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Section 240.14a-101 Schedule 14A.
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CONOLOG CORPORATION
..................................................................
(Name of Registrant as Specified In Its Charter)
..................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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 FEBRUARY 10, 2005
----------
BY ORDER OF THE BOARD OF DIRECTORS.
ROBERT S. BENOU
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Somerville, New Jersey
January 7, 2005
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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 Thursday, February 10, 2005, 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 Subscription Agreement between the Company and nine
investors (the "Subscription Agreement") pursuant to which the Company may issue
2,327,904 shares of the Company's common stock, of which 1,369,355 shares of the
Company's common stock will be issued to the Subscribers, 684,678 shares will be
issued upon the exercise of warrants granted to the Subscribers and 273,871
shares of the Company's common stock will be issued upon the exercise of
warrants granted to the selling agent;
3. To consider and act on a proposal to approve the granting of an
aggregate of 350,000 shares of the Company's common stock to its officers,
directors and employees;
4. To consider and act upon a proposal to approve the selection of Bagell,
Josephs & Company, L.L.C. as the Company's independent auditors for the 2005
fiscal year; and
5. 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 January 5, 2005
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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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 10, 2005
----------
January 7, 2005
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
Thursday, February 10, 2005, 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
persons 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 Subscription Agreement between the Company and nine
investors (the "Subscription Agreement"), attached hereto as Appendix "C"
pursuant to which the Company may issue 2,327,904 shares of the Company's common
stock, of which 1,369,355 shares of the Company's common stock will be issued to
the Subscribers, 684,678 shares will be issued upon the exercise of warrants
granted to the Subscribers and 273,871 shares will be issued upon the exercise
of warrants granted to the selling agent;
3. To consider and act on a proposal to approve the granting of an
aggregate of 350,000 shares of the Company's common stock to its officers,
employees and directors;
4. To consider and act upon a proposal to approve the selection of Bagell,
Josephs & Company, L.L.C. as the Company's independent auditors for the 2005
fiscal year; and
5. 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 January 5, 2005 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 January 10, 2005.
OUTSTANDING SHARES; QUORUM; REQUIRED VOTE
The number of outstanding shares entitled to vote at the meeting is
4,248,775 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 one-third 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:
o to approve the Subscription Agreement between the Company and nine
investors (the "Subscription Agreement"), attached hereto as Appendix
"C" pursuant to which the Company may issue 2,327,904 shares of the
Company's common stock, of which 1,369,355 shares of the Company's
common stock will be issued to the Subscribers, 684,678 shares will be
issued upon the exercise of warrants granted to the Subscribers and
273,871 shares will be issued upon the exercise of warrants granted to
the selling agent.
o to consider and act on a proposal to approve the granting of an
aggregate of 350,000 shares of the Company's common stock to its
officers, directors and employees;
o to approve Bagell, Josephs & Company, L.L.C., as the Company's
auditors for the 2005 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, 3 and 4 (to elect the
Board's nominees to the Board of Directors, to approve the Subscription
Agreement pursuant to which the 2,327,904 shares of the Company's common stock
will be issued, to approve the granting of an aggregate of 350,000 shares of the
Company's common stock to its officers, directors and employees and to approve
to ratify the selections of the Company's independent auditors).
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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 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.
Director
Name Age Position with the Company Since
- ------------------------ --- ------------------------------------ --------
Robert S. Benou ........ 70 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
David M. Peison ........ 36 Director 2004
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's
responsibilities include new product development and supervision of sales and
marketing. Since June 2001, Mr. Benou has served as a member of the board of
Diversified 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 Chief Executive Officer
and Chief Financial 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, Vice President 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.
3
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 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.
David M. Peison has been as a Director of the Company since October 2004.
Since 2002, Mr. Peison has been with Deutsche Bank's Global Markets Division in
New York City. From 1992 to 2000, Mr. Peison was in a Private Law Practice in
Florida and New York City. Mr. Peison holds an MBA from Emory University in
Atlanta, GA, a Juris Doctor from The Dickinson School of Law of Pennsylvania
State University and is admitted to the Florida, New York and Massachusetts
Bars. Mr. Peison obtained his BA degree from Lehigh University in Bethlehem, PA.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended July 31, 2004, the Board of Directors held 4
meetings and acted by written consent in lieu of a meeting 12 times. All of the
directors attended all of the meetings of the Board of Directors.
The Company has Board of Directors and an Audit Committee, which consists
of Messrs. Louis S. Massad and Edward J. Rielly. 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 5 times during the fiscal year ended
July 31, 2004. The Board of Directors believes that Messrs. Massad, Peison 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, 2004. Mr. Louis
Massad is an "Audit Committee Financial Expert."
The Company has a Nominating Committee, which is comprised of Louis S.
Massad and Edward J. Rielly. The Company's Board of Directors has adopted a
written charter for the Nominating Committee (attached hereto as Appendix B).
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. Except as may be
required by rules promulgated by NASDAQ or the SEC, currently there are no
specific, minimum qualifications that must be met 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.
4
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, 2004.
Audit Committee:
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.
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
5
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, 2004, 2003 and 2002. No other executive officers received total
salary and bonus compensation in excess of $100,000 during any of these fiscal
years.
The following table sets forth the total compensation paid to, accrued and
forgiven by each executive officer during fiscal years ended July 31, 2004, 2003
and 2002.
SUMMARY COMPENSATION TABLE
Annual Long Term
Compensation Compensation
----------------- -------------------------
Closing
Price of
Common
Stock on the
Date of the Securities
Fiscal Restricted Restricted Underlying
Name and Principal Year- Stock Stock Options
Position End Salary Awards Award* /SARS (#)
- -------------------------- ------ -------- ---------- ------------ ------------
Robert Benou, 2004 $312,000* 390,000 $4.49 0
Chairman, Chief 2003 $291,666* 0 $0.00 0
Executive Officer, 2002 $271,000* 90,000 $7.00 0
Chief Financial Officer
and Director
Marc Benou, President, 2004 $ 98,500** 340,000 $4.49 0
Chief Operating 2003 $ 91,000** 0 $0.00 0
Officer, Secretary and 2002 $ 83,500** 70,200 $7.00 0
Director
* For the fiscal years ended July 31, 2004 and 2003, Robert Benou forgave
his entire salary for such fiscal years. For the fiscal year ended July 31,
2002, Robert Benou forgave $142,499 of his salary.
** For the fiscal years ended July 31, 2004, 2003 and 2002, Marc Benou
forgave salary in the amount of $63,500, $54,644 and $2,773 respectively.
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Note: During the fiscal years ended July 31, 2004, 2003 and 2002, Robert
Benou received Other Compensation in the form of a car allowance amounting to
$12,780 in each of the above mentioned fiscal years.
EMPLOYMENT AGREEMENTS
Mr. Robert Benou is serving under an employment agreement commencing which
pursuant to its terms, renews for one-year terms until cancelled by either the
Company or Mr. Benou. Mr. Benou's annual base salary is $310,000 and increases
by $20,000 annually. 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,
employment terminates upon death or disability of the employee and the employee
may be terminated by the Company for cause.
Mr. Marc Benou is serving under an employment agreement commencing which,
pursuant to its terms, renews for one-year terms until cancelled by either the
Company or Mr. Benou. Mr. Benou's base salary is $98,000 and he receives annual
increases of $6,000. 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. 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, employment is
terminated upon death or disability of the employee and employee 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, but directors may receive stock options pursuant to the Company's stock
option plan and have in the past received stock grants. Currently, the Company
has three directors who are not employees, Messrs. Louis Massad, David Peison
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, 2004. 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, 2004.
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%
7
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, 2004, 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, not all of Messrs. Robert Benou, Marc Benou, Timothy Fogg, Louis
Massad and Edward Rielly's Statements of Change in Beneficial Ownership on Form
4 were timely filed. Messrs. Robert Benou, Marc Benou, Timothy Fogg, Louis
Massad and Edward Rielly have since filed their Statements of Change in
Beneficial Ownership.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 20, 2004, certain
information with respect to the beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our
common stock and by each of our current directors and executive officers. Each
person has sole voting and investment power with respect to the shares of common
stock, except as otherwise indicated. Information relating to beneficial
ownership of common stock by our principal stockholders and management is based
upon information furnished by each person using "beneficial ownership" concepts
under the rules of the Securities and Exchange Commission. Under these rules a
person is deemed to be a beneficial owner of a security if that person has or
shares voting power, which includes the power to vote or direct the voting of
the security or investment power, which includes the power to vote or direct the
voting of the security. The person is also deemed to be a beneficial owner of
any security of which that person has a right to acquire beneficial ownership
within 60 days. Under the Securities and Exchange Commission rules, more than
one person may be deemed to be a beneficial owner of the same securities and a
person may be deemed to be a beneficial owner of securities as to which he or
she may not have any pecuniary beneficial interest.
The applicable percentage of ownership is based on 4,248,775 shares of our
Common Stock issued and outstanding as of December 20, 2004.
- -------------------------------------------------------------------
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership % of Ownership
- -------------------------------------------------------------------
Robert S. Benou
Chairman, CEO, CFO and
Director 149,000 3.51%
- -------------------------------------------------------------------
Marc R. Benou
President, COO, Secretary
and Director 152,000 3.58%
- -------------------------------------------------------------------
Louis Massad, Director 0 *
- -------------------------------------------------------------------
Thomas Fogg, Vice President
- -Engineering 15,000 *
- -------------------------------------------------------------------
Edward J. Rielly, Director 0 *
- -------------------------------------------------------------------
David Peison 0 *
- -------------------------------------------------------------------
8
- -------------------------------------------------------------------
All Executive Officers and
Directors as a Group (6
Persons) 316,000 7.09%
- -------------------------------------------------------------------
* Less than 1%
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.
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
$326,428. The Company repaid $158,000 of the total balance during the fiscal
year ended July 31, 2004. Of the remaining amount, $91,000 has been forgiven by
Mr. Benou, leaving a balance of $77,428 for the fiscal year ended July 31, 2004.
