SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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CONOLOG CORPORATION
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: (5) Total fee
paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
CONOLOG CORPORATION
5 COLUMBIA ROAD
SOMERVILLE, NEW JERSEY 08876
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 13, 2004
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BY ORDER OF THE BOARD OF DIRECTORS.
ROBERT S. BENOU
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Somerville, New Jersey
June 21, 2004
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IMPORTANT
IF YOU CANNOT PERSONALLY ATTEND THE MEETING, IT IS REQUESTED
THAT YOU INDICATE YOUR VOTE ON THE ISSUES INCLUDED ON THE
ENCLOSED PROXY AND DATE, SIGN AND MAIL IT IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES
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To the Shareholders of
CONOLOG CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
CONOLOG CORPORATION (the "Company"), a Delaware corporation, will be held at the
offices of Milberg Weiss Bershad & Schulman LLP, One Pennsylvania Plaza, New
York, New York 10119, on Tuesday, July 13, 2004, at 4:30 p.m., New York time,
for the following purposes:
1. To elect five directors to serve, subject to the provisions of the
By-laws, until the next Annual Meeting of Shareholders and until their
respective successors have been duly elected and qualified;
2. To approve the potential issuance to Laurus Master Fund, Ltd. of
shares of common stock of the Company issuable upon:
o conversion of a $1,200,000 4% Secured Convertible Term Note;
o exercise of common stock purchase warrant.
3. To consider and act upon a proposal to approve the selection of
Rosenberg Rich Baker Berman & Company as the Company's independent auditors for
the 2004 fiscal year; and
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on June 7, 2004
as the record date for the meeting and only holders of shares of record at that
time will be entitled to notice of and to vote at the Annual Meeting of
Shareholders or any adjournment or adjournments thereof.
CONOLOG CORPORATION
5 COLUMBIA ROAD
SOMERVILLE, NEW JERSEY 08876
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P R O X Y S T A T E M E N T
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 13, 2004
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June 21, 2004
The enclosed proxy is solicited by the Board of Directors of Conolog
Corporation (the "Company"), a Delaware corporation in connection with the
Annual Meeting of Shareholders to be held at the offices of Milberg Weiss
Bershad & Schulman LLP, One Pennsylvania Plaza, New York, New York 10119 on
Tuesday, July 13, 2004, at 4:30 p.m., New York time, and any adjournments
thereof, for the purposes set forth in the accompanying Notice of Meeting.
Unless instructed to the contrary on the proxy, it is the intention of the
person named in the proxy to vote the proxies:
1. To elect five directors to serve, subject to the provisions of the
By-laws, until the next Annual Meeting of Shareholders and until their
respective successors have been duly elected and qualified;
2. To approve the potential issuance to Laurus Master Fund, Ltd. of
shares of common stock of the Company issuable upon:
o conversion of a $1,200,000 4% Secured Convertible Term Note;
o exercise of common stock purchase warrant.
3. To consider and act upon a proposal to approve the selection of
Rosenberg Rich Baker Berman & Company as the Company's independent auditors for
the 2004 fiscal year; and
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The record date with respect to this solicitation is the close of
business on June 7, 2004 and only shareholders of record at that time will be
entitled to vote at the meeting. The principal executive office of the Company
is 5 Columbia Road, Somerville, New Jersey 08876, and its telephone number is
(908) 722-8081. The shares represented by all validly executed proxies received
in time to be taken to the meeting and not previously revoked will be voted at
the meeting. This proxy may be revoked by the shareholder at any time prior to
its being voted by filing with the Secretary of the Company either a notice of
revocation or a duly executed proxy
bearing a later date. This proxy statement and the accompanying proxy were
mailed to you on or about June 21, 2004.
OUTSTANDING SHARES; QUORUM; REQUIRED VOTE
The number of outstanding shares entitled to vote at the meeting is
2,300,313 common shares, par value $.01 per share, not including 220 common
shares held in treasury. Each common share is entitled to one vote. The presence
in person or by proxy at the Annual Meeting of the holders of a majority of such
shares shall constitute a quorum. There is no cumulative voting. Assuming the
presence of a quorum at the Annual Meeting:
o directors shall be elected by a plurality of the votes cast;
o the affirmative vote of a majority of the common shares present at
the meeting and entitled to vote on each matter is required for:
o the approval of the potential issuance to Laurus Master Fund,
Ltd. of shares of common stock of the Company issuable upon:
o conversion of a $1,200,000 4% Secured Convertible Term Note;
o exercise of common stock purchase warrant.
o the approval of Rosenberg, Rich, Baker, Berman & Company, as the
Company's auditors for the 2004 fiscal year.
