<PAGE>
As filed with the Securities and Exchange Commission on November 24, 1997
Registration No. 333-35489
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
Conolog Corporation
(Name of issuer in its charter)
Delaware 3679 52-0853566
- ------------------------ ---------------------------- -------------------
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
5 Columbia Road
Somerville, NJ 08876
(908) 722-8081
(Address and telephone number of principal executive offices)
Robert S. Benou, President
Conolog Corporation
5 Columbia Road
Somerville, NJ 08876
(908) 722-8081
(Name, address and telephone number of agent for service)
Copies to:
Stuart Neuhauser, Esq. Steven A. Morse, Esq.
Bernstein & Wasserman, LLP Lester Morse, P.C.
950 Third Avenue 111 Great Neck Road
New York, NY 10022 Great Neck, NY 11021
(212) 826-0730 (516) 487-1446
(212) 371-4730 (Fax) (516) 487-1452 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
<PAGE>
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis, pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [X] 33-92424
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Offering Maximum Amount of
Class of Securities to be Amount to be Price per Aggregate Registration
Registered Registered Security(1) Offering Price Fee
- ------------------------- ------------ ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Units, each consisting of 805,000 $ 5.00 $ 4,025,000 $ 1,219.58
one (1) Share of Common
Stock, $1.00 par value per
Share and four (4) Class A
Warrants(2)
Common Stock, $1.00 par 805,000 -- -- --
value
Class A Warrants 3,220,000 -- -- --
Common Stock, $1.00 par 3,220,000 $ 6.00 $ 19,320,000 $ 5,853.96
value underlying Class A
Warrants
Representative's Unit 70,000 $ 8.00 $ 560,000 $ 169.68
Purchase Option
Common Stock, $1.00 par 70,000 -- -- --
value in Representative's
Unit Purchase Option
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Offering Maximum Amount of
Class of Securities to be Amount to be Price per Aggregate Registration
Registered Registered Security(1) Offering Price Fee
- ------------------------- ------------ ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Class A Warrants in 280,000 -- -- --
Representative's Unit
Purchase Option
Common Stock, $1.00 par 280,000 $ 6.00 $ 1,680,000 $ 509.04
value underlying
Class A Warrants in
Representative's Unit
Purchase Option
Class A Warrants of 1,200,000 $ .10 $ 120,000 $ 41.38
Selling Securityholders
Common Stock, $1.00 par 1,200,000 $ 6.00 $ 7,200,000 $ 2,181.60
value underlying Class A
Warrants of Selling
Securityholders
Total Registration and Fee $ 32,905,000 $ 9,975.24(3)
</TABLE>
(1) Estimated solely for purposes of calculating registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended (the "Act").
Pursuant to Rule 416 under the Act, this Registration Statement covers
such additional indeterminate number of shares of Common Stock as may
be issued by reason of adjustments in the number of shares of Common
Stock pursuant to anti-dilution provisions contained in the Warrant
Agreement governing the Class A Warrants and the Representative's Unit
Purchase Option. Because such additional shares of Common Stock will,
if issued, be issued for no additional consideration, no registration
fee is required.
(2) Includes 105,000 Units included in the Representatives Over-Allotment
Option.
(3) $42.42 paid herewith. $9,932.82 previously paid.
Pursuant to Rule 429 of the Act, this Form incorporates by reference
and updates all of the information contained in the Registration Statement on
Form S-1; File No. 33-92424. The securities being carried forward from such
Registration Statement are: 235,750 shares of Common Stock underlying Class A
Warrants offered to the public ($487.72 filing fee previously paid); 20,500
underwriter's options to purchase 41,000 shares of Common Stock and 20,500 Class
A Warrants ($84.82 filing fee previously paid); 20,500 shares of Common Stock
underlying Class A Warrants in such underwriter's options ($42.41 filing fee
previously paid); and 900,000 shares of Common Stock underlying Class A Warrants
previously offered by certain shareholders ($1,861.92 filing fee previously
paid).
iii
<PAGE>
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
iv
<PAGE>
EXPLANATORY NOTE
This registration statement covers the primary offering of securities
of Conolog Corporation (the "Company") and the offering of other securities by
certain selling securityholders (the "Selling Securityholders"). The Company is
registering, under the primary prospectus (the "Primary Prospectus"), 805,000
Units, each Unit consisting of one (1) share of Common Stock and four (4) Class
A Warrants. The Selling Securityholders are registering, under an alternate
prospectus (the "Alternate Prospectus"), 1,200,000 Class A Warrants. The
Alternate Prospectus pages which follow the Primary Prospectus, contain certain
sections which are to be combined with all of the sections contained in the
Primary Prospectus, with the following exceptions: the front and back cover
pages, and the sections entitled "The Offering" and "Selling Securityholders."