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
APPROVAL OF THE SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY
AND NINE INVESTORS PURSUANT TO WHICH THE COMPANY MAY ISSUE
2,327,904 SHARES OF ITS COMPANY'S COMMON STOCK
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 Transaction
The Company has entered into a Subscription Agreement with nine investors
(the "Subscribers"), pursuant to which the Company agreed to issue and sell,
subject to the approval of the Company's shareholders, in a private placement
(i) 1,369,355 shares of its common stock at a price of $3.10 per share and
(ii) warrants to purchase 684,678 shares of the Company's common stock at a
price of $5.15 a share, which are exercisable for a period
9
commencing on June 5, 2005 and terminating on the fifth anniversary of the
issuance of such warrant. A copy of the Subscription Agreement (the
"Subscription Agreement") is attached hereto as Appendix "C."
Pursuant to the Subscription Agreement, and other than pursuant to certain
exceptions stated in the Subscription Agreement, until 30 days from the date the
registration statement filed on behalf of the Subscribers is declared effective
by the Securities and Exchange Commission (the "Registration Statement"), the
Subscribers have the right to participate in proposed sales by the Company of
its securities. Additionally, the Subscription Agreement provides that, other
than in connection with certain excepted issuances stated in the Subscription
Agreement, if at any time during the period beginning on the date the
Registration Statement is declared effective by the Securities and Exchange
Commission and ending six months thereafter, the Company sells shares of its
common stock at less than $3.10 per share without the consent of the
Subscribers, the Company must issue the Subscribers additional shares of the
Company's common stock so that the average per share purchase price by the
Subscribers is equal to the lower price per share. Even if Company's
shareholders approve the execution of the Subscription Agreement, the
Subscribers may withdraw their subscriptions if the average closing bid price of
the Company's common stock for the five trading days ending on the trading day
immediately preceding the date of such shareholders' approval is less than $2.90
a share so long as the Subscribers notify the Company in writing by 5:00 p.m.
eastern standard time on the day after such approval is attained (the
"Subscribers' Withdrawal Option"). If the execution of the Subscription
Agreement is approved by the Company's shareholders and the Subscribers do not
exercise the Subscribers' Withdrawal Option, the Company will issue 1,369,355
shares to the Subscribers and warrants to purchase 684,678 shares of the
Company's common stock, and the Company will receive net proceeds of $3,683,150.
The Company plans to use the proceeds for working capital.
First Montauk Securities Corp. ("First Montauk") acted as selling agent in
the private placement. Pursuant to the Subscription Agreement and the Selling
Agent agreement between the Company and First Montauk, if the Company's
shareholders approve the Subscription Agreement, First Montauk shall receive
a cash fee equal to 10% of the aggregate Purchase Price of the common stock
sold to the Subscribers as payment for acting as a finder in connection with
the sale of the securities to the Subscribers. First Montauk will also receive
an amount equal to 3% of the Purchase Price of the common stock sold to the
Subscribers as a non-accountable expense allowance. The Company will also
issue First Montauk one warrant to purchase one share of the Company's common
stock for each five shares of common stock issued to the subscribers.
Accordingly, if the execution of the Subscription Agreement is approved and
none of the Subscribers exercise its Subscribers' withdrawal option, First
Montauk will receive warrants to puurchase 273,871 shares of the Company's
common stock. The warrants to be issued to First Montauk are being issued on
the same terms as those issued to Subscribers.
Pursuant to the Subscription Agreement, the Company is required to register
under the Securities Act of 1933, as amended, the resale of the common stock
sold to the Subscribers and the common stock issuable upon the exercise of the
warrants issued to the Subscribers and First Montauk.
In the event that the Company's shareholders do not approve the execution
of the Subscription Agreement pursuant to which the Company my issue 2,327,904
shares of its common stock, the aggregate purchase price of $4,245,000 which is
currently being held in escrow, will be returned to the Subscribers and the
Subscription Agreement will be terminated.
10
Issuance of More than 20%
As of December 2, 2004, there were 4,248,775 shares of the Company's
common stock which were issued and outstanding. If the Company's Shareholders
approve this transaction and none of the Subscribers exercise their
Subscribers' Withdrawal Option, pursuant to the Subscription Agreement,
the Company will issue to the Subscribers 1,369,355 shares of its common
stock and warrants to purchase 684,678 shares of the Company's common
stock and the Company will also issue the Selling Agent warrants to purchase
273,871 shares of the Company's common stock. Because the Company seeks to issue
more than 20% of the outstanding shares, the Nasdaq rules require that
shareholder approval be obtained before the shares may be issued.
THE ISSUANCE OF SHARES AND EXERCISE OF WARRANTS MAY CAUSE IMMEDIATE AND
SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
If this proposal is approved, then 2,327,904 shares of common stock may be
issued (including 684,678 shares issued upon the exercise of warrants by the
Subscribers and 273,871 shares issued upon the exercise of a warrant granted
to the Selling Agent). This would represent approximately 54.79% of our shares
outstanding. The issuance of these shares and exercise of warrants may result
in substantial dilution to the interests of other stockholders. Additionally,
pursuant to the Subscription Agreement, the Subscribers would receive additional
shares if the Company at any time during the period beginning on the date the
Registration Statement is declared effective by the Securities and Exchange
Commission and ending six months thereafter sells shares of its common stock
at a price that is less than $3.10 per share.
Board Recommendations; Reasons
The Board of Directors believes that it is in the Company's best interest
to issue an aggregate amount of common stock that may exceed the Rule 4350(i)
NASD 20% share limitation, as contemplated by the Subscription Agreement, as
this will allow the Company to raise net proceeds of $3,683,150. The proceeds
will be used by the Company for working capital.
Messrs. Robert Benou and Marc Benou have agreed to vote their shares in
favor of Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVING THE EXECUTION OF THE
SUBSCRIPTION AGREEMENT AND THE ISSUANCE OF MORE THAN 20% OF THE COMPANY'S
OUTSANDING COMMON STOCK PURSUANT TO THE SUBSCRIPTION AGREEMENT.
PROPOSAL NO. 3
APPROVAL OF STOCK GRANTS
There is being submitted to the shareholders for approval at the Annual
Meeting, the granting of an aggregate of 350,000 shares of the Company's
restricted common stock to the Company's officers, directors and employees. If
approved by our stockholders, the Board will be authorized to, from
time-to-time, issue an aggregate of 350,000 shares of the Company's common stock
to the Company's officers, directors and employees. The specific number of
shares of the Company's common stock granted to any officer, director or
employee and the specific officers, directors and/or employees granted shares
will be determined by the Board. The aggregate number of shares that can be
granted will not be adjusted to reflect splits of the Company's common stock.
Officers, directors and employees will be required to pay the Company the sum of
$.01 per share prior to the issuance of their shares. The common stock will
11
be granted in reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving a public
offering.
We believe that stock grants play an important role in providing officers,
directors and employees with an incentive and inducement to contribute fully to
the growth and development of the Company because of the opportunity to acquire
a proprietary interest in the Company.
Those officers, directors and employees receiving stock grants will
receive, for nominal consideration, the opportunity to profit from any rise in
the market value of the common stock. This will dilute the equity interest of
the Company's other shareholders. The grant of shares also may affect the
Company's ability to obtain additional capital during the term of any options.
Federal Income Tax Consequences of the Restricted Stock Grants
Generally, the recipient of a restricted stock grant will recognize
ordinary income for federal income tax purposes in an amount equal to the excess
of the fair market value of the shares of common stock received at the time the
shares first become transferable or are no longer subject to forfeiture over the
purchase price, if any, paid by the recipient for such common stock, and such
amount will then be deductible for federal income tax purposes by the Company.
For tax purposes, in addition to other restrictions, the common stock is
considered to be subject to a substantial risk of forfeiture as long as the sale
of the shares could subject the recipient to suit under the "short swing profit"
provisions of Section 16 of the Securities Exchange Act of 1934, as amended.
Alternatively, if the recipient of a restricted stock award so elects, the
recipient will recognize ordinary income on the date of grant in an amount equal
to the excess of the fair market value of the shares of common stock (without
taking into account any lapse restrictions) on such date, over the purchase
price, if any, paid by the recipient for such common stock, and such amount will
then be deductible by the Company. In the event of the forfeiture of the common
stock included in a restricted stock award, the recipient will not be entitled
to any deduction except to the extent the recipient paid for such common stock.
Upon a sale of the common stock included in the restricted stock or award, the
recipient will recognize capital gain or loss, as the case may be, equal to the
difference between the amount realized from such sale and the recipient's tax
basis for such shares of common stock.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVING THE GRANTING OF AN
AGGREGATE OF 350,000 SHARES OF THE COMPANY'S COMMON STOCK AS SET FORTH ABOVE.
PROPOSAL NO. 4
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors recommends the selection of Bagell, Josephs &
Company, L.L.C. as independent auditors to examine the Company's financial
statements for the fiscal year ending July 31, 2005. Representatives of Bagell,
Josephs & Company, L.L.C. 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.
On September 13, 2004, Rosenberg Rich Baker Berman & Company ("Rosenberg
Rich Baker") resigned and provided written notice to the Company that the
auditor-client relationship had ceased.
The reports of Rosenberg Rich Baker Berman on the consolidated financial
statements of the Company and its subsidiaries for the Company's last two fiscal
years did not contain an adverse opinion or a disclaimer of opinion, nor were
they modified as to uncertainty or audit scope or accounting principles.
The decision to resign was made by Rosenberg Rich Baker and,
accordingly, no action was taken by the Company's audit committee to recommend
or approve this change of accountants.
During the Company's two most recent fiscal years and the subsequent
interim period through September 13, 2004, there were no disagreements between
the Company and Rosenberg Rich Baker on any matter of accounting principles or
practices, financial statement disclosures, or auditing scope or procedure,
which, if not resolved to Rosenberg Rich Baker's satisfaction, would have caused
Rosenberg Rich Baker to make reference to the subject matter of the
disagreements in its report on the Company's financial statements for such
periods.