Votes shall be counted by one or more persons who shall serve as the
inspectors of election. The inspectors of election will canvas the shareholders
present in person at the meeting, count their votes and count the votes
represented by proxies presented. Abstentions and broker nonvotes are counted
for purposes of determining the number of shares represented at the meeting, but
are deemed not to have voted on the proposal. Broker nonvotes occur when a
broker nominee (who has voted on one or more matters at the meeting) does not
vote on one or more other matters at the meeting because it has not received
instructions to so vote from the beneficial owner and does not have
discretionary authority to so vote.
For purposes of determining the votes cast with respect to any matter
presented for consideration at the meeting, only those votes cast "for" or
"against" are included. However, if a proxy is signed but no specification is
given, the shares will be voted "FOR" Proposals 1, 2 and 3 (to elect the Board's
nominees to the Board of Directors, to approve the potential issuance of shares
of common stock to Laurus Master Fund Ltd. and to approve to ratify the
selections of the Company's independent auditors).
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named in the accompanying proxy will vote for the election
of the following five persons as directors, all of whom are currently members of
the Board, to hold office until the
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next annual meeting of shareholders and until their respective successors have
been elected and qualified. Unless specified to be voted otherwise, each proxy
will be voted for the nominees named below. All five nominees have consented to
serve as directors if elected.
Name Age Position with the Company Director Since
Robert S. Benou ...................... 68 Chairman, Chief Executive Officer, 1968
Chief Financial Officer and Director
Marc R. Benou ....................... 36 President, Chief Operating Officer, 1995
Secretary and Director
Louis S. Massad ...................... 65 Director 1995
Edward J. Rielly ..................... 36 Director 1998
Graham Bruce Edwards ................. 58 Director 2003
Robert S. Benou has been the Company's Chairman and Chief Executive
Officer since May 1, 2001. From 1968 until May 1, 2001, he served as the
Company's President. Mr. Benou is also the Company's Chief Financial Officer.
Mr. Benou is responsible for new product development and supervision of sales
and marketing. Since June, 2001, Mr. Benou has served as a member of the board
of Security Solutions, Inc., a publicly held company that is a
single-source/turn-key provider of technology-based security solutions for
medium and large companies and government agencies. Since December 2003, Mr.
Benou has served as a member of the board of directors of eXegenics, Inc., a
publicly held company. Mr. Benou is a graduate of Victoria College and holds a
BS degree from Kingston College, England and a BSEE from Newark College of
Engineering, in addition to industrial management courses at Newark College of
Engineering. Robert S. Benou is the father of Marc R. Benou.
Marc R. Benou has been the Company's President and Chief Operating
Officer since May 1, 2001. Mr. Benou is also the Company's Secretary. Mr. Benou
joined the Company in 1991 and is responsible for material purchasing and
inventory control. From March 1995 until May 1, 2001, he served as Vice
President. Mr. Benou has been on the company's Board and has served as the
Company's assistant secretary since March 1995. Mr. Benou attended Lehigh and
High Point University and holds a BS degree in Business Administration and
Management. Marc R. Benou is the son of Robert S. Benou, the Company's Chairman
and Chief Executive Officer.
Louis S. Massad has been a Director of the Company since April 1995.
From 2000 until 2003 Mr. Massad was the Chief Financial Officer and a Director
of Diversified Security Solutions, Inc. From 1997 to 2000, Mr. Massad was a
consultant to Diversified Security Solutions, Inc. From 1986 to 1997, Mr. Massad
was a Vice President, Chief Financial Officer and Director of Computer Power
Inc. Mr. Massad holds a BS and MS degree from Cairo University (Egypt) and an
MBA from Long Island University, New York.
Edward J. Rielly has been a Director of the Company since January 1998.
Mr. Rielly is a Senior Application Developer with Household International, a
financial corporation. From
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March 2000 to November, 2001, Mr. Rielly was a Senior Consultant with Esavio
Corporation. From February 1998 to February 2000, Mr. Rielly was an Application
Developer with Chubb Corporation. From 1993 to 1998, Mr. Rielly was an
Application Developer with the United States Golf Association. Mr. Rielly is a
graduate of Lehigh University and holds a BS in Computer Science.
Graham Bruce Edwards has been a Director of the Company since June
2003. Mr. Edwards has been the Director of Environmental Services for the
Middlesex County Improvement Authority, since August 1, 2002. From 1996 to 2002,
Mr. Edwards was the Northeast Regional Account/Training Manager with Healthcare
Services Group, Inc. Mr. Edwards is a graduate of Valley Forge Military Academy
where he earned an AA degree with an Accounting Major. Mr. Edwards served in the
military and for eighteen months was on active duty with the 101st Airborne
Division in Vietnam. Mr. Edwards holds a BS degree in Business Administration,
Management and Economics.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended July 31, 2003, the Board of Directors held
ten meetings. All of the directors attended all of the meetings of the Board of
Directors, except that Mr. Havasy did not attend one meeting and due to health
reasons, Mr. Havasy has resigned from our Board.
