entered into by and between Coded Communications
Corporation, a Delaware corporation (hereinafter
sometimes referred to as "Coded"), and its wholly owned
subsidiary, Coded Mobile Communications, Inc., a
Delaware corporation (hereinafter sometimes referred to
as "Coded Mobile"), as co-borrowers (both of the
foregoing, jointly or severally, hereinafter referred
to as the "Borrower" or the "Borrowers") and
Renaissance Capital Partners, II, Ltd., a Texas limited
partnership (together with any assignees or successors
in interest herein called "Lender"), dated September
27, 1996.
WITNESSETH:
WHEREAS, Borrower and Lender entered into that
certain Convertible Debenture Loan Agreement dated as
of October 9, 1992, and amended said agreement on July
21, 1993, September 24, 1993, and October 17, 1994,
(herein referred to with all amendments as the "Loan
Agreement") pursuant to which Lender agreed to lend and
Borrower agreed to borrow, an aggregate amount of
$4,750,000;
WHEREAS, Borrower issued to Lender its 12.00%
Convertible Debenture #1 in the amount of $2,500,000 on
October 13, 1992;
WHEREAS, Borrower issued to Lender its 12.00%
Convertible Debenture #2 in the amount of $1,000,000 on
July 21, 1993;
WHEREAS, Borrower issued to Lender its 12.00%
Convertible Debenture #3 in the amount of $500,000 on
September 24, 1993;
WHEREAS, Borrower provided an additional Working
Capital Loan in the amount of $750,000 on October 17,
1994;
WHEREAS, the parties wish to modify said Loan
Agreement to comply with the terms of the Mutual
Agreement of Terms and Conditions entered into by and
among Grupo Information Satellites & Advertising, S.A.
de C.V., Renaissance Capital Partners II, Ltd., certain
holders of the One Million Eight Hundred Thousand
Dollars ($1,800,000.00) bridge loan and Coded
Communications Corporation on May 1, 1996.
NOW, THEREFORE, in consideration of the mutual
promises herein contained and for other valuable
consideration, receipt and sufficiency of which is
acknowledged, the parties hereto agree as follows:
ARTICLE I.A - CONSTRUCTION
Provisions of the Loan Agreement that have not been
specifically expanded, amended, modified or replaced by
the previous amendments or this Fourth Amendment shall
continue to be given full recognition and be
enforceable to the full extent permitted under said
Loan Agreement. The Loan Agreement, as amended hereby,
is hereby confirmed and ratified and is in full force
and effect.
ARTICLE I - DEFINITION OF TERMS
Section 1.01. Definitions.
(a) All terms defined in the Loan Agreement shall
apply when used in this Fourth Amendment, the
Debentures or any Loan Documents, certificate, report
or other document made or delivered pursuant to this
Fourth Amendment, unless otherwise provided by this
Fourth Amendment or required by the context hereof.
ARTICLE II - LOAN PROVISIONS
Section 2.01. Loan Closing.
Lender and Borrowers agree that the Principal
Amount outstanding under the Loan Agreement and the
Debentures is Four Million Eight Hundred Thousand
Dollars ($4,800,000.00).
Section 2.03 Interest Rate and Interest Payments.
Interest on the Principal Amount outstanding on
the 6% convertible debenture (the "Debenture") from
time to time shall accrue from September 27, 1996, at
the rate of six percent (6%) per annum, with the first
installment of interest-only payable on November 1,
1996, and subsequent payments to be made on the first
day of each May and November thereafter. Interest
shall be payable fifty percent (50%) in Coded's common
stock and fifty percent (50%) in cash. The value of
the Company's common stock shall be calculated as the
average of the closing bid and asked prices for the ten
most previous trading days ending on the third day
before the first day of each May and November.
Interest on the Principal Amount of each Debenture
shall be calculated, from time to time, on the basis of
the actual days elapsed in a year consisting of
365 days.
Section 2.04 Maturity.
If not sooner converted, the Debenture shall
mature on September 27, 2003, at which time all the
remaining unpaid principal, interest and any other
charges outstanding under the Loan Agreement shall be
due and payable in full.
Section 2.10 Stock Conversion Rights and Registration
Rights Agreement.
2.10.1 This section replaces in its entirety
Sections 2.05, 2.06 and 2.10 contained in the Loan
Agreement.