In addition, during the Company's two most recent fiscal years and the
subsequent interim period through September 13, 2004, Rosenberg Rich Baker did
not advise the Company that: (i) internal controls necessary to develop reliable
financial statements did not exist; (ii) information has come to Rosenberg Rich
Baker's attention which made it unwilling to rely on management's
representations or unwilling to be associated with the financial statements
prepared by management; or that (iii) the scope of the audit should be expanded
significantly, or information has come to the attention of Rosenberg Rich Baker
that it has concluded will, or if further investigated might, materially impact
the fairness or reliability of a previously issued audit report or the
underlying financial statements, or the financial statements issued or to be
issued covering the fiscal period(s) subsequent to the date of the most recent
audited financial statements and the issue was not resolved to the satisfaction
of Rosenberg Rich Baker prior to its resignation or dismissal.
12
Audit Fees
The aggregate fees for professional services rendered by Bagell, Josephs &
Company, L.L.C. for the audit of our annual financial statements in 2004 were
$20,000. The aggregate fees for professional services rendered by Rosenberg Rich
Baker for the reviews of the financial statements included in our Quarterly
Reports on Form 10-QSB in 2004 were $12,000. The aggregate fees for professional
services rendered by Rosenberg Rich Baker Berman & Company (our former
independent auditors) for the audit of our annual financial statements and for
the reviews of the financial statements included in our Quarterly Reports on
Form 10-QSB in 2003 were $23,000.
All Other Fees
There were no other fees paid during 2004 and 2003.
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 2004 and 2003, 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, 2004 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, and a copy of the
Company's Quarterly Report on Form 10-QSB for the quarter ended October 31,
2004.
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 15, 2006.
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
13
APPENDIX A
CONOLOG CORPORATION
AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS
CHARTER
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;
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);
A-1
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.
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.
A-2
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.
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.
A-3
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.
A-4
APPENDIX B
NOMINATING COMMITTEE CHARTER
of the Nominating Committee
of Conolog Corporation
This shall be the Nominating Committee Charter of Conolog Corporation ("the
Company").
I. Purpose
The purpose of the Nominating Committee (the "Committee") of the Board of
Directors ("the "Board of the Company") is to assist the Board in discharging
the Board's responsibilities regarding:
(a) Reviewing the appropriate size, function and needs of the Board of
Directors;
(b) developing the Board's policy regarding tenure and retirement of
directors;
(c) establishing criteria for evaluating and selecting new members of
the Board, subject to Board approval thereof and
(d) 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
In addition to the powers and responsibilities expressly delegated to the
Committee in this Charter, the Committee may exercise any other powers and carry
out any other responsibilities delegated to it by the Board from time to time
consistent with the Company's bylaws. The powers and responsibilities delegated
by the Board to the Committee in this Charter or otherwise shall be exercised
and carried out by the Committee as it deems appropriate without requirement of
Board approval, and any decision made by the Committee (including any decision
to exercise or refrain from exercising any of the powers delegated to the
Committee hereunder) shall be at the Committee's sole discretion. While acting
within the scope of the powers and responsibilities delegated to it, the
Committee shall have and may exercise all the powers and authority of the Board.
To the fullest extent permitted by law, the Committee shall have the power to
determine which matters are within the scope of the powers and responsibilities
delegated to it.
II. Membership
The Committee shall be composed of two directors, as determined by the
Board, each of whom have never been employed by the Company and each of whom (a)
satisfies the independence requirements of the NASDAQ, and (b) has experience,
in the business judgment of the Board, that would be helpful in addressing the
matters delegated to the Committee.
The members of the Committee, including the Chair of the Committee, shall
be appointed by the Board. Committee members may be removed from the Committee,
with or without cause, by the Board. Any action duly taken by the Committee
shall be valid and effective, whether or not the members of the Committee at the
time of such action are later determined not to have satisfied the requirements
for membership provided herein.
Nominating Committee Charter
B-1
III. Meetings and Procedures
The Chair (or in his or her absence, a member designated by the Chair)
shall preside at each meeting of the Committee and set the agendas for Committee
meetings. The Committee shall have the authority to establish its own rules and
procedures for notice and conduct of its meetings so long as they are not
inconsistent with the provisions of the Company's bylaws that are applicable to
the Committee.
The Committee shall meet on a regularly scheduled basis at least two times
per year and more frequently as the Committee deems necessary or desirable.
All non-management directors that are not members of the Committee may
attend and observe meetings of the Committee, but shall not participate in any
discussion or deliberation unless invited to do so by the Committee, and in any
event shall not be entitled to vote. The Committee may, at its discretion,
include in its meetings members of the Company's management, or any other person
whose presence the Committee believes to be desirable and appropriate.
Notwithstanding the foregoing, the Committee may exclude from its meetings any
person it deems appropriate, including but not limited to, any non-management
director that is not a member of the Committee.
The Committee may retain any independent counsel, experts or advisors that
the Committee believes to be desirable and appropriate. The Committee may also
use the services of the Company's regular legal counsel or other advisors to the
Company. The Company shall provide for appropriate funding, as determined by the
Committee, for payment of compensation to any such persons employed by the
Committee and for ordinary administrative expenses of the Committee that are
necessary or appropriate in carrying out its duties. The Committee shall have
sole authority to retain and terminate any search firm to be used to identify
director candidates, including sole authority to approve such search firm's fees
and other retention terms.
The Chair shall report to the Board regarding the activities of the
Committee at appropriate times and as otherwise requested by the Chairman of the
Board.
IV. Duties and Responsibilities
1. (a) At an appropriate time prior to each annual meeting of stockholders
at which directors are to be elected or reelected, the Committee shall recommend
to the Board for nomination by the Board such candidates as the Committee, in
the exercise of its judgment, has found to be well qualified and willing and
available to serve.
(b) At an appropriate time after a vacancy arises on the Board or a
director advises the Board of his or her intention to resign, the Committee
shall recommend to the Board for appointment by the Board to fill such vacancy,
such prospective member of the Board as the Committee, in the exercise of its
judgment, has found to be well qualified and willing and available to serve.
(c) For purposes of (a) and (b) above, the Committee may consider the
following criteria, among others the Committee shall deem appropriate, in
recommending candidates for election to the Board:
Nominating Committee Charter
B-2
(i) personal and professional integrity, ethics and values;
(ii) experience in corporate management, such as serving as an
officer or former officer of a publicly held company;
(iii) experience in the Company's industry and with relevant
social policy concerns;
(iv) experience as a board member of another publicly held
company;
(v) academic expertise in an area of the Company's operations;
and
(vi) practical and mature business judgment.
2. The Committee shall, at least annually, review the performance of each
current director and shall consider the results of such evaluation when
determining whether or not to recommend the nomination of such director for an
additional term.
3. In appropriate circumstances, the Committee, in its discretion, shall
consider and may recommend the removal of a director for cause, in accordance
with the applicable provisions of the Company's certificate of incorporation and
bylaws.
4. The Committee shall oversee the Board in the Board's annual review of
its performance (including its composition and organization), and will make
appropriate recommendations to improve performance.
5. The Committee shall develop and recommend to the Board a policy
regarding the consideration of director candidates recommended by the Company's
security holders and procedures for submission by security holders of director
nominee recommendations.
6. The Committee shall evaluate its own performance on an annual basis,
including its compliance with this Charter, and provide the Board with any
recommendations for changes in procedures or policies governing the Committee.
The Committee shall conduct such evaluation and review in such manner as it
deems appropriate.
7. The Committee shall periodically report to the Board on its findings and
actions.
8. The Committee shall review and reassess this Charter at least annually
and submit any recommended changes to the Board for its consideration.
V. Delegation of Duties
In fulfilling its responsibilities, the Committee shall be entitled to
delegate any or all of its responsibilities to a subcommittee of the Committee,
to the extent consistent with the Company's certificate of incorporation, bylaws
and applicable law and rules of markets in which the Company's securities then
trade.
Nominating Committee Charter
B-3
APPENDIX C
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT,
OR THE SECURITIES LAWS OF ANY U.S. STATE AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S OF SAID ACT (RULE 901 THROUGH RULE 905, AND PRELIMINARY NOTES),
PURSUANT TO REGISTRATION UNDER SAID ACT AND SUCH LAWS, OR PURSUANT TO AN
EXEMPTION THEREFROM. SUBSCRIBERS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, ANY U.S. STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY,
NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF
THE SALE OF THESHARES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of December 3,
2004, by and among Conolog Corporation, a Delaware corporation (the "Company"),
and the subscribers identified on the signature page hereto (each a "Subscriber"
and collectively "Subscribers").
WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Regulation S ("Regulation S") as promulgated by the United
States Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers shall purchase, in the
aggregate, a minimum of $3,000,000 and a maximum of $5,000,000 (the "Purchase
Price") of the Company's common stock, $0.01 par value (the "Common Stock" or
"Shares"), and share purchase warrants (the "Warrants"), in the form attached
hereto as Exhibit A, to purchase shares of Common Stock (the "Warrant Shares").
Up to $5,000,000 of the Purchase Price will be payable to the Company within
five (5) business days after the receipt of the Approval, as hereinafter
defined. The per Share Purchase Price ("Per Share Purchase Price") shall be
$3.10, subject to adjustment as described in this Agreement. The Common Stock,
the Warrants and the Warrant Shares are collectively referred to herein as the
"Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Common Stock and the
Warrants contemplated hereby shall be held in escrow pursuant to the terms of a
Funds Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:
C-1
1. Closing. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on December 7, 2004 ("Subscription Deadline"),
each Subscriber will deliver its portion of the Purchase Price to the Escrow
Agent and on the closing date, which date shall be the fifth (5) business day
after the Approval ("Closing Date"). Each Subscriber shall purchase and the
Company shall sell to each Subscriber Common Stock for the principal amount
designated on the signature page hereto ("Shares"). The aggregate amount of the
Common Stock to be purchased by the Subscribers on the Closing Date shall, in
the aggregate, be equal to the Closing Purchase Price. On the Closing Date, the
Company will deliver to each Subscriber such Subscriber's Closing Shares and
Closing Warrants (as hereinafter defined). The Closing Date shall be the date
that Subscriber funds representing the net amount due the Company from the
Closing Purchase Price is transmitted by wire transfer or otherwise to or for
the benefit of the Company.