The Company has Board of Directors and an Audit Committee, which
consists of Messrs. Louis S. Massad, Graham Bruce Edwards and Edward J. Reilly.
The Company's Board of Directors has adopted a written charter for the Audit
Committee (attached hereto as Appendix A). The Audit Committee has the
obligations specified in the Audit Committee charter. The Audit Committee met
five times during the fiscal year ended July 31, 2003. The Board of Directors
believes that Messrs. Massad, Edwards and Reilly are independent as defined in
Nasdaq Rule 4200. The Company does not have a standing compensation committee.
The full Board made all decisions concerning executive compensation during the
fiscal year ended July 31, 2003. Mr. Louis Massad is an "Audit Committee
Financial Expert" and is an independent member of the Board, as "independence"
is defined in Rule 4200(a)(15) of the National Association of Securities
Dealers' listing standards, as applicable.
We have a Nominating Committee. Our Nominating Committee was formed in
June, 2004 and is comprised of Louis Massad and Edward Rielly. The Nominating
Committee does not yet have a charter. The Nominating Committee is responsible
for (i) reviewing the appropriate size, function and needs of the Board of
Directors, (ii) developing the Board's policy regarding tenure and retirement of
directors, (iii) establishing criteria for evaluating and selecting new members
of the Board, subject to Board approval thereof, and (iv) identifying and
recommending to the Board for approval individuals qualified to become members
of the Board of Directors, consistent with criteria established by the Committee
and the Board. The Committee has not yet adopted a policy regarding the
consideration of director candidates recommended by security holders. The
Committee expects to adopt such a policy prior to the 2005 Annual Meeting of
Stockholders. Except as may be required by rules promulgated by NASDAQ or the
SEC, currently there are no specific, minimum qualifications that must be met
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by each candidate for the Board of Directors, nor are there any specific
qualities or skills that are necessary for one or more of the members of the
Board of Directors to possess.
REPORT OF THE AUDIT COMMITTEE
The following shall not be deemed to be "soliciting material" or to be
"filed" with the Commission nor shall such information be incorporated by
reference into any future filing of the Company under the Securities Act of 1933
or the Securities and Exchange Act of 1934.
The Audit Committee oversees the financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls.
The Audit Committee discussed with the Company's independent auditors
those matters required to be discussed by Statement on Accounting Standards No.
61, as amended. The Audit Committee received and reviewed the written
disclosures and the letter from the independent auditors required by
Independence Standard No. 1, as amended, "Independence Discussions with Audit
Committees" and has discussed with the Company's independent accountant the
independent accountant's independence.
The Audit Committee reviewed the audited financial statements in the
Annual Report with management including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements. Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the consolidated financial
statements referred to above be included in the Company's Annual Report on Form
10-KSB for the year ended July 31, 2003.
Audit Committee:
Graham Bruce Edwards
Louis S. Massad
Edward J. Rielly
COMMUNICATING WITH OUR DIRECTORS
We have adopted a policy regarding shareholder communications with
directors. Pursuant to that policy, shareholders who wish to communicate with
the Board of Directors or with specified members of the Board of Directors
should do so by sending any communication to Conolog Corporation, 5 Columbia
Road, Somerville, New Jersey 08876; Attention: Secretary.
Any such communication should state the number of shares beneficially
owned by the shareholder making the communication. Our Secretary will forward
such communication to the full Board of Directors or to any individual member or
members of the Board of Directors to whom the communication is directed, unless
the communication is unduly hostile, threatening, illegal or similarly
inappropriate, in which case the Secretary has the authority to discard the
communication or take appropriate legal action regarding the communication.
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EXECUTIVE OFFICERS
The executive officers of the Company are Robert S. Benou, Chairman,
Chief Executive Officer and Chief Financial Officer, and Marc R. Benou,
President, Chief Operating Officer, Secretary and Treasurer, information as to
each of whom is set forth above, and Thomas R. Fogg, Vice President -
Engineering. Mr. Fogg joined the Company in 1976 as Chief Engineer responsible
for analog and guidance projects. Since 1986, when he became Vice
President-Engineering, he has led the design team in the development of the
Company's commercial products. Mr. Fogg holds a BSEE degree from Lafayette
College and a MSEE degree from Rutgers University. Mr. Fogg is a fellow of the
Institute of Electrical and Electronic Engineers and has published articles on
delay equalization and the use of crystal resonators.
The Company has no "significant" employees other than its executive
officers. There are no arrangements or understandings pursuant to which either
the directors or officers were selected as such.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to executive officers
whose compensation was in excess of $100,000 for any of the three fiscal years
ended July 31, 2003, 2002 and 2001. No other executive officers received total
salary and bonus compensation in excess of $100,000 during any of these fiscal
years. The common stock amounts and prices stated in the following table have
not been adjusted to reflect the Reverse Split of the Company's common stock.