In addition, the section entitled "Concurrent Sales" from the Alternate
Prospectus pages will be added to the Alternate Prospectus. Furthermore, all
references contained in the Alternate Prospectus to "the Offering" or "this
Offering" shall refer to the Company's offering under the Primary Prospectus.
v
<PAGE>
CONOLOG CORPORATION
CROSS REFERENCE SHEET
Between Items in Registration
Statement on Form S-1 and the Prospectus
Item in Form S-1 Prospectus Caption
---------------- ------------------
1. Front of Registration Forepart of Registration
Statement and Outside Front Statement and Outside Front
Cover of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Page of Prospectus
3. Summary Information and Risk Prospectus Summary; Risk
Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Outside Front Cover Page of
Price Prospectus; Risk Factors and
Underwriting
6. Dilution Risk Factors
7. Selling Securityholders Selling Securityholders
8. Plan of Distribution Underwriting
9. Description of Securities Description of Securities
to be registered
10. Interests of Named Experts and Legal Matters; Experts
Counsel
11. Information with Respect to Prospectus Summary; Business;
the Registrant Management's Discussion and
Analysis of Financial Condition
and Results of Operation
12. Disclosure of Commission Certain Transactions;
Position on Indemnification Part II - Item 14
for Securities Act Liabilities
vi
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OF SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
Subject to Completion, dated November 24, 1997
Prospectus
CONOLOG CORPORATION
700,000 Units
Conolog Corporation, a Delaware corporation ("Conolog" or the
"Company") is offering (the "Offering") 700,000 units (the "Units") at a price
of $5.00 per Unit. Each Unit consists of one (1) share of Common Stock, par
value $1.00 per share ("Common Stock") and four (4) Redeemable Class A Common
Stock Purchase Warrants ("Class A Warrants"). The Common Stock and Class A
Warrants are detachable and may trade separately immediately upon issuance. The
Units will not trade after issuance. Each Class A Warrant entitles the holder to
purchase one (1) share of Common Stock, at an exercise price of $6.00, subject
to adjustment, at any time through August 31, 2002. The Class A Warrants are
subject to redemption by the Company commencing the earlier of (i) 24 months
from the date of this Prospectus or (ii) 12 months from the date of this
Prospectus, with the consent of IAR Securities Corp. (the "Representative"), on
not less than thirty (30) days notice at $.05 per Warrant, provided the average
closing price of the Common Stock exceeds $7.20 per share for twenty (20)
consecutive trading days ending within fifteen (15) days prior to the notice.
See "Description of Securities."
The registration statement of which this prospectus forms a part also
covers the offering of 1,200,000 Class A Warrants owned by certain selling
securityholders (the "Selling Securityholders"), the resale of the Common Stock
underlying the Class A Warrants by the Selling Securityholders and the exercise
of the Class A Warrants by the transferees of the Selling Securityholders. The
securities held by the Selling Securityholders may be sold concurrently with or
after this Offering. These Class A Warrants are identical to the Class A
Warrants being offered by the Company. Sales of such securities or even the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Selling Securityholders."
The registration statement of which this prospectus forms a part covers
the 3,220,000 shares of Common Stock issuable upon exercise of the Class A
Warrants offered by the Company (which includes the Class A Warrants included in
the over-allotment option), and the 280,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Representative's Unit Purchase
Option. See "Description of Securities."