2.10.2 Borrower and Lender each has the option to
convert the Debenture in whole, or in part, where such
Principal Amount shall be at least One Hundred Thousand
Dollars ($100,000), at a conversion ratio of One
Hundred Dollars ($100.00) of Principal for one
(1) share of Series B Preferred Stock (the "Shares")
if:
(a) the value of the shares of the Company's
common stock to be issued upon conversion of the Shares
is equal to seventy percent (70%) or more of the
principal amount of the Debenture; or,
(b) at a time prior to the Company's common
stock being quoted on the NASDAQ SmallCap Market or
National Market System the Company's shareholders'
equity, calculated in accordance with generally
accepted accounting principals, is at least equal to
Three Million Dollars ($3,000,000.00), assuming the
conversion of this Debenture into the Company's Series
B Preferred Stock or the subsequent conversion of the
Shares into the Company's common stock.
Notwithstanding the above, Borrower may exercise
its option to convert the Debenture only if not more
than One Million Dollars ($1,000,000.00) in past due
and disputed vendor claims are outstanding.
2.10.2.1 Split-up or Combination of Shares:
If the issued and outstanding shares of the Company's
common stock is subdivided or split up into a greater
number of shares of the Company's common stock, the
conversion price shall be proportionally decreased, and
if the issued and outstanding shares of the Company's
common stock are combined into a smaller number of
shares of the Company's common stock, the conversion
price shall be proportionately increased, such increase
or decrease becoming effective at the time of record of
the split-up or combination.
2.10.2.2 Adjustment for Mergers,
Consolidations, Etc.: In the event of any capital
reorganization, reclassification of the Company's
common stock (other than a change in par value as a
result of a stock dividend, subdivision, split-up or
combination of shares), or consolidation or merger of
the Company with or into another person or entity
(other than a consolidation or merger in which the
Company is the continuing corporation and which does
not result in any change in the Company's common stock)
or of the sale, exchange, lease, transfer or other
disposition of, all or substantially all of the
properties and assets of the Company as an entity, or
the participation by the Company in a share exchange as
the corporation the stock of which is to be acquired,
this Debenture shall be convertible into the kind and
number of shares of stock or other securities or
property of the Company (or of the corporation
resulting from such consolidation or surviving such
merger or to which such properties and assets have been
sold, exchanged, leased, transferred or otherwise
disposed of, or which was the corporation whose
securities were exchanged for those of the Company), to
which the Holder of this Debenture would have been
entitled to receive if the Holder owned the Company's
common stock issuable upon conversion of this Debenture
and the subsequent conversion of the Shares immediately
prior to the occurrence of such event. The provisions
of this section shall apply to successive
reorganizations, reclassifications, consolidations,
mergers, sales, exchanges, leases, transfers or other
dispositions of, or other share exchanges.
2.10.2.3 Notice of Adjustment. (A) In the
event Borrower shall propose to take any action which
shall result in an adjustment in the conversion price,
Borrower shall give notice to the holder of this
Debenture, which notice shall specify the record date,
if any, with respect to such action and the date on
which such action is to take place. Such notice shall
be given on or before the earlier of 30 days before the
record date or the date which such action shall be
taken. Such notice shall also set forth all facts (to
the extent known) material to the effect of such action
on the conversion price and the number, kind or class
of shares or other securities or property which shall
be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of this
Debenture. (B) Following completion of an event wherein
the conversion price shall be adjusted, Borrower shall
furnish to the holder of this Debenture a statement,
signed by the Chief Executive Officer of Borrower, of
the facts creating such adjustment and specifying the
resultant adjusted conversion price then in effect.
2.10.3 The holder of the shares of Coded's common
stock issuable upon conversion of the Debenture and
subsequent conversion of Coded's Series B Preferred
Stock shall be entitled to the rights as provided in
the Registration Rights Agreement attached to the Loan
Agreement as Exhibit B.
Section 2.12 Collateral
The Debenture shall be secured by a security
interest upon all accounts, deposit accounts, chattel
paper, rights to payments, contract rights, property,
equipment, inventory, general intangibles and other
assets of Coded Communications Corporation and of its
subsidiaries Coded Mobile Communication, Inc. and
ComViSat, Inc. Such security shall be perfected by
each of the UCC-1 forms filed in connection with the
Loan Agreement detailing the specified collateral and
such additional collateral requirements as provided and
set forth in the Amendment to Security Agreements and
the Security Agreements for each entity.
ARTICLE III - CONDITIONS PRECEDENT
Section 3.01. Document Requirements.
(a) Lender shall have received the following in
form and substance satisfactory to Lender:
(i) Debentures. One or more duly executed
Debentures aggregating the Principal Amount of Loan
funds then advanced, each in amounts as requested by
Lender, payable to the order of Lender.
(ii) An Amendment to Security Agreements from
Coded Communication Corporation, Coded Mobile
Communications, Inc. and ComViSat, Inc. detailing the
rights and privileges of the pledged collateral.