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Summary Compensation Table
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Annual Compensation Long Term Compensation
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Awards
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Restricted Securities
Fiscal Other Stock Underlying
Name and Principal Year Salary* Bonus Compensation Award(s) Options/SARs
Position End ($) ($) ($) ($) (#)
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Robert Benou, 2003 310,000 -0- 40,000
Chairman, Chief 2002 250,000 63,000
Executive Officer and 2001 230,000 125,040
Director
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Marc Benou, President, 2003 98,000 -0- 45,000
President, Chief 2002 92,000 50,400
Operating Officer, 2001 80,000 31,260
Secretary and
Director
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* As of July 31, 2003, Mr. Robert Benou has deferred the receipt of
$216,916 of his salary. Mr. Marc Benou is waiving his prior two salary
increases until the Company becomes profitable, at which point his
compensation will be adjusted accordingly according to his employment
agreement. As of July 31, 2003, Mr. Marc Benou deferred the receipt of
$22,836 in salary.
The options granted during the fiscal year ended July 31, 2001 were
granted under the 2000/2001 Stock Option Plan, were exercisable at $1.60 per
share and have all been exercised.
EMPLOYMENT AGREEMENTS
The Company entered into a five-year employment agreement, which
commenced on June 1, 1997 with Robert Benou, which pursuant to its terms
automatically renews on a year-to-year basis unless Mr. Benou or the Company
gives the other notice of termination at least 90 days prior to May 31st. As of
June, 2003, Mr. Benou's annual base salary is $290,000. Under his employment
agreement Mr. Benou is entitled to a $20,000 increase in his salary each June
that the agreement is in effect. In addition, Mr. Benou is entitled to an annual
bonus equal to 6% of the Company's annual "income before income tax provision,"
as stated in its annual Form 10-KSB. The employment agreement also entitles Mr.
Benou to the use of an automobile and to employee benefit plans, such as life,
health, pension, profit sharing and other plans. Under the employment agreement,
Mr. Benou's employment terminates upon his death or disability, and he may be
terminated by the Company for cause.
The Company entered into a five-year employment agreement, which
commenced on June 1, 1997 with Marc R. Benou, which pursuant to its terms
automatically renews on a year-to-year basis unless Mr. Benou or the Company
gives the other notice of termination at least 90 days prior to May 31st. As of
June 2003, Mr. Benou's annual salary is $80,000. Under his
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employment agreement, Mr. Benou is entitled to a $6,000 increase in his salary
each June that the agreement is in effect. Mr. Benou is entitled to an annual
bonus equal to 3% of the Company's annual "income before income tax provision,"
as stated in its annual Form 10-KSB. Mr. Benou's employment agreement also
entitles him to the use of an automobile and to employee benefit plans, such as
life, health, pension, profit sharing and other plans. Under the employment
agreement, Mr. Benou's employment terminates upon his death or disability, and
he may be terminated by the Company for cause.
COMPENSATION OF DIRECTORS
No director of the Company receives any cash compensation for his
services as such. Currently, the Company has three directors who are not
employees, Messrs. Graham Bruce Edwards, Louis Massad and Edward Rielly.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The full board of directors made all decisions concerning executive
compensation during the fiscal year ended July 31, 2003. Other than Mr. Robert
Benou, who is a member of the Board of Directors of Diversified Security
Solutions, Inc. and eXegenics, Inc., no executive officer of the Company served
as a member of the Board of Directors of another entity during the fiscal year
ended July 31, 2003.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our directors and officers,
and persons who own more than 10% of our Common Stock, to file with the
Securities and Exchange Commission initial reports of beneficial ownership and
reports of changes in beneficial ownership of our Common Stock and other equity
securities. Our officers, directors and greater than 10% beneficial owners are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
they file.
To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were
required, during the fiscal year ended July 31, 2003, all Section 16(a) filing
requirements applicable to our officers, directors and greater than 10%
beneficial owners were complied with, except that, as a result of inadvertent
oversight, Mr. Graham Bruce Edwards' Initial Statement of Beneficial Ownership
on Form 3 was not timely filed. Mr. Edwards has since filed this Initial
Statement of Beneficial Ownership.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of June 7, 2004, certain information
concerning stock ownership of the Company by (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding common shares of the
Company, (ii) each of the Company's directors and (iii) all current directors
and officers of the Company as a group. Except as otherwise indicated, all such
persons have both sole voting and investment power over the shares shown as
being beneficially owned by them.
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The address for each of the named individuals is c/o Conolog
Corporation, 5 Columbia Road, Somerville, New Jersey 08876.
Shares of common stock which an individual or group has a right to
acquire within 60 days pursuant to the exercise or conversion of options are
deemed to be outstanding for the purpose of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in the
table.