The Company's Common Stock and Class A Warrants are currently trading
on the Nasdaq SmallCap Market ("Nasdaq"). On _________, 1997, the closing price
for the Common Stock and Class A Warrants were $_______ and $______,
respectively.
vii
<PAGE>
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. AN INVESTMENT IN THESE SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS
CAPABLE OF SUSTAINING THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
WHICH BEGIN ON PAGE ___ AND "DILUTION".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Public Discounts and Proceeds to the
Commissions(1) Company(2)
--------------- -------------- ---------------
Per Unit................... $5.00 $.50 $4.50
Total (3).................. $3,500,000 $350,000 $3,150,000
(1) Does not include additional underwriting compensation to be paid by the
Company to the Representative in the form of (a) warrants to purchase up to
70,000 Units, each Unit consisting of one (1) share of Common Stock and four (4)
Class A Warrants exercisable over a four year period commencing one year from
the date of this Prospectus at an exercise price of $8.00 per Unit (the
"Representative's Unit Purchase Option"), (b) a non-accountable expense
allowance (the "Non-Accountable Expense Allowance") equal to three percent (3%)
of the aggregate public offering price of the Units, namely $105,000 (or
$120,750 assuming exercise in full of the Over-Allotment Option, as defined
below), and (c) consulting fees of $70,000 payable to the Representative in full
at the closing of the public offering. The Company and the Representative have
agreed to indemnify one another against certain liabilities arising under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of this offering payable by the Company estimated
to be $400,000, including the Representative's Non-Accountable Expense Allowance
of $105,000 and the $70,000 financial consulting fee referred to above. After
deducting such expenses, the net proceeds to the Company will be approximately
$2,750,000. See "Use of Proceeds."
1
<PAGE>
(3) The Company has granted the Representative an option to purchase up to
105,000 Units at any time before 45 days from the date hereof solely for
covering over-allotments (the "Over-Allotment Option"). If the Over-Allotment
Option is exercised in full the total price to the public will be $4,025,000,
the total discounts and commissions will be $402,500 and the estimated expenses
of the Offering will be $415,750. The net proceeds to the Company after
deducting the expenses of the Offering would then be $3,206,750. See "Use of
Proceeds."
IAR SECURITIES CORP.
The date of this Prospectus is ____________, 1997.
2
<PAGE>
[Picture]
3
<PAGE>
[Picture]
4
<PAGE>
The Securities are being offered subject to prior sale, when, as and if
delivered to and accepted by the Representative, and subject to certain other
conditions. The Representative reserves the right to withdraw, cancel or modify
such offer without notice and to reject orders in whole or in part. It is
expected that delivery of the Securities will be made on or about ___________,
1997.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH THIS PROSPECTUS RELATES OR AN OFFER TO OR SOLICITATION OF
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK AND/OR CLASS A WARRANTS, INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and other information filed by
the Company can be inspected and copied (at prescribed rates) at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
as well as the New York Regional Office, Seven World Trade Center, New York, New
York, and the Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois. The Commission maintains a Web site on the
Internet (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission through the Electronic Data Gathering, Analysis, and Retrieval
System (EDGAR).
The Company has filed with the Commission a registration statement on
Form S-1 (herein together with all amendments and exhibits referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this Prospectus forms a part. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information, reference is made to the
Registration Statement.
5
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information, financial statements and notes thereto appearing elsewhere in this
Prospectus. In addition, unless otherwise indicated to the contrary, all
information appearing herein does not give effect to the exercise of (i) the
Over-Allotment Option; (ii) the Class A Warrants (including Class A Warrants
included in the Over-Allotment Option and those owned by the Selling
Securityholders); (iii) the outstanding Class A Warrants prior to the Effective
Date; (iv) the Representative's Unit Purchase Option; or (v) the unit purchase
option issued in connection with the August 1995 Offering. See "Description of
Securities," "Bridge Financing," and "Underwriting."
The Company
Conolog Corporation, a Delaware corporation (the "Company" or
"Conolog") was organized in 1968 and is engaged in the design, manufacture
(directly or through subcontractors) and distribution of small electronic and
electromagnetic components and subassemblies for use in telephone, radio and
microwave transmission and reception and other communication areas that are used
in both military and commercial applications. The Company's products are used
for transceiving various quantities, data and protective relaying functions in
industrial, utility and other markets.