(b) Borrower shall have received the following in
form and substance satisfactory to Borrower:
(i) The 12% Convertible Debenture #1 in the
amount of Two Million Five Hundred Thousand Dollars
($2,500,000.00) dated October 13, 1992.
(ii) The 12% Convertible Debenture #2 in the
amount of One Million Dollars ($1,000,000.00) dated
July 21, 1993.
(iii) The 12% Convertible Debenture #3 in the
amount of Five Hundred Thousand Dollars ($500,000.00)
dated September 24, 1993.
(iv) The Secured Term Note issued pursuant to
the Working Capital Loan in the amount of Seven Hundred
Fifty Thousand Dollars ($750,000.00) dated October 17,
1994.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
Sections 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.14, 4.15, 4.17, 4.18, 4.19, 4.20, 4.23, 4.24, 4.25,
4.26, 4.27, 4.28, 4.29, 4.30 and 4.31, are deleted in
their entirety.
ARTICLE V - AFFIRMATIVE COVENANTS
Section 5.01 is deleted in its entirety.
ARTICLE VI- NEGATIVE COVENANTS
Article VI is deleted in its entirety.
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
Article VII is deleted in its entirety.
ARTICLE VIII - EVENTS OF DEFAULT
Section 8.01. Events of Default.
(a) Event of Default. An " Event of
Default" shall exist if any one or more of the
following events (herein collectively called "Events of
Default") shall occur and be continuing:
(i) Borrower shall fail to pay (or
shall state in writing an intention not to pay or its
inability to pay), when due or not later than 10 days
thereof, any installment of interest on or principal
of, any Debenture or any fee, expense or other payment
required hereunder;
(ii) Borrower shall (A) apply for or
consent to the appointment of a receiver, trustee,
custodian, intervenor or liquidator of itself, or of
all or substantially all, of such Borrower's assets,
(B) file a voluntary petition in bankruptcy, admit in
writing that such Borrower is unable to pay Borrower's
debts as they become due or generally not pay such
Borrower's debts as they become due, (C) make a general
assignment for the benefit of creditors, (D) file a
petition or answer seeking reorganization of an
arrangement with creditors or to take advantage of any
bankruptcy or insolvency laws, (E) file an answer
admitting the material allegations of, or consent to,
or default in answering, a petition filed against such
Borrower in any bankruptcy, reorganization or
insolvency proceeding, or (F) take corporate action for
the purpose of effecting any of the foregoing;
(iii) An involuntary petition or
complaint shall be filed against Borrower, seeking
bankruptcy or reorganization of Borrower or the
appointment of a receiver, custodian, trustee,
intervenor or liquidator of such Borrower, or all or
substantially all of such Borrower's assets, and such
petition or complaint shall not have been dismissed
within sixty (60) days of the filing thereof or an
order, order for relief, judgment or decree shall be
entered by any court of competent jurisdiction or other
competent authority approving a petition or complaint
seeking reorganization of Borrower, or appointing a
receiver, custodian, trustee, intervenor or liquidator
of such Borrower, or of all or substantially all of
such Borrower's assets; or
(iv) The failure of Borrower to issue
and deliver the Shares as provided herein upon
conversion of this Debenture.
(b) Remedies Upon Event of Default. If an
Event of Default shall have occurred and be continuing,
then Lender may exercise any one or more of the
following rights and remedies, as Lender in its sole
discretion, may deem necessary or appropriate:
(i) declare the unpaid Principal Amount
(after application of any payments or Installments
received by Lender) of, and all interest then accrued
but unpaid on, the Debentures and any other liabilities
hereunder to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without
presentment, demand, protest, notice of default, notice
of acceleration or of intention to accelerate or other
notice of any kind, all of which Borrower hereby
expressly waives, anything contained herein or in the
Debenture to the contrary notwithstanding,
(ii) reduce any claim to judgment, and/or
(iii) without notice of default or demand,
pursue and enforce any of Lender's rights and remedies
provided under or pursuant to any applicable law or
agreement, all of which rights may be specifically
enforced.
(c) Remedies Nonexclusive. Each right, power or
remedy of the holder hereof upon the occurrence of any
Event of Default as provided for in the Debenture or
now or hereafter existing at law or in equity or by
statute shall be cumulative and concurrent and shall be
in addition to every other right, power or remedy
provided for in the Debenture or now or hereafter
existing at law or in equity or by statute, and the
exercise or beginning of the exercise by the holder or
transferee hereof of any one or more of such rights,
powers or remedies shall not preclude the simultaneous
or later exercise by the holder of any or all such
other rights, powers or remedies.