Amount and Nature of
Name and Title of Beneficial Beneficial Ownership
Ownership of Class of Class Percent
------------------ -------- -------
Robert S. Benou, Chairman, Chief
Executive Officer and Director 250,000 10.87%
Marc R. Benou, President, Chief
Operating Officer, Assistant Secretary
and Director 223,786 9.73%
Thomas Fogg, Vice President - Engineering 20,000 *
Louis Massad, Director 11,500 *
Edward J. Rielly, Director 5,000 *
Graham Edwards, Director 5,000 *
All Officers and Directors as a Group (6
Persons) 515,286 22.4%
* Less than 1%.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert Benou, our Chairman, Chief Executive Officer and Chief Financial
Officer has made a series of non-recourse loans to the Company totaling
$180,427. The Company repaid $56,499 of the total balance during the fiscal year
ended July 31, 2003. Of the remaining amount $91,000 has been forgiven, leaving
a balance of $32,928 for the fiscal year ended July 31, 2003. Each loan bears an
interest rate of 4.00% and must be paid by the Company one year from the date
the loan is made.
PROPOSAL NO. 2
LAURUS
APPROVAL OF THE POTENTIAL ISSUANCE TO LAURUS MASTER FUND, LTD. OF THE SHARES OF
COMMON STOCK UNDERLYING THE 4% SECURED CONVERTIBLE TERM NOTE AND COMMON STOCK
PURCHASE WARRANTS, WHICH WILL RESULT IN THE POTENTIAL ISSUANCE OF SHARES
REPRESENTING 20% OR MORE OF THE
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TOTAL NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING BEFORE SUCH ISSUANCE.
Rule 4350(i) of the National Association of Securities Dealers, Inc.
(the "NASD") requires shareholder approval of a transaction other than a public
offering involving the sale, issuance or potential issuance by an issuer of
common stock (or securities convertible into or exercisable for common stock) if
the number of shares of common stock to be issued is or may be equal to 20% or
more of the common stock, or 20% or more of the voting power, outstanding before
the issuance, for less than the greater of book or market value of the stock.
If, however, shareholder approval is not obtained, the issuer would not be
permitted to issue any shares above the 20% threshold. The following disclosure
outlines the material provisions of the various securities being issued.
The Financing
The Company received an aggregate amount of $1,128,000 in proceeds as
described below.
On April 26, 2004, the Company entered into a Securities Purchase
Agreement with Laurus Master Fund, Ltd. (the "Laurus"), under which the Company
issued and sold to Laurus in a private placement (i) a $1,200,000 principal
amount 4% Secured Convertible Term Note due April 26, 2007 (the "Term Note"),
(ii) a warrant to purchase 270,000 shares of common stock; 90,000 warrants are
at a price equal to $1.325, 90,000 warrants are at a price equal to $1.590 and
90,000 warrants are at a price equal to $1.855, and all of which are exercisable
until April 26, 2011 (the "Term Note Warrants").
The Company has used the proceeds from the financing as follows:
$199,710 was used to pay off a bank loan.
The balance is being used for working capital.
The issuance of Term Note and the Term Note Warrants to Laurus is
referred to herein as the "Financing."
The Term Note
The principal amount of the Term Note is repayable at the rate of
$50,000 per month, commencing on May 1, 2005 and may be paid, at Laurus' option
(i) in cash; or (ii) shares of the Company's common stock. Laurus shall elect
to, subject to volume limitations, convert all or a portion of the monthly
amount due on the Note if the Closing Price of the Company's common stock as
reported by Bloomberg, L.P. for the five trading preceding such repayment
date was greater than $1.17.
If paid in shares of common stock the number of shares to be issued
shall equal the total amount due, divided by $1.06. The 4% Interest on the Term
Note is payable monthly in arrears commencing May 1, 2004. The Interest on the
Term Note will be adjusted: if (i) the Company shall have registered the shares
of the Company's common stock underlying the conversion of
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the Term Note and Term Note Warrant issued to Holder on a registration statement
declared effective by the SEC, and (ii) the volume weighted average price of the
Common Stock for the five trading days immediately preceding a determination
date (as this term is defined in the Term Note) exceeds the then applicable
fixed conversion price, the interest rate for the succeeding calendar month
shall be decreased by fifty basis points (0.50%) for each incremental
twenty-five percent (25%) increase above the fixed conversion price.
If an effective registration statement covering the securities
underlying the Term Note and the Term Note Warrant and the Company is not in
default in its obligations under the Term Note and if the average closing price
of the common stock for 30 consecutive trading days is greater than $1.17 (110%
of the fixed conversion price), Laurus at its sole option may require that the
holder convert into common stock an amount of principal, accrued interest and
fees due under the Term Note equal to a maximum of 10% of the aggregate dollar
trading volume of the common stock for such ten consecutive trading days.
The Term Note may be redeemed by the Company in cash by paying the holder
125% of the principal amount, plus accrued interest.