The Company is engaged in the design and manufacture of (i)
transducers, which are electromagnetic devices which convert electrical energy
into mechanical and other forms of physical energy, or conversely convert
mechanical and other forms of physical energy into electrical energy; (ii)
digital signal processing (DSP) systems and electromagnetic wave filters for
differentiation among discreet audio and radio frequencies; (iii) audio
transmitters and modulators, for the transmission over telephone lines,
microwave circuits, or satellite, of electrical signals obtained from
transducers, data generated in electronic code form or by computers or other
similar equipment (not manufactured by the Company); (iv) audio receivers and
demodulators which are small systems which receive and decode the signals from
the audio transmitters and convert them into digital codes for input into
computers, teletypes or other similar equipment (not manufactured by the
Company) or convert such signals into mechanical or other form of energy, such
as opening or closing valves, or starting or stopping a motor; (v) magnetic
"networks" which are devices that permit the matching or coupling of different
types of communication equipment together or many identical or similar equipment
together or onto telephone or other transmission lines so as not to cause
interference; and (vi) analog transmitters and receivers, which permit the
coding/transmission and receiving/decoding of a constantly variable data, such
as the water level in a tank, pressure in a pipe or temperature, by actually
displaying the exact information at the receiving end in digital form for
storing in a computer or other devices, or by physically displaying the
information in a visual fashion such as a numerical readout or meter.
Since the 1980's, Conolog has been an active participant in providing
electromagnetic wave filters for major military programs, such as the Patriot
Missile, Hawk Missile and Sea Sparrow
6
<PAGE>
Missile. In addition to these projects, Conolog components are currently used by
the military in tanks, the Apache helicopters and the MK-50 torpedoes.
During 1987, the Company made the strategic decision to redirect the
Company's focus from military to commercial markets. Since that time, the
Company has refocused on manufacturing and marketing its products for the
commercial marketplace rather than depend on the military and defense related
markets. The effort has included the introduction of new products, the redesign
of existing products and increased advertising and marketing efforts, as
permitted by its limited financial resources. The percentage of revenues
attributed to products manufactured for use in commercial applications increased
from approximately 4% of sales in 1981 ($171,000) to approximately 85% of sales
in 1997 ($900,000). The decision to embark on this program entailed a major
design effort, including the coordination of outside engineering consultants to
develop a complete line of products aimed at the Company's target markets. The
emphasis was on products for electric utilities, cogeneration of power, gas and
water companies, traffic control for departments of transport (DOT) and airports
utilizing DSP (Digital Signal Processing) technology. DSP designs have long term
stability with minimum or no maintenance, allowing the Company to offer
customers a product line with a 12 year warranty - a first on the market.
Testing of the Company's first commercial product group, the
Teleprotection Series PTR- 1000, was under way in the latter part of 1992 by
Bonneville Power Administration. This detailed test permitted the Company to
"fine tune" the product for power transmission applications. In March 1994, the
PTR-1000 was approved for use by such utility and thereafter by other utilities
and municipalities. To date, the Company has sold and delivered over 800
PTR-1000 sets to 18 utilities and 5 municipalities, most of which are installed
and in service.
Following the PTR-1000, in 1993, the Company introduced its "98 Series"
Tone Products for water, gas, telephone and oil companies, waste-water, traffic
control and airports. In 1994 the Company unveiled the Power Supply Series
(allowing the various utilities to power-up the equipment from any power
source), the "40 Series" for transmission of analog variable data (i.e., water
levels, gas pressures, and temperature) and the Multiplexer Series which permits
the transmission of up to 900 separate data points, again using a telephone
line, microwave link, or satellite. In 1994 the Company also introduced the "68
Series" tone products. This series is the "98 Series" repackaged mechanically
specifically for customers with older systems wanting to upgrade to DSP
technology without the expense of a complete mechanical installation. The "68
Series" offers the entire line offered by the "98 Series". In 1995 the Company
introduced a stand alone "98 Series" transmitter and receiver for field
installations and a wide range of fiber optic interfaces for INIVEN products.
The fiber optic interface is also available as a stand alone coupling device.
The Company launched its industrial grade 1200 Baud Modem for data
transmission/communication, and completed the PTR-1000 System options. Through
1997, the Company designed and is in the process of completing and building the
PTR-1500 Quad System, Protection Equipment, exclusively for the General Electric
Company ("GE"), to be labeled GE-NS50 Series, for worldwide sales as detailed in
the agreement between GE and Conolog dated April 1, 1997.