2. Warrants. On the Closing Date, the Company will issue Warrants to
the Subscribers. One (1) Warrant will be issued for each two (2) Shares issued
on the Closing Date. The per Warrant Share exercise price to acquire a Warrant
Share upon exercise of a Closing Warrant shall be 103% of the closing bid price
as reported on the SmallCap on the date prior to the Subscription Deadline. The
Closing Warrants shall be exercisable for five (5) years after the Closing. For
the purpose of this section, a trading day shall be any day at least one share
of the common stock of the Company is traded during business hours on the
SmallCap.
3. Subscriber's Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that:
(a) Information on Company. The Subscriber has been furnished
with or has had access at the EDGAR Website of the Commission to the Company's
Form 10-KSB for the year ended July 31, 2004 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and any registration
statements filed with the Commission since January 1, 2004, and filings made
with the Commission available at the EDGAR website (hereinafter referred to
collectively as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(b) Information on Subscriber. The Subscriber is and was not a
"U.S. Person" as defined in Regulation S, at the time the offer or sale of the
Securities is made. Additionally, the Subscriber will not be a U.S. Person at
the time of the closing. Additionally, Subscriber is and will be at the time of
the exercise of any of the Warrants, an "accredited investor", as such term is
defined in Regulation D promulgated by the Commission under the 1933 Act, is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. The Subscriber understands that an
investment in the Securities is extremely risky and Subscriber is able to bear
the risk of such investment for an indefinite period and to afford a complete
loss thereof. The information set forth on the signature page hereto regarding
the Subscriber is accurate.
(c) Purchase of Common Stock and Warrants. On the closing date,
the Subscriber will purchase the Common Stock and Warrants as principal for its
own account and not with a
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view to any distribution thereof. The Subscriber represents and warrants to the
Company that he is not a "distributor" of securities as that term is defined in
Regulation S.
(d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. Each Subscriber represents that from
the date it was presented with a term sheet from First Montauk Securities Corp.
relating to this transaction until the issuance of the initial press release
pursuant to Section 8.1 (m), neither it nor any Person over whom it has direct
control has made any short sales of, or granted any option for the purchase of
or entered into any hedging or similar transaction with the same economic effect
as a short sale, in the Common Stock.
(e) Shares Legend. The Shares and the Warrant Shares shall bear
the following or similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). RATHER,
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT
TO THE EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE ACT AFFORDED
BY REGULATION S PROMULGATED THEREUNDER. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, CONVEYED, PLEDGED
OR OTHERWISE DISPOSED OF TO A "U.S. PERSON" (AS SUCH TERM IS DEFINED
IN REGULATION S) OR WITHIN THE UNITED STATES OF AMERICA OR ITS
TERRITORIES OR POSSESSIONS WITHOUT AN OPINION OF COUNSEL TO THE
ISSUER. FURTHERMORE, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, ASSIGNED, TRANSFERRED, CONVEYED, PLEDGED OR OTHERWISE
DISPOSED OF UNLESS THEY ARE REGISTERED UNDER THE ACT OR AN EXEMPTION
THEREFROM IS AVAILABLE IN THE OPINION OF COUNSEL TO THE ISSUER."
(f) Warrants Legend. The Warrants shall bear the following
or similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS WARRANT MAY NOT BE EXERCISED BY A U.S. PERSON AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED BY A U.S. PERSON IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT
UNDER SAID ACT OR ANY APPLICABLE STATE
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SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CONOLOG CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(h) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith
(collectively "Transaction Documents") have been duly authorized, executed and
delivered by the Subscriber and are valid and binding agreements enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity; and Subscriber has full corporate power and authority necessary to
enter into this Agreement and such other agreements and to perform its
obligations hereunder and under all other agreements entered into by the
Subscriber relating hereto.
(i) Correctness of Representations. Each Subscriber represents as
to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, shall be true and correct as of the
Closing Date (as hereinafter defined).
(j) Acquisition For Own Account. Subscriber is acquiring its
securities for Subscriber's own account, for investment only, and not as a
nominee or agent.
(k) No Directed Selling Efforts In Regard To This Transaction.
Neither the Subscriber, nor to the best knowledge of the Subscriber, any person
acting for the Subscriber has conducted any "directed selling efforts" as that
term is defined in Regulation S. Such activity includes, without limitation, but
is not limited to the mailing of printed material to investors residing in the
United States, the holding of promotional seminars in the United States, the
placement of advertisements with radio or television stations broadcasting in
the United States or in publications with a general circulation in the United
States, which discuss the offering of Securities.
(l) Site and Condition of Sale. The Subscriber acknowledges that
the offer and sale of the Securities by the Company has not taken place, and is
not taking place, within the United States of America or its territories or
possessions. The Subscriber acknowledges that the offer and sale of the Shares
by the Company has taken place, and is taking place, in an "offshore
transaction," as such term is defined in Regulation S.
(m) Restriction on Resales. The Subscriber acknowledges and
agrees that, pursuant to the provisions of Regulation S, the Shares cannot be
sold, assigned, transferred, conveyed, pledged or otherwise disposed of to any
U.S. Person or within the United States of America or its territories or
possessions for a period of one year from and after the date of sale pursuant to
this Subscription Agreement unless, and until, said shares are registered under
the 1933 Act or otherwise exempt from registration. Subscriber acknowledges that
the transactions contemplated by this Agreement are not part of a plan or scheme
to evade the registration provisions of the Act.
(n) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
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4. Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that:
(a) Due Incorporation. The Company and each of its material
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted other than those jurisdictions in which
the failure to so qualify would not have a material adverse effect. The Company
and each of its material subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a material adverse effect. For purposes of this Agreement, a
"material adverse effect" shall mean a material adverse effect on the financial
condition, results of operations, properties or business of the Company taken as
a whole.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Common Stock,
the Warrants, the Escrow Agreement and any other agreements delivered together
with this Agreement or in connection herewith (collectively "Transaction
Documents") have been duly authorized, executed and delivered by the Company and
are valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company
except as described on Schedule 5(d), or the Reports.
(e) Consents. Except for the Approval described in Section 8.1(f)
of this Agreement and the approval and/or notice required by the corporate
governance rules of the Nasdaq SmallCap Market (the "SmallCap"), including, but
not limited to, the requirement to file an Additional Shares Listing Application
with the SmallCap at least fifteen (15) days prior the issuance of the
Securities, no consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its affiliates, the American Stock Exchange, the National Association
of Securities Dealers, Inc., Nasdaq, SmallCap Market, the Bulletin Board nor the
Company's shareholders is required for the execution by the Company of the
Transaction Documents and compliance by the Company of its obligations under the
Transaction Documents, including, without limitation, the issuance and sale of
the Securities, and the performance of the Company's obligations under the
Transaction Documents.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 3 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:
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(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliates or subsidiaries is a party, by which the Company or any of its
affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a material
adverse effect on the Company; or
(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its affiliates; or
(iii) result in the activation of any anti-dilution rights
or a reset or repricing of any debt or security instrument of any other creditor
or equity holder of the Company, nor result in the acceleration of the due date
of any obligation of the Company; or
(iv) result in the activation of any piggy-back registration
rights of any person or entity holding securities of the Company or having the
right to receive securities of the Company; or
(v) result in a violation of Section 5 under the 1933 Act,
assuming the representations of the Subscribers are correct and true.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and
on the date of issuance of the Shares and upon exercise of the Warrants, the
Shares and Warrant Shares will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted,
provided that each Subscriber complies with the prospectus delivery requirements
of the 1933 Act);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the
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execution by the Company or the performance by the Company of its obligations
under the Transaction Documents. Except as disclosed in the Reports, there is no
pending or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
affiliates which litigation if adversely determined could have a material
adverse effect on the Company.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and will
not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.
(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws,
including Regulation S and unless contemporaneous notice of such instruction is
given to the Subscriber.
(m) Defaults. The Company is not in violation of its articles of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a material adverse effect on the Company, (ii) not in default with
respect to any order of any court, arbitrator or governmental body or subject to
or party to any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii) to
its knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.
(n) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the SmallCap which, if so integrated would eliminate the Offering exemption
described in the second paragraph of this Agreement. Nor will the Company or any
of its affiliates or subsidiaries take any action or steps that would cause the
offer of the Securities to be integrated with other offerings which if so
integrated would eliminate or reduce the offering exemption described in the
second
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paragraph of this Agreement or negatively impact the Company's ability to comply
with its obligations under this Agreement.
(o) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or sale
of the Securities.
(p) Listing. The Company's common stock is quoted on the
SmallCap. Other than prior notices, all of which the Company has complied with
and the notice dated June 24, 2004 and any subsequent notifications related
thereto from the Nasdaq Stock Market, the Company has not received notice that
its common stock may not be eligible or will become ineligible for quotation on
the SmallCap and that its common stock does not meet all requirements for the
continuation of such quotation and as such may be delisted from the SmallCap
onto the OTC Bulletin Board and as of the Closing Date, the Company will satisfy
all the requirements for the continued quotation of its common stock on either
the SmallCap or Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and/or Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since July 31, 2004
and which, individually or in the aggregate, would reasonably be expected to
have a material adverse effect on the Company's financial condition, other than
as set forth in Schedule 5(q).
(r) No Undisclosed Events or Circumstances. Since July 31, 2003,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital stock
of the Company as of the date of this Agreement and the Closing Date are set
forth on Schedule 5(s). Except as set forth in the Reports and Other Written
Information and Schedule 5(d), there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company.
(t) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers.
(u) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the 1933 Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(v) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of the date
hereof in all material respects, and, unless the Company otherwise notifies the
Subscribers prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date.
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(w) Site and Condition of Sale. The Company acknowledges that the
offer and sale of the Securities to the Subscriber has not taken place, and is
not taking place, within the United States of America or its territories or
possessions, assuming the representations of the Subscribers are true and
correct. The Company acknowledges that the offer and sale of the Shares by the
Company has taken place, and is taking place, in an "offshore transaction," as
such term is defined in Regulation S.
(x) Offer to Buy. No offer to buy the Securities was made to the
Company by any person in the United States.
(y) Pre-Arranged Transaction. The transactions contemplated by
this Agreement:
(i) have not been pre-arranged with a purchaser who is in
the United States or is a U.S. Person, assuming the representations of the
Subscribers are true and correct; and
(ii) are not part of a plan or scheme to evade the
registration provisions of the Act.