If an Event of Default (as defined below) occurs and is continuing the
holder may make all sums of principal, interest and other fees payable. In the
event of such an acceleration, the amount due and owing to the holder shall be
125% of the outstanding principal amount of the Term Note (plus accrued and
unpaid interest and fees, if any). The occurrence of any of the following events
is an "Event of Default":
o Failure to Pay Principal, Interest or other Fees.
o Breach of Covenant. The Company breaches any material covenant in
the Term Note and such breach continues for 30 days.
o Breach of Representations and Warranties. Any material
representation or warranty is materially false and not cured for
thirty days.
o Receiver or Trustee. The Company makes an assignment for the
benefit of creditors.
o Judgments. Any money judgment in excess of $250.000.
o Bankruptcy.
o Stop Trade. An SEC stop trade or principal market suspension for
five consecutive days or five days during a period of 10
consecutive days.
o Failure to deliver Common Stock or Replacement Note.
The conversion price of the Term Note and the exercise price of the
Warrants are subject to customary anti-dilution rights. In addition, if the
Company issues common stock at a price less than $1.06, other than as provided
in the Term Note, then the conversion price of the Term
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Note and the exercise price of the warrants shall be reduced to such lower
price, except for shares pursuant to options, warrants or other obligation to
issue shares outstanding on April 25, 2004 (and disclosed to Laurus); pursuant
to options that may be issued under any employee incentive stock options and/or
any qualified stock option plan or as part of any incentive bonus or
compensation plan adopted by the Company or to the Company's employees or
consultants and suppliers in the ordinary course of business, provided that such
issuances do not exceed 250,000 shares in any calendar year and are restricted
shares.
In addition, the Company has granted a security interest to Laurus in
all of its assets (and that of its subsidiary) until the Term Note obligations
are satisfied.
Other Terms
Laurus is not permitted to convert and/or exercise the Term Note and
Term Note Warrants into shares of common stock if such conversion/and or
exercise would give Laurus beneficial ownership of more than 4.99% of the
outstanding shares of common stock of the Company. This limitation may be waived
upon 75 days notice by Laurus or upon an Event of Default. Although Laurus may
not hold more than 4.99% at any one time, the Company intends to register all of
the common stock underlying the above-referenced securities because Laurus can
hold and sell as many times as it wants without reaching this limitation. In
addition, the company is prohibited from issuing more than 19.9% of its common
stock unless shareholder approval is obtained.
Laurus has registration rights for the common stock underlying the
above-referenced securities. The Company is required to file a registration
statement to register the underlying stock for the above-referenced securities
within 60 days of April 26, 2004 and to use its best efforts to go effective
within 120 days of such date.
The Company has filed all of the above-referenced documents as Exhibits
to its 8-K filed on June 10, 2004.
Laurus and its affiliates and investment partners will not and will not
cause any person or entity to engage in "short sales" of the Company's common
stock or any other hedging strategies as long as the Term Note shall be
outstanding.
Possible Issuance of More than 20%
The total number of shares of common stock that may be issued by the
Company in connection with the Financing is dependent upon, among other things,
whether the Term Note is converted or the Term Note Warrant is exercised,
whether the principal and/or interest or dividends on the securities is paid in
cash or common stock and the market price of the common stock used in
calculating any such payments, and whether or not the antidilution adjustment
provisions of such securities come into effect. Based on a current conversion
price of $1.06 for the Term Note, we would be required to issue approximately
1,132,076 shares of common stock. Upon the exercise of the Term Note Warrant,
the Company would be required to issue 270,000 shares of its common stock.
Pursuant to the Purchase Agreement, the Company agreed to seek by August 5, 2004
12
stockholder approval of the possible issuance to Laurus or their transferees
of shares in excess of the Nasdaq 20% share limitation.
THE ISSUANCE OF SHARES UPON CONVERSION OF OUR CONVERTIBLE SECURITIES
AND EXERCISE OF RELATED OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL
DILUTION TO OUR EXISTING STOCKHOLDERS.
If this proposal is approved then an aggregate total of 1,497,076
shares of common stock may be issuable. This includes payment of the Term Note
interest in shares of our common stock and would represent approximately 65%
of our shares outstanding. The issuance of shares upon conversion of these
convertible securities and exercise of warrants may result in substantial
dilution to the interests of other stockholders.
Board Recommendations; Reasons
The Board of Directors believes that it is in the Company's best
interest for Laurus to be able to convert its Term Note and exercise its Term
Note Warrant and for the Company to be able to pay principal and
interest/dividends in common stock for an aggregate amount of common stock that
may exceed the Rule 4350(i) NASD 20% share limitation. Approval of this Proposal
by the shareholders would satisfy the shareholder approval requirements of Rule
4350(i) NASD.