7
<PAGE>
Due to the end of the cold war and the downsizing of the American
military, the Company experienced unexpected sharp reductions of military
contracts in fiscal 1993 (the Company's fiscal year end is July 31) resulting in
a 50% decline in the Company's sales for that year, down to $1,486,298 from
$2,997,308 in fiscal 1992. The sales of new products could not replace the
decrease in military sales. The Company, however, continued to pursue sales as
aggressively as its available resources would permit. Sales in fiscal 1994
increased to $2,044,860, a 37% increase over fiscal 1993. Sales in fiscal 1995
were $2,090,933 a 2% increase over fiscal 1994. Sales in fiscal 1996 were
$1,924,466 an 8% decrease from fiscal 1995. Sales in fiscal 1997 were $1,123,390
a 42% decrease from fiscal 1996. Revenues from the Company's military product
sales represented approximately 60%, 30%, 23% and 10% of sales of the Company in
fiscal 1994, 1995, 1996 and 1997, respectively, reflecting the Company's
emphasis on commercial sales and markets.
The Company's products are used in radio and other transmissions,
telephones and telephone exchanges, air and traffic control, automatic
transmission of data for utilities, teleprinting of transmitted data such as
news and stock market information and for use by electric utilities in
monitoring power transmission lines for faults and/or failures. The Company's
products may be used independently or in combination with other products to form
a system type configuration, whereby the Company's equipment is pre-assembled in
a large cabinet with other equipment in a configuration that would provide the
end user with protection as well as operational status displays.
The Company is presently engaged and focused in two basic market areas:
(1) Military sales via direct contract sales to the military, as subcontractor
to systems producers and to foreign governments; and (2) Commercial sales (under
the tradename " INIVEN" (A Division of Conolog)) via direct sales to end users,
sales to system assemblers and sales to contractors/installers. See "Business".
On August 16, 1995, the Company completed an underwritten offering
("August 1995 Offering") of its securities by selling 235,750 Units ("Units"),
each Unit consisting of two (2) shares of Common Stock and one (1) Class A
Warrant at a price of $10.00 per Unit. The Company received net proceeds of
$1,853,025.
The Company's executive offices are located at 5 Columbia Road,
Somerville, New Jersey 08876, telephone (908) 722-8081.
8
<PAGE>
<TABLE>
<S> <C>
Present Capitalization
Common Stock. . . . . . . . . . . . . 2,815,738(1)
Class A Warrants. . . . . . . . . . . 1,135,750
Series A Preferred Stock. . . . . . . 155,000(2)
Series B Preferred Stock. . . . . . . 1,197(3)
Shareholders of Record. . . . . . . . _____(4)
The Offering
Securities Offered By the
Company . . . . . . . . . . . . . 700,000 Units, each Unit consisting of one (1) share
of Common Stock, par value $1.00, and four (4) Class
A Warrants. The Common Stock and Class A
Warrants are detachable and may trade separately
immediately upon issuance. The Units will not trade
after issuance. See "Descriptions of Securities."
Common Stock to be
Outstanding After Completion
of the Offering . . . . . . . . . . . 3,515,738
Class A Warrants to be Outstanding
After Completion of the Offering . . 5,135,750 (including 1,200,000 being offered by the
Selling Securityholders)
Terms of Class A Warrants. . . . . . Each Class A Warrant entitles the holder to purchase
one share of the Company's Common Stock at a price
of $6.00, subject to adjustment, at any time through
August 31, 2002. The Class A Warrants are subject
to redemption by the Company commencing the
</TABLE>
- --------
(1) Does not include treasury stock. See "Financial Statements".
(2) Each share of Series A Preferred Stock is convertible into 1 share of
Common Stock upon payment of $1,200 per share. See "Description of
Securities".
(3) The shares of Series B Preferred Stock are convertible into an
aggregate of 239 shares of Common Stock. See "Description of
Securities" and "Certain Transactions."
(4) As of _________, 1997.