(z) Survival. The foregoing representations and warranties shall
survive the Closing Date for a period of two years.
5. Regulation S Offering. The offer and issuance of the Securities to
the Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Regulation S promulgated thereunder. On
the Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of an
exemption from registration under Regulation S as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as Exhibit C. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the resale of the Common Stock and
exercise of the Warrants and resale of the Warrant Shares, provided however, the
Subscriber seeking such opinion meets all applicable requirements for such
resale.
6. Legal Fees. Grushko & Mittman, P.C., shall be paid a fee of $20,000
("Legal Fees") as reimbursement for services rendered to the Subscribers in
connection with this Agreement and the purchase and sale of the shares of Common
Stock (the "Offering") $10,000 of which will be payable by the Company unless a
Subscriber shall notify the Company that it is withdrawing its Subscription
pursuant to Section 8.1(f) in which case the Subscriber, and not, the Company,
shall pay such Subscriber its pro-rata portion of the $20,000 legal fee payable
to Grushko & Mittman, P.C. The Legal Fees will either (i) be payable out of
funds held pursuant to the Escrow Agreement pursuant to Section 8.1(f) hereof in
the event of an Approval Default (as defined herein) or (ii) upon the Closing of
the Offering, (a) $10,000 to be distributed out of funds held pursuant to the
Escrow Agreement and (b) $10,000 to be distributed out of funds held pursuant to
the Escrow Agreement for the benefit of the Broker and payable by the Broker to
Grushko & Mittman, P.C. (as such terms are defined herein).
7. Broker.
(a) Broker's Commission. The Company on the one hand, and each
Subscriber (for himself only) on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or Broker's Commission other than First Montauk
Securities Corp. ("Broker") on account of services purported to
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have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party's actions. Anything in this Agreement to the contrary notwithstanding,
each Subscriber is providing indemnification only for such Subscriber's own
actions and not for any action of any other Subscriber. Each Subscriber's
liability hereunder is several and not joint. The Company agrees that it will
pay Broker a cash fee equal to 10% of the Purchase Price on the Closing Date (as
defined herein) directly out of the funds held pursuant to the Escrow Agreement
("Broker's Commissions") as payment to broker for acting as a finder in
connection with the sale of the Securities hereunder. The Broker will also
receive on the Closing Date an amount equal to 3% of the Purchase Price as a
non-accountable expense allowance. The Company represents that there are no
other parties entitled to receive fees, commissions, or similar payments in
connection with the offering described in this Agreement except the Broker.
(b) Broker's Warrants. On the Closing Date, the Company will
issue to the Broker, or at the Broker's written instructions to officers or
employees of the Broker, Warrants similar to and carrying the same rights as the
Warrants issuable to the Subscribers ("Broker's Warrants"). The Broker will
receive, in the aggregate, one Broker's Warrant for each five (5) Shares issued
on the Closing Date to the Subscribers. All the representations, covenants,
warranties, undertakings, remedies, liquidated damages, indemnification, and
other rights including but not limited to reservation and registration rights
made or granted to or for the benefit of the Subscribers are hereby also made by
the Company and granted to the holders of the Broker's Warrants.
8.1 Covenants of the Company. The Company covenants and agrees
with the Subscribers as follows:
(a) Stop Orders. So long as Subscriber owns any Shares and/or
Warrants and/or Warrant Shares, the Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. So long as Subscriber owns any Shares, Warrants or
Warrant Shares, the Company shall promptly secure the listing of the shares of
Common Stock upon each national securities exchange, or automated quotation
system upon which they are or become eligible for listing (subject to official
notice of issuance) and shall maintain such listing, provided the Company's
Common Stock continues to be listed on such national securities exchange or
automated quotation system. So long as Subscriber owns any Shares, Warrants or
Warrant Shares, the Company will use its best reasonable efforts to maintain the
listing of its Common Stock on the American Stock Exchange, SmallCap, Nasdaq
National Market System, OTC Bulletin Board, or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading exchange or
market for the Common Stock (the "Principal Market")), and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market, as applicable. So long as the
Subscriber owns the Shares, Warrants or Warrant Shares, the Company will provide
the Subscribers copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock from any Principal Market.
As of the date of this Agreement and the Closing Date, the SmallCap is and will
be the Principal Market.
(c) Market Regulations. The Company shall notify the Commission,
the Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be
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required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.
(d) Reporting Requirements. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (v) cause its Common Stock
to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (x)
comply in all material respects with its reporting and filing obligations under
the 1934 Act, (y) comply with all reporting requirements that are applicable to
an issuer with a class of shares registered pursuant to Section 12(b) or 12(g)
of the 1934 Act, as applicable, and (z) comply with all requirements related to
any registration statement filed pursuant to this Agreement. The Company will
use its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until the sooner of the Subscribers do not own the
Securities or two (2) years after the Closing Date. Until the resale of the
Common Stock and the Warrant Shares by each Subscriber, the Company will use its
best reasonable efforts to continue the listing or quotation of the Common Stock
on the Principal Market or other market with the reasonable consent of
Subscribers holding a majority of the Shares and Warrant Shares, and which
consent will not be unreasonably withheld and will use its best reasonable
efforts to comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.
(e) Use of Proceeds. The Company undertakes not to use the
proceeds of the Subscribers' funds for accrued and unpaid officer and directors
salaries, or the redemption of outstanding redeemable notes or equity
instruments of the Company.
(f) Shareholder Approval. The Company and Subscriber agree that
until the Company either obtains shareholder approval of the issuance of the
Securities, or an exemption from NASDAQ's corporate governance rules as they may
apply to the Shares and Warrants, and an opinion of counsel reasonably
acceptable to Subscriber that the issuance of the Shares and Warrants will not
violate NASDAQ's corporate governance rules nor may result in a delisting of the
Company's common stock from the SmallCap (the "Approval"), each Subscriber may
not receive any Shares or Warrants. The Company covenants to obtain the Approval
required pursuant to the NASDAQ's corporate governance rules to allow the
issuance of the Shares and Warrants. The Company further covenants to file the
preliminary proxy statement relating to the Approval with the Commission on or
before 15 days after the Subscription Deadline ("Proxy Filing Date"). The
Company further covenants to use its best reasonable efforts to obtain the
Approval not later than 90 days from the Subscription Deadline ("Approval
Date"). The Company's failure to (i) file the proxy on or before the Proxy
Filing Date; or (ii) the Company's failure to convene a meeting of shareholders
with a quorum present and vote upon the Approval within ninety (90) days, or in
the case of an SEC review, one hundred and twenty (120) days after the
Subscription Deadline; or (iii) the Company's failure to obtain the Approval on
or before the Approval Date (any of the preceding being an "Approval Default")
shall be deemed a rejection ("Rejection") and the Company shall immediately
notify each Subscriber of such Approval Default; provided, however, that any
Subscriber may waive such Rejection during the ten (10) business days following
its receipt of notification from the Company that such Approval Default has
occurred, in which case the Company shall remain obligated to such Subscriber to
use its best reasonable efforts to file the proxy and obtain the Approval as set
forth above. In the event there is a Rejection (that has not otherwise been
waived by the Subscriber) then the Escrow Agent shall be instructed to return
the Purchase Price to the Subscribers following a deduction of $10,000 to
Grushko & Mittman, P.C. as a portion of the legal fees described in Section 6 of
this Agreement. In the event the Approval is obtained and the average closing
bid price of the
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Common Stock for the five (5) trading days ending on the trading day immediately
preceding the Approval Date is less than $2.90, each Subscriber shall have the
option to withdraw its Subscription by written facsimile notification to the
Company and received by the Company no later than 5 pm E.S.T. on the day after
the Approval is obtained and this Agreement shall be terminated. The Escrow
Agent shall then be instructed to return the Purchase Price to the Subscriber
minus its pro-rata portion of the $20,000 legal fee payable to Grushko &
Mittman, P.C. as described in Section 6 of this Subscription Agreement.
(g) Reservation. Prior to the Closing Date, the Company
undertakes to reserve, pro rata on behalf of each Subscriber and holder of a
Warrant, from its authorized but unissued common stock, a number of common
shares equal to the amount of Warrant Shares issuable upon exercise of the
Warrants. Failure to have sufficient shares reserved pursuant to this Section
8(f) for three (3) consecutive business days or ten (10) days in the aggregate
shall be a material default of the Company's obligations under this Agreement.
(h) Taxes. From the date of this Agreement and until the sooner
of (i) two (2) years after the Closing Date, or (ii) until all the Shares and
Warrant Shares have been resold or transferred by all the Subscribers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(i) Books and Records. From the date of this Agreement and until
the sooner of (i) two (2) years after the Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep true records and books of account
in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares and Warrant Shares have been resold or transferred by all the
Subscribers pursuant to the Registration Statement or pursuant to Rule 144, the
Company shall maintain in full force and effect its corporate existence.
(l) Properties. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitation, the Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all necessary and proper repairs, renewals, replacements, additions
and improvements thereto; and the Company will at all times comply
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with each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could reasonably be expected
to have a material adverse effect.
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares and Warrant Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company agrees that except in
connection with a Form 8-K or in the Registration Statement, or other documents
filed by the Company with the Commission or NASDAQ, it will not disclose
publicly or privately the identity of the Subscribers unless expressly agreed to
in writing by a Subscriber or only to the extent required by law and then only
upon ten days prior notice to Subscriber. In any event and subject to the
foregoing, the Company undertakes to make a public announcement not later than
9:30 a.m. on the first trading day following the Subscription Deadline
describing the Offering. Additionally, the Company undertakes to file a Form 8-K
describing the offering not later than the first trading day following the
Closing Date and the Subscribers expressly consent to the filing of such Form
8-K and the issuance of such public announcement. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common stock
outstanding immediately after the Closing.
(n) Blackout. The Company undertakes and covenants that until the
first to occur of (i) the registration statement described in Section 10.1(iv)
having been effective for one hundred and eighty (180) business days, or (ii)
until all the Shares and Warrant Shares have been resold pursuant to said
registration statement, the Company will not enter into any acquisition, merger,
exchange or sale or other transaction, which could have the effect of delaying
the effectiveness of any pending registration statement or causing an already
effective registration statement to no longer be effective or current.