If shareholder approval is not obtained and the rule 4350(i) NASD 20%
shares limitation was reached, the company would be forced to pay principal and
interest in cash. If the Company is forced to pay principal and interest/or
dividend in cash rather than common stock, the amount of cash available to fund
its operations would be reduced. In addition, if shareholder approval is not
obtained, Laurus would be prohibited from converting or exercising their
securities if in doing so exceeded the 20% limitation, it is likely that the
value of the securities would be reduced. Any reduction in the value of the
Company's securities may make it more difficult to raise any additional
financing in the future.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVING THE POSSIBLE ISSUANCE
OF MORE THAN 20% OF THE COMPANY'S COMMON STOCK IN CONNECTION WITH THE FINANCING.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors recommends the selection of Rosenberg Rich Baker
Berman & Company as independent auditors to examine the Company's financial
statements for the fiscal year ending July 31, 2004. Representatives of
Rosenberg Rich Baker Berman & Company are expected to be present at the Annual
Meeting of Shareholders with the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
Audit Fees
The aggregate fees for professional services rendered by Rosenberg Rich
Baker Berman & Company for the audit of our annual financial statements and for
the reviews of the financial
13
statements included in our Quarterly Reports on Form 10-QSB in 2003 and 2002
were $23,000 and $23,000 respectively.
All Other Fees
There were no other fees paid during 2003 and 2002.
The Audit Committee pre-approves all audit services and all non-audit
services to be provided by our independent accountants that are permitted under
applicable law and regulation, and all corresponding fees and terms, in
accordance with procedures established by the Audit Committee in respect of such
approvals, subject to the de minimus exception for non-audit services permitted
by SEC rules and regulations. For fiscal years 2003 and 2002, none of the fees
listed above were covered by the de minimus exception.
FORM 10-KSB
The Company is providing without charge to each person solicited by
this proxy statement a copy of the Company's Annual Report on Form 10-KSB for
the fiscal year ended July 31, 2003 including the financial statements and
financial statement schedules required to be filed with the Securities and
Exchange Commission for the Company's most recent fiscal year.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
mentioned above to be presented to the meeting. If any other matters do come
before the meeting, the persons named in the proxy will exercise their
discretion in voting thereof.
SHAREHOLDER PROPOSALS
Proposals by any shareholders intended to be presented at the next
Annual Meeting of Shareholders must be received by the Company for inclusion in
material relating to such meeting not later than February 14, 2005.
EXPENSES
All expenses in connection with solicitation of proxies will be borne
by the Company. Officers and regular employees of the Company may solicit
proxies by personal interview and telephone, telegraph, mail, or facsimile.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to forward proxy soliciting materials to the beneficial owners
of stock held of record by such persons, and the Company will reimburse them for
reasonable out-of-pocket expenses incurred by them in doing so.
By Order of the Board of Directors,
/s/ Robert S. Benou
Robert S. Benou
Chairman & Chief Executive Officer
14
APPENDIX A
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CONOLOG CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
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I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Corporation to
any governmental body or the public; the Corporation's systems of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Corporation's auditing,
accounting and financial reporting process generally. Consistent with this
function, the Audit Committee should encourage continuous improvement of and
foster adherence to, the Corporation's policies, procedures and practices at all
levels. The Audit Committee's primary duties and responsibilities are to:
1. Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system.
2. Review and appraise the audit efforts of the Corporation's
independent accountants.
3. Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, a majority of whom shall be independent directors. An
independent director means a person other than an officer or other employee of
the Company or any of its subsidiaries or any other individual having a
relationship which, in the opinion of the Company's board of directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. A director shall not be considered independent
if, among other things, he or she has:
o been employed by the Corporation or its affiliates in the current or
past three years;
Appendix - 1
o accepted any compensation from the Corporation or its affiliates in
excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits, or non-discretionary
compensation);
o an immediate family member who is, or has been in the past three
years, employed by the Corporation or its affiliates as an executive
officer;
o been a partner, controlling shareholder or an executive officer of
any for-profit business to which the Corporation made, or from which
it received, payments (other than those which arise solely from
investments in the corporation's securities) that exceed five
percent of the organization's consolidated gross revenues for that
year, or $200,000, whichever is more, in any of the past three
years; or
o been employed as an executive of another entity where any of the
Corporation's executives serve on that entity's compensation
committee.
All members of the Committee shall have a working familiarity with
basic finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise.
The members of the Committee shall be elected by the Board at the
annual meeting of the Board or until their successors shall be duly elected and
qualified. Unless a Chair is elected by the full Board, the members of the
Committee may designate a Chair by majority vote of the full Committee
membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Committee should meet at least annually with management and
the independent accountants in separate executive sessions to discuss any
matters that the Committee or each of these groups believe should be discussed
privately. In addition, the Committee or at least its Chair should meet with the
independent accountants and management quarterly to review the Corporation's
financials consistent with Section IV.3 below.