(d) Expenses. Upon the occurrence of a Default
or an Event of Default, which occurrence is not cured
within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all
costs and expenses (including Lenders attorney's fees
and expenses) reasonably incurred by Lender in
connection with the preservation and enforcement of
Lender's rights under the Debenture.
ARTICLE IX - DIRECTORS AND BOARD MEETING ATTENDANCE
Section 9.01. Board Representation or Attendance by
Lender Designee.
(a) Lender may, from time to time, at Lender's
option and so long as the Shares have not been fully
converted, designate a nominee to the Board of
Directors of each of the Borrowers, which designee is
subject to the written approval of the Borrowers and
which approval shall not be unreasonably withheld. The
Borrowers will, at all times, use their reasonable best
efforts to secure the election of such designee as a
Director of each of the Borrowers, provided that such
designee may, at his or her option, elect to serve only
as an "Advisory Director" with all the rights of the
Directors in regards to notice and attendance at
meetings of the Board of Directors, or committees
thereof, but without voting rights. All reasonable
costs and expenses incurred by such Designee as a
Director or Advisory Director, or by the Lender on
behalf of such Designee, shall be reimbursed by the
Borrowers, consistent with payment policies accorded to
other independent directors.
(b) Further, though the Lender may waive, from
time to time, its right to require a Board Designee, in
such event it shall be entitled, at its own expense, to
have a representative of the Lender attend meetings of
the Board of Directors of each of the Borrowers or of
their Subsidiaries, if any, with such representative to
serve as an observer but without voice in matters under
discussion except as requested.
(c) Any such Designee or representative of the
Lender shall, if requested to do so, absent himself or
herself from the meeting in the event of, and so long
as, the Directors are considering and acting on matters
pertaining to any rights or obligation of the Borrowers
under the Loan Agreement, the Debenture, or the other
Loan Documents. Each of the Borrowers will provide the
Lender's designated representative with the same notice
of Board Meetings and information as the Borrowers
shall provide to their regularly elected Directors.
Sections 9.02, 9.03 and 9.04. are deleted in their
entirety.
ARTICLE X - MISCELLANEOUS
Section 10.15. Multiple Counterparts.
This Fourth Amendment may be executed in any
number of counterparts, all of which taken together
shall constitute one and the same agreement, and any of
the parties hereto may execute this Loan Agreement by
signing any such counterpart.
Section 10.16. Governing Law.
THIS FOURTH AMENDMENT HAS BEEN PREPARED, AND IS
INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE
SUBSTANTIVE LAWS OF SUCH STATE AND THE APPLICABLE
FEDERAL LAWS OF THE UNITED STATES OF AMERICA SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS LOAN AGREEMENT AND ALL OF THE
OTHER LOAN DOCUMENTS.
Section 10.17. Scope of Amendments.
Provisions of the Loan Agreement that have not
been specifically modified or replaced by amendments
shall continue to be given full recognition and be
enforceable to the full extent permitted under said
Loan Agreement. Lender does not implicitly or
explicitly waive any of its rights under said Loan
Agreement.
IN WITNESS WHEREOF, the undersigned have executed
this Amendment to the Convertible Debenture Loan
Agreement as of the day and year first above written.
SIGNATURES
BORROWER
Address for Notice:
1945 Palomar Oaks Way
Carlsbad, CA 92009
SIGNATURES
BORROWER
Coded Communications Corporation
By:/S/ JOHN A. ROBINSON, JR.
John A. Robinson, Jr.
Chief Executive Officer
Attest:
By:
BORROWER
Coded Mobile Communications, Inc.
Address for Notice:
1945 Palomar Oaks Way
Carlsbad, CA 92009
By:/S/ JOHN A. ROBINSON, JR.
John A. Robinson, Jr.
Chief Executive Officer
Attest:
By:
LENDER
Address for Notice:
8080 North Central Expressway
Suite 210/LB59
Dallas, Texas 75206
Renaissance Capital Partners II, Ltd.
by:
Renaissance Capital Group, Inc.
Managing General Partner
By:/S/ RUSSELL CLEVELAND
Russell Cleveland
President
Attest:
By:
Title
State of California )
)
County of )
On before me,
Date Name, Title Of Officer
personally appeared
Name(s) Of Signer(s)
personally known to me - OR - proved to me on the basis
of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public
State of ________________ )
)
County of )
On before me, ,
Date Name, Title Of Officer
personally appeared ,
Name(s) Of Signer(s)
personally known to me - OR - proved to me on the basis
of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public
State of California )
)
County of )
On before me,
Date Name, Title Of Officer
personally appeared
Name(s) Of Signer(s)
personally known to me - OR - proved to me on the basis
of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public
SS:749995.DOC:58002.015
SS:749905.DOC:58002.015
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