(o) Further Registration Statements. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 10 of this
Agreement, the Company will not file any registration statements, including but
not limited to Form S-8, with the Commission or with state regulatory
authorities without the consent of the Subscriber until thirty (30) days after
the actual Effective Date and during which such Registration Statement shall be
current and available for use in connection with the public resale of the Shares
and Warrant Shares ("Exclusion Period").
(p) Non-Public Information. The Company covenants and agrees that
neither it nor any other person acting on its behalf will provide any Subscriber
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
(q) Directed Selling. The Company covenants and agrees with the
Subscriber to refrain from engaging, and insure that none of its affiliates will
engage, in any Directed Selling Efforts, as defined in Regulation S, with
respect to the Securities.
8.2 Covenants of Subscriber. The Subscriber covenants and promises to
(i) the timely provision of any Subscriber information required hereunder or
reasonably requested by the Company in connection with the filing and
declaration of effectiveness of the Registration Statement (as defined hereafter
in Section 10.1(iv)); (ii) the timely execution of any and all documents
required hereunder or reasonably requested by the Company in connection with the
filing and declaration of effectiveness of the Registration Statement; and (iii)
any other timely action as required hereunder or
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reasonably requested by the Company in connection with the filing and
declaration of effectiveness of the Registration Statement.
9. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in any of the
Transaction Documents; or (ii) after any applicable notice and/or cure periods,
any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company under any Transaction Documents other
than its obligation under Section 11 of this Agreement.
(b) Each Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers, directors, agents,
affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder.
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).
(d) The procedures set forth in Section 10.6 shall apply to the
indemnifications set forth in Sections 9(a) and 9(b) above.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing ninety-one (91) days
after the Closing Date, but not later than two (2) years after the Closing Date
("Request Date"), upon a written request therefor from any record holder or
holders of more than 50% of the Shares and Warrant Shares actually issued upon
exercise of the Warrants, the Company shall prepare and file with the Commission
a registration statement under the 1933 Act registering the Shares and Warrant
Shares (collectively "Registrable Securities") which are the subject of such
request for unrestricted public resale by the holder thereof. For purposes of
Sections 10.1(i) and 10.1(ii), Registrable Securities shall not include
Securities which are registered for resale in an effective registration
statement or included for registration in a pending registration statement, or
which have been issued without further transfer restrictions after a sale or
transfer pursuant to Rule 144 under the 1933 Act. Upon the receipt of such
request, the Company shall promptly give written notice to all other record
holders of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities
for which it has received written requests within ten (10) days after the
Company gives such written notice. Such other requesting record holders shall be
deemed to have exercised their demand registration right under this Section
10.1(i).
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(ii) From the date of Closing but no later than two (2) years
after the Closing Date, if the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller" or "Sellers"). In the event
that any registration pursuant to this Section 10.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 10.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10.1(ii) without thereby incurring any
liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii).
(iv) The Company shall file with the Commission on the sooner
five (5) business days of the Approval or ninety-seven (97) days after the
Subscription Deadline (the "Filing Date"), and use its best reasonable efforts
to cause to be declared effective within ninety (90) days after the Filing Date
(the "Effective Date"), a Form SB-2 registration statement (the "Registration
Statement") (or such other form that it is eligible to use) in order to register
the Registrable Securities for resale and distribution under the 1933 Act. The
Company will register not less than a number of shares of common stock in the
aforedescribed registration statement that is equal to all of the Shares and
Warrant Shares issuable pursuant to this Agreement. The Registrable Securities
shall be reserved and set aside exclusively for the benefit of each Subscriber
and Warrantholder, pro rata, and not issued, employed or reserved for anyone
other than each such Subscriber and Warrantholder. The Registration Statement
will immediately be amended or additional registration statements will be
immediately filed by the Company as necessary to register additional shares of
Common Stock to allow the public resale of all Common Stock included in and
issuable by virtue of the Registrable Securities. Without the written consent of
the Subscriber, no securities of the Company other than the Registrable
Securities will be included in the Registration Statement, provided, however,
the Company may include the Broker's Warrant Shares in any registration
statement that includes the Registrable Securities.
10.2. Registration Procedures. If and whenever the Company is required
by the provisions of Section 10.1(i), 10.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
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(a) subject to the timelines provided in this Agreement, prepare
and file with the Commission a registration statement required by Section 10,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment and notify Subscribers and Grushko & Mittman, P.C.
(by telecopier and by email to Counslers@aol.com) within two (2) business days
of (i) notice that the Commission has no comments or no further comments on the
Registration Statement, and (ii) the declaration of effectiveness of the
registration statement, (failure to timely provide notice as required by this
Section 10.2(a) shall be a material breach of the Company's obligation hereunder
and a Non-Registration Event as defined in Section 10.4 of this Agreement);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years or until the Registrable Securities are no longer held by Subscriber, and
comply with the provisions of the 1933 Act with respect to the disposition of
all of the Registrable Securities covered by such registration statement in
accordance with the Sellers' intended method of disposition set forth in such
registration statement for such period;
(c) furnish to the Sellers, at the Company's expense, such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may request
in order to facilitate the public sale or their disposition of the securities
covered by such registration statement;
(d) use its best efforts to register or qualify the Sellers'
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall request
in writing, provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) if a prospectus relating thereto is required to be delivered
under the 1933 Act, immediately notify the Sellers, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the Sellers,
and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
10.3. Provision of Documents. In connection with each registration
described in this Section 10, each Seller will furnish to the Company in writing
such information, including the completion of investor questionnaires, and
representation letters with respect to itself and the proposed distribution by
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it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws.
10.4. Non-Registration Events. The Company and the Subscribers agree
that the Sellers will suffer damages if the Registration Statement is not filed
by the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 10.1(i) or 10.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement is not filed on or before the Filing Date or is
not declared effective on or before the sooner of the Effective Date, or within
five (5) business days of receipt by the Company of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (ii) if the
registration statement described in Sections 10.1(i) or 10.1(ii) is not filed
within 60 days after such written request, or is not declared effective within
120 days after such written request, or (iii) any registration statement
described in Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared
effective but shall thereafter cease to be effective (without being succeeded
within ten (10) business days by an effective replacement or amended
registration statement) for a period of time which shall exceed 30 days in the
aggregate per year (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) or more than 20 consecutive days
(each such event referred to in clauses (i), (ii) and (iii) of this Section 10.4
is referred to herein as a "Non-Registration Event"), then the Company shall
deliver to the holder of Registrable Securities, as Liquidated Damages, an
amount equal to two percent (2%) for each thirty days or part thereof of the
Purchase Price of the Shares and actually paid "Purchase Price" (as defined in
the Warrants) of Warrant Shares issued or issuable upon actual exercise of the
Warrants, for the Registrable Securities owned of record by such holder as of
and during the pendency of such Non-Registration Event which are subject to such
Non-Registration Event. Notwithstanding anything to the contrary in this
Section, a maximum of four percent (4%) liquidated damages will be payable in
connection with the Non-Registration Event described in this Section 10.4. The
Company must pay the Liquidated Damages in cash within ten (10) days after the
end of each thirty (30) day period or shorter part thereof for which Liquidated
Damages are payable. In the event a Registration Statement is filed by the
Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed. All oral or written and accounting comments received from the Commission
relating to the Registration Statement must be responded to within seven (7)
days. Failure to timely respond is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Company to the Holders of Registrable
securities at the same rate as set forth above.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance are called
"Registration Expenses." All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any counsel to the Seller, are called "Selling Expenses." The
Company will pay all Registration Expenses in connection with the registration
statement under Section 10. Selling Expenses in connection with each
registration statement under Section 10 shall be borne by the Seller and may be
apportioned among the Sellers in proportion to the number of shares sold by the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree. Additionally, parties agree that they
will be responsible for their own respective legal fees in connection with the
transactions contemplated with this Agreement, other than as specifically
provided for therein.
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10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the 1933 Act pursuant to Section 10, the Company will, to the extent
permitted by law, indemnify and hold harmless the Seller, each officer of the
Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 10.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 10, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the net proceeds actually received by the Seller from the sale of Registrable
Securities covered by such registration statement.
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(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 10.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 10.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
10.7. Delivery of Unlegended Shares.
(a) Within five (5) business days (such fifth business day, the
"Unlegended Shares Delivery Date") after the business day on which the Company
has received (i) a notice that Registrable Securities have been sold either
pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii) a
representation that the prospectus delivery requirements, or the requirements of
Rule 144, as applicable, have been satisfied, and (iii) the original share
certificates representing the shares of Common Stock that have been sold, and
(iv) in the case of sales under Rule 144 customary representation letters of the
Subscriber and Subscriber's Placement Agent regarding compliance with the
requirements of
C-19
Rule 144, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver, to its transfer agent (with copies
to Subscriber) an appropriate instruction and opinion of such counsel, stating
that the delivery of shares of Common Stock may be made without any legends
including the legends set forth in Sections 3(e) and 3(f) above, issuable
pursuant to any effective and current registration statement described in
Section 10 of this Agreement or pursuant to Rule 144 under the 1933 Act (the
"Unlegended Shares"); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate
representing the balance of the unsold shares of Common Stock, if any, to the
Subscriber at the address specified in the notice of sale, via express courier,
by electronic transfer or otherwise on or before the Unlegended Shares Delivery
Date. Transfer fees shall be the responsibility of the Seller.