IV. RESPONSIBILITIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically, at least annually, as
conditions dictate.
Appendix - 2
2. Review the Corporation's annual financial statements and any reports
or other financial information submitted to any governmental body, or the
public, including any certification, report, opinion, or review rendered by the
independent accountants.
3. Review with financial management and the independent accountants the
10-QSB prior to its filing or prior to the release of earnings. The Chair of the
Committee may represent the entire Committee for purposes of this review.
Independent Accountants
4. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness and approve the fees and
other compensation to be paid to the independent accountants. On an annual
basis, the Committee should review and discuss with the accountants all
significant relationships the accountants have with the Corporation to determine
the accountants' independence.
5. Review the performance of the independent accountants and approve
any proposed discharge of the independent accountants when circumstances
warrant.
6. Periodically consult with the independent accountants out of the
presence of management about internal controls and the fullness and accuracy of
the Corporation's financial statements.
Financial Reporting Process
7. In consultation with the independent accountants, review the
integrity of the Corporation's financial reporting process, both internal and
external.
8. Consider the independent accountant's judgments about the quality
and appropriateness of the Corporation's accounting principles as applied to its
financial reporting.
9. Consider and approve, if appropriate, major changes to the
Corporation's accounting principles and practice as suggested by the independent
accountants or management.
Process Improvement
10. Establish regular and separate systems of reporting to the Audit
Committee by each of management and the independent accountants regarding any
significant judgments made in management's preparation of the financial
statements and the view of each as to the appropriateness of such judgments.
11. Following completion of the annual audit, review separately with
each of management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on the
scope of work or access to required information.
Appendix - 3
12. Review any significant disagreement among management and the
independent accountants in connection with the preparation of the financial
statements.
13. Review with the independent accountants and management the extent
to which changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented.
Ethical and Legal Compliance
14. Establish, review and update periodically a Code of Ethical Conduct
and ensure that management has established a system to enforce this Ethical
Code.
15. Review managements' monitoring of the Corporation's compliance with
the Corporation's Ethical Code, and ensure that management has the proper review
system in place to ensure that the Corporation's financial statements, reports
and other financial information disseminated to governmental organizations, and
the public satisfy legal requirements.
16. Review, with the Corporation's counsel, legal compliance matters
including corporate securities trading policies.
17. Review with the Corporation's counsel, any legal matter that could
have a significant impact on the Corporation's financial statements.
18. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or Board deems
necessary or appropriate.
Appendix - 4
Appendix 1
CONOLOG CORPORATION
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PROXY
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ANNUAL MEETING OF SHAREHOLDERS - JULY 13, 2004.
The undersigned shareholder of Conolog Corporation (the "Company")
hereby appoints Robert S. Benou the attorney and proxy of the undersigned,
with full power of substitution, to vote, as indicated herein, all the common
shares of the Company standing in the name of the undersigned at the close of
business on June 7, 2004 at the Annual Meeting of Shareholders of the Company to
be held at the offices of Milberg Weiss Bershad & Schulman LLP, One Pennsylvania
Plaza, New York, New York 10119 at 4:30 p.m., local time, on the 13th day of
July, 2004, and at any and all adjournments thereof, with all the powers the
undersigned would possess if then and there personally present and especially
(but without limiting the general authorization and power hereby given) to vote
as indicated on the proposals, as more fully described in the Proxy Statement
for the meeting.
(Please fill in the reverse side and return promptly in the enclosed
envelope.)
Please mark boxes [*] or [X] in blue or black ink.
1. Election of Directors.
FOR all nominees [ ]
WITHHOLD authority only for those nominees whose name(s) I have written
below [ ]
WITHHOLD authority for ALL nominees [ ]
Nominees for Directors are:
Robert S. Benou
Louis S. Massad
Marc R. Benou
Edward J. Rielly
Graham Bruce Edwards
For [ ] Against [ ] Abstain [ ]
- i -
2. Proposal to approve the possible issuance of the Company's common stock
in connection with a private placement to Laurus Master Fund Ltd. in an
amount equal to more than 20% of the Company's shares outstanding
immediately prior to the private placement.
For [ ] Against [ ] Abstain [ ]
3. Proposal to approve the selection of Rosenberg Rich Baker Berman &
Company as the Company's independent auditors for the fiscal year
ending July 31, 2004.
For [ ] Against [ ] Abstain [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
For [ ] Against [ ] Abstain [ ]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED FOR THE
ELECTION OF THE PROPOSED DIRECTORS AND FOR THE ABOVE PROPOSALS UNLESS OTHERWISE
INDICATED.
[Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.]
SIGNATURE(S) should be exactly as name or names appear on this proxy. If stock
is held jointly, each holder should sign. If signing is by attorney, executor,
administrator, trustee or guardian, please give full title.
Dated ________, 2004
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Signature
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Print Name
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Signature
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Print Name
- ii -