(b) In lieu of delivering physical certificates representing the
Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Placement Agent with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Shares pursuant to Section 10 hereof beyond the Unlegended Shares
Delivery Date could result in economic loss to a Subscriber. As compensation to
a Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 10.7 for an aggregate of thirty
(30) days, then each Subscriber or assignee holding Securities subject to such
default may, at its option, require the Company to purchase all or any portion
of the Shares and Warrant Shares subject to such default at a price per share
equal to 130% of the Purchase Price of such Common Stock and Warrant Shares. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
(d) In addition to any other rights available to a Subscriber, if
the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within ten (10) calendar days after the Unlegended
Shares Delivery Date and the Subscriber purchases (in an open market transaction
or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber anticipated
receiving from the Company (a "Buy-In"), then the Company shall pay in cash to
the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
C-20
(e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 10.7(a), the Company may not refuse to
deliver Unlegended Shares based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction or temporary restraining
order from a court, on notice, restraining and or enjoining delivery of such
Unlegended Shares or exercise of all or part of said Warrant shall have been
sought and obtained and the Company has posted a surety bond for the benefit of
such Subscriber in the amount of 130% of the amount of the aggregate purchase
price of the Common Stock and Warrant Shares which are subject to the injunction
or temporary restraining order, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber's favor.
11. (a) Right of Participation. Commencing on the date of this
Agreement and through the Exclusion Period, the Subscribers shall be given not
less than ten (10) business days prior written notice of any proposed sale by
the Company of its common stock or other securities or debt obligations, except
in connection with (i) employee stock options or compensation plans, (ii) as
full or partial consideration in connection with any merger, consolidation or
purchase of substantially all of the securities or assets of any corporation or
other entity, (iii) issuance of an aggregate of 500,000 Shares of the Company's
Common Stock which may be issued to officers, directors, consultants and
employees to the Company, or (iv) as has been described in the Reports or Other
Written Information filed with the Commission or delivered to the Subscribers
prior to the Closing Date (collectively "Excepted Issuances"). The Subscribers
who exercise their rights pursuant to this Section 11(a) shall have the right
during the ten (10) business days following receipt of the notice to participate
in the purchase of such offered common stock, debt or other securities in
accordance with the terms and conditions set forth in the notice of sale in the
same proportion to each other as their purchase of Shares in the Offering. In
the event such terms and conditions are modified during the notice period, the
Subscribers shall be given prompt notice of such modification and shall have the
right during the original notice period or for a period of five (5) business
days following the notice of modification, whichever is longer, to exercise such
right. Notwithstanding anything to the contrary herein the right of
participation granted by this Section 11(a) shall not apply to any transaction
between the Company and Subscribers brought to the Company by Meyers Associates
so long as the subscription agreement for such transaction is executed by the
Company and such subscribers prior to December 31, 2004 in an aggregate amount
not to exceed $5,000,000. In the event there is an Approval Default, this Right
of Participation shall be extended and effective for 180 days after such
Approval Default.
(b) Favored Nations Provision. Other than the Excepted Issuances,
if at any time until six months after the actual effective date of the
Registration Statement, that a Subscriber is still holding Shares or Warrant
Shares and during the entire warrant exercise period, if the Company shall
offer, issue or agree to issue any common stock or securities convertible into
or exercisable for shares of common stock (or modify any of the foregoing which
may be outstanding at any time prior to the Closing Date) to any person or
entity at a price per common share or conversion or exercise price per share
which shall be less than the per Share Purchase Price, without the consent of
each Subscriber holding such Shares, then the Company shall issue, for each such
occasion, additional shares of Common Stock to each Subscriber so that the
average per Share Purchase Price of the shares of Common Stock issued to the
Subscriber (of only the Common Stock still owned by the Subscriber) is equal to
such other lower price per share. The delivery to the Subscriber of the
additional shares of Common Stock shall be not later than the closing date of
the transaction giving rise to the requirement to issue such additional shares
of Common Stock. The Subscriber is granted the registration rights described in
Section 10.1(ii) hereof in relation to such additional shares of Common Stock.
However, if such date is prior to the sooner of receipt of the Approval or six
months after the Closing Date, then the delivery date for such additional shares
shall be on
C-21
the sooner of (i) five business days after the Approval Date, or (ii) six months
after the Closing Date. For purposes of the issuance and adjustment described in
this paragraph, the issuance of any security of the Company carrying the right
to convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall result in the issuance of the additional
shares of Common Stock upon the issuance of such convertible security, warrant,
right or option and again upon any subsequent issuances of shares of Common
Stock upon exercise of such conversion or purchase rights at any time if such
issuance is at a price lower than the per Share Purchase Price. The rights of
the Subscriber set forth in this Section 11 are in addition to any other rights
the Subscriber has pursuant to this Agreement and any other agreement referred
to or entered into in connection herewith.
(c) Maximum Exercise of Rights. In the event the exercise of the
rights described in Sections 11(a) and 11(c) would result in the issuance of an
amount of common stock of the Company that would exceed the maximum amount that
may be issued to a Subscriber calculated in the manner described in Section 8 of
the Warrants, then the issuance of such additional shares of common stock of the
Company to such Subscriber will be deferred in whole or in part until such time
as such Subscriber is able to beneficially own such common stock without
exceeding the maximum amount. The determination of when such common stock may be
issued shall be made by each Subscriber as to only such Subscriber.
12. Miscellaneous.
(a) Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Conolog Corporation, 5
Columbia Road, Somerville, NJ 08876, Attn: Robert Benou, telecopier: (908)
722-5461, with a copy by telecopier only to: Milberg Weiss Bershad & Schulman
LLP, One Penn Plaza, New York, NY 10119 Attn: Arnold N. Bressler, Esq.,
telecopier: (212) 273-4373, (ii) if to the Subscribers, to: the one or more
addresses and telecopier numbers indicated on the signature pages hereto, with
an additional copy by telecopier only to: Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, telecopier number: (212) 697-3575,
and (iii) if to the Broker, to: First Montauk Securities Corp., 328 Newman
Springs Road, Red Bank, NJ 07701, Attn: Ernest Pellegrino, Director of Corporate
Finance, telecopier: (732) 842-9047.
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of all
conditions to Closing set forth in this Agreement ("Closing Date")
(c) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to
C-22
the subject matter hereof and may be amended only by a writing executed by both
parties. Neither the Company nor the Subscribers have relied on any
representations not contained or referred to in this Agreement and the documents
delivered herewith. No right or obligation of either party shall be assigned by
that party without prior notice to and the written consent of the other party.
(d) Counterparts/Execution. This Agreement may be executed in any
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 12(e) hereof, each of the Company, Subscriber and any
signator hereto in his personal capacity hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction in New York of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.
(g) Independent Nature of Subscribers. The Company acknowledges
that the obligations of each Subscriber under the Transaction Documents are
several and not joint with the obligations of any other Subscriber, and no
Subscriber shall be responsible in any way for the performance of the
obligations of any other Subscriber under the Transaction Documents. The
decision of each Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Subscriber or by any agent or employee of any other
Subscriber, and no Subscriber or any of its agents or employees shall have any
liability to any Subscriber (or any other person) relating to or arising from
any such information, materials, statements or opinions. Nothing contained in
any Transaction Document, and no action taken by any Subscriber pursuant hereto
or thereto (including, but not limited to, the (i) inclusion of a Subscriber in
the
C-23
SB-2 Registration Statement and (ii) review by, and consent to, such
Registration Statement by a Subscriber) shall be deemed to constitute the
Subscribers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Subscribers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. The Company acknowledges that each
Subscriber shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
[THIS SPACE INTENTIONALLY LEFT BLANK]
C-24
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- --------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- --------------------------------------------------------------------
STONESTREET LIMITED PARTNERSHIP $150,000 48,387 24,194
33 Prince Arthur Avenue
Toronto, Ontario
M5R 1B2, Canada
Fax: (416) 323-3693
- -------------------------------------
(Signature)
- --------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- --------------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- --------------------------------------------------------------------------
CITYPLATZ LIMITED $1,050,000.00 338,710 169,355
12-14 Finch Road
Douglas
Isle of Man
IM99 ITT
- -------------------------------------
(Signature)
- --------------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- -----------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- -----------------------------------------------------------------------
DKR SoundShore Oasis Holding $1,240,000 400,000 200,000
Fund Ltd.
29 Richmond Road,
Pembroke HM08,
Bermuda
- -------------------------------------
(Signature)
- -----------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- ---------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- ---------------------------------------------------------------------
DKR SoundShore Strategic Holding $310,000 100,000 50,000
Fund Ltd
29 Richmond Road,
Pembroke HM08,
Bermuda
- -------------------------------------
(Signature)
- ---------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (E)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- --------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- --------------------------------------------------------------------
WHALEHAVEN CAPITAL FUND LIMITED $175,000 56,452 28,226
3rd Floor, 14 Par-Laville Road
Hamilton, Bermuda HM08
- -------------------------------------
(Signature)
- --------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (F)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- ---------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- ---------------------------------------------------------------------
SRG CAPITAL OFF-SHORE $400,000 129,032 64,516
Walkers
PO BOX 265 GT
Walker House, Mary St
Grand Cayman, Cayman Islands
BWI
- -------------------------------------
(Signature)
- ---------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (G)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- ---------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- ---------------------------------------------------------------------
Excalibur Limited Partnership $465,000 150,000 75,000
33 Prince Arthur Avenue
Toronto, Ontario
Canada M5R 1B2
- -------------------------------------
(Signature)
- ---------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (H)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- --------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- --------------------------------------------------------------------
Omicron Master Trust $155,000 50,000 25,000
c/o Winchester Global Trust Company
Williams House
20 Reid Street
Hamilton HM 11
Bermuda
- -------------------------------------
(Signature)
- --------------------------------------------------------------------
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (H)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
CONOLOG CORPORATION
a Delaware corporation
By:
------------------------------------
Name:
Title:
Dated: December 3, 2004
- --------------------------------------------------------------------
PURCHASE
SUBSCRIBER PRICE SHARES WARRANTS
- --------------------------------------------------------------------
Bristol Investment Fund, Ltd. $300,000 96,774 48,387
Caledonian House, Jennett Street
George Town, Grand Cayman
Cayman Islands
- -------------------------------------
Signature
Name: Paul Kessler
Title: Director
- --------------------------------------------------------------------
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Warrant
Exhibit B Escrow Agreement
Exhibit C Form of Legal Opinion
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Exhibit A
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
MAY NOT BE EXERCISED BY A U.S. PERSON AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED BY A U.S. PERSON IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE SECURITIES
LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO CONOLOG CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase _________ shares of Common
Stock of Conolog Corporation (subject to
adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2004-DEC-001 Issue Date: December , 2004
--
CONOLOG CORPORATION, a corporation organized under the laws of the State of
Delaware (the "Company"), hereby certifies that, for value received, STONESTREET
LIMITED PARTNERSHIP, 33 Prince Arthur Avenue, Toronto, Ontario, M5R 1B2, Canada,
Fax: (416) 323-3693, or its assigns (the "Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company, commencing six months after
the Subscription Deadline (as defined in the Subscription Agreement) until 5:00
p.m., E.S.T on the fifth anniversary of the Issue Date (the "Expiration Date"),
up to ______ fully paid and nonassessable shares of the common stock of the
Company (the "Common Stock"), $.01 par value per share at an exercise price of
$_____ [103% of the closing bid price as reported on the SmallCap on the date
prior to Subscription Deadline]. The aforedescribed purchase price per share, as
adjusted from time to time as herein provided, is referred to herein as the
"Purchase Price." The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein. The Company may
reduce the Purchase Price without the consent of the Holder. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth in that
certain Subscription Agreement (the "Subscription Agreement"), dated as of
December __, 2004, entered into by the Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Conolog Corporation and any
corporation which shall succeed or assume the obligations of Conolog Corporation
hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.01
par value per share, as authorized on the date of the Subscription Agreement,
and (b) any other securities into which or for which any of the securities
described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the Issue
Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but not
for a fractional share) by surrender of this Warrant in the manner and at the
place provided in subsection 1.2 except that the amount payable by the Holder on
such partial exercise shall be the amount obtained by multiplying (a) the number
of whole shares of Common Stock designated by the Holder in the Subscription
Form by (b) the Purchase Price then in effect. On any such partial exercise, the
Company, at its expense, will forthwith issue and deliver to or upon the order
of the Holder hereof a new Warrant of like tenor, in the name of the Holder
hereof or as such Holder (upon payment by such Holder of any applicable transfer
taxes) may request, the whole number of shares of Common Stock for which such
Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ"), National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, LLC, then the closing or last sale price, respectively,
reported for the last business day immediately preceding the Determination Date;
(b) If the Company's Common Stock is not traded on an exchange or
on the NASDAQ National Market System, the NASDAQ SmallCap Market or the American
Stock Exchange, Inc., but is traded in the over-the-counter market, then the
average of the closing bid and ask prices reported for the last business day
immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
1.7. Delivery of Stock Certificates, etc. on Exercise. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder hereof as the record owner of such
shares is made to the Company in immediately available funds as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. As soon as practicable after the
exercise of this Warrant in full or in part, and in any event within five (5)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder hereof, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct in compliance with applicable securities
laws, a certificate or certificates for the number of duly and validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities) to
which such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash equal to
such fraction multiplied by the then Fair Market Value of one full share of
Common Stock, together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon such
exercise pursuant to Section 1 or otherwise.
2. Cashless Exercise.
(a) If a Registration Statement as defined in the Subscription
Agreement ("Registration Statement") is effective and the Holder may sell its
shares of Common Stock upon exercise hereof, this Warrant may be exercisable in
whole or in part for cash only as set forth in Section 1 above. Commencing six
months after the Closing Date, if no such Registration Statement is available,
then commencing six months after the Closing Date, payment upon exercise may be
made at the option of the Holder either in (i) cash, wire transfer or by
certified or official bank check payable to the order of the Company equal to
the applicable aggregate Purchase Price, (ii) by delivery of Common Stock
issuable upon exercise of the Warrants in accordance with Section (b) below
("Cashless Exercise") or (iii) by a combination of any of the foregoing methods,
for the number of Common Stock specified in such form (as such exercise number
shall be adjusted to reflect any adjustment in the total number of shares of
Common Stock issuable to the holder per the terms of this Warrant) and the
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) determined as provided herein.
(b) If the Fair Market Value of one share of Common Stock is greater
than the Purchase Price (at the date of calculation as set forth below) and no
Registration Statement relating to the shares of Common Stock underlying this
Warrant is effective, in lieu of exercising this Warrant for cash, the holder
may elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being cancelled) by surrender of this Warrant at
the principal office of the Company together with the properly endorsed
Subscription Form in which event the Company shall issue to the holder a number
of shares of Common Stock computed using the following formula:
X=Y (A-B)
-------
A
Where X= the number of shares of Common Stock to be issued to the
holder
Y= the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised (at
the date of such calculation)
A= the Fair Market Value of one share of the Company's
Common Stock (at the date of such calculation)
B= Purchase Price (as adjusted to the date of such
calculation)
(c) The Holder may employ the cashless exercise feature described
above only during the pendency of a Non-Registration Event as described in
Section 12 of the Subscription Agreement and only commencing one year after the
Closing Date.
(d) For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Commission currently has
interpreted Rule 144 to mean that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued pursuant to the Subscription
Agreement.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether
or not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor"). On the surrender
for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form") and together with
evidence reasonably satisfactory to the Company demonstrating compliance with
applicable security laws, which shall include, without limitation, a legal
opinion from the Transferor's counsel that such transfer is exempt from the
registration requirements of applicable securities laws, the Company at its
expense, twice, only, but with payment by the Transferor of any applicable
transfer taxes, will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"),
calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock called for on the face or faces of the Warrant so surrendered by
the Transferor. No such transfers shall result in a public distribution of the
Warrant.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense, twice only, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The Holder of this Warrant has been granted certain
registration rights by the Company. These registration rights are set forth in
the Subscription Agreement.
10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
on such date. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 9.99%. The restriction described in
this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder may allocate which of the equity of the
Company deemed beneficially owned by the Subscriber shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
11. Warrant Agent. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company to: Conolog Corporation, 5
Columbia Road, Somerville, NJ 08876, Attn: Robert
Benou, telecopier: (908) 722-5461, with a copy by telecopier only to: Milberg
Weiss Bershad & Schulman LLP, One Penn Plaza, New York, NY 10119 Attn: Arnold N.
Bressler, Esq., telecopier: (212) 273-4373, (ii) if to the Subscribers, to: the
one or more addresses and telecopier numbers indicated on the signature pages
hereto, with an additional copy by telecopier only to: Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575.
14. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
CONOLOG CORPORATION
By:
------------------------------------
Name:
Title:
Witness:
- ------------------------------------
Exhibit A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: CONOLOG CORPORATION
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ______________________________________________________
whose address is _______________________________________________________________
_______________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:
------------------ ----------------------------------------
(Signature must conform to name of
holder as specified on the face of the
Warrant)
----------------------------------------
----------------------------------------
(Address)
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of CONOLOG CORPORATION to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
CONOLOG CORPORATION with full power of substitution in the premises.
- ----------------------- -------------------------- -------------------------
Transferees Percentage Transferred Number Transferred
- ----------------------- -------------------------- -------------------------
- ----------------------- -------------------------- -------------------------
- ----------------------- -------------------------- -------------------------
- ----------------------- -------------------------- -------------------------
Dated: ,
------------ ----------- -----------------------------------------
(Signature must conform to name of holder
as specified on the face of the warrant)
Signed in the presence of:
- ------------------------------------ -----------------------------------------
(Name)
-----------------------------------------
(address)
ACCEPTED AND AGREED: -----------------------------------------
[TRANSFEREE]
-----------------------------------------
- ------------------------------------ (address)
(Name)
Schedule 5(d) of the Subscription Agreement Dated December 3, 2004
As of December 3, 2004, the Company has outstanding warrants to
purchase an aggregate of 200,000 shares of its common stock at a purchase price
of $1.8375 per share.
The Company has a 2002 Stock Option Plan pursuant to which it may grant
options to purchase 190,000 shares of its common stock.
Schedule 5(q) to the Subscription Agreement
Dated December 3, 2004
N/A
Schedule 5(s) of the Subscription Agreement
162,000 shares of the Company's Series A Preferred Stock, having a par
value of $0.50 per share, have been authorized, of which 155,000 shares are
issued and outstanding.
50,000 shares of the Company's Series B Preferred Stock, having a par value
of $0.50 per share, have been authorized, of which 1,197 shares are issued and
outstanding.
20,000,000 shares of the Company's common stock, having a par value of
$0.01 per share, have been authorized, of which 4,180,797 shares are issued and
outstanding, and 220 shares are held in the Company's treasury.
Of the 20,000,000 shares of the Company's common stock which have been
authorized, 200,000 shares have been reserved for issuance upon the exercise of
outstanding warrants and 190,000 shares of the Company's common stock have been
reserved for issuance pursuant to its 2002 Stock Option Plan.
<Page>
Appendix 1
CONOLOG CORPORATION
PROXY
ANNUAL MEETING OF SHAREHOLDERS -- FEBRUARY 10, 2005
The undersigned shareholder of Conolog Corporation (the 'Company') hereby
appoints Robert S. Benou and Marc R. Benou and each of them as 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 January 5, 2005, 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 10th day of February 2005, 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.
<Table>
<Caption>
(Please fill in the reverse side and return promptly in the enclosed envelope.) WITHHOLD
Please mark boxes [*] or [X] in blue or black ink. FOR AUTHORITY
1. Election of Directors. [ ] [ ]
(To withhold authority to vote for an individual nominee, strike through the
nominee's name below)
Robert S. Benou Marc R. Benou Louis S. Massad Edward J. Rielly David M. Peison
2. Proposal to approve the execution of the Subscription Agreement pursuant to which an amount equal to more
than 20% of the Company's shares outstanding immediately prior to the execution of the Subscription
Agreement will be issued.
[ ] For [ ] Against [ ] Abstain
3. Proposal to approve the granting of an aggregate of 350,000 shares of the Company's common stock to its
officers, directors and employees.
[ ] For [ ] Against [ ] Abstain
4. Proposal to approve the selection of Bagell, Josephs & Company, L.L.C. as the Company's independent
auditors for the fiscal year ending July 31, 2005.
[ ] For [ ] Against [ ] Abstain
(see reverse side)
</Table>
<Page>
<Table>
5. 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
</Table>
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. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE,
BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
ALL NOMINEES AND FOR THE ABOVE PROPOSALS.
[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: .................. , 2005
................................
Signature
................................
Print Name
................................
Signature
................................
Print Name