9
<PAGE>
<TABLE>
<S> <C>
earlier of (i) 24 months from the date of
this Prospectus or (ii) 12 months from
the date of this Prospectus, with the
consent of the Representative, on not
less than 30 days' notice at $.05 per
Warrant, provided the average closing
price of the Common Stock exceeds $7.20
per share for 20 consecutive trading days
ending within 15 days prior to the
notice.
Nasdaq SmallCap Market Symbols . . Common Stock --- CNLG;
Class A Warrants --- CNLGW
Risk Factors. . . . . . . . . . . . The securities are subject to a high degree of risk and
substantial dilution. See "Risk Factors" and
"Dilution."
Use of Proceeds. . . . . . . . . . . The net proceeds of this Offering, estimated at
$2,750,000, will be used to repay certain bridge
financing, to complete the design, development and
implementation of the PTR-1500 quad system and its
related option modules, repayment of other
indebtedness and for working capital purposes. See
"Use of Proceeds."
Representative's Compensation. . . . IAR Securities Corp. (the "Representative") will receive
as compensation for its services in this Offering a ten
percent (10%) discount on the purchase price of the
Units, a three percent (3%) non-accountable expense
allowance and an option to purchase Units equal to
ten percent (10%) of the Units sold in this Offering.
As part of the underwriting arrangements, the
Company will enter into an agreement retaining the
Representative as a financial consultant to the
Company for a two (2) year period commencing as of
the close of the sale of the Units offered hereby at an
annual fee of $35,000, for a total of $70,000 payable
in full at the Closing of the Offering, and will pay an
investment banking fee with respect to any transaction
introduced by the Representative and consummated
and a 4% warrant solicitation fee. See "Underwriting."
</TABLE>
10
<PAGE>
Summary Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the more detailed financial statements and
notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales and other income $ 1,123,390 $ 1,924,466 $ 2,090,933 $ 2,044,860 $ 1,486,298
Net loss before extraordinary items $ (672,080) (446,824) (522,044) (1,182,988) (322,005)
Extraordinary item (1) -- 740,376 -- -- --
Income (loss) from continuing operations (672,080) 293,552 (522,044) (1,182,988) (322,005)
Net income (loss) (672,080) 293,552 (522,044) (1,182,988) (322,005)
Income (loss) from continuing operations per
share - primary (.42) .28 (12.01) (27.22) (7.41)
Net income (loss) per share - primary (.42) .28 (12.01) (27.22) (7.41)
Net income (loss) per share - fully diluted (.42) .20 (12.01) (27.22) (7.41)
Total assets 4,339,752 3,927,834 3,882,235 3,739,294 4,601,015
Long-term debt and capitalized lease obligations 4,973 34,103 3,829,625 3,732,961
</TABLE>
(1) On August 16, 1995 the Company's bank debt was restructured resulting
in debt foregiveness of $1,232,728. This created a deferred tax asset
at July 31, 1995 of $492,352. When the debt foregiveness occurred, the
Company wrote off its deferred tax asset against the forgiveness of
debt, resulting in extraordinary income of $740,376.
11
<PAGE>
AT JULY 31, 1997
-----------------------------------------------------
ACTUAL ADJUSTMENT AS ADJUSTED
------------- --------------- -------------
Working Capital $ 2,456,122 $ 2,750,000(1) $ 5,206,122
Total Assets 4,339,752 2,750,000(1) 7,089,752
Long-Term Liabilities -0- -0- -0-
Stockholders' Equity 2,851,396 2,750,000(1) 5,601,396
(1) Reflects 700,000 shares of Common Stock included in the Units being
offered herewith; net proceeds to the Company are estimated to be
$2,750,000 as follows:
Gross proceeds from offering $ 3,500,000
Discounts, commissions 350,000
Estimated offering expenses 225,000
Consulting agreement 70,000
Non-accountable expenses (Underwriter) 105,000
---------------
Net additions to cash $ 2,750,000
===============
12
<PAGE>
RISK FACTORS
In making comparisons with other investments or in considering the
success of other investments, one should bear in mind that the success of any
investment depends upon many factors including opportunity, general economic
conditions, experience and competence of management. There is no representation
that the same positive factors are present in this Company which have been
present in like ventures that have been successful.
Any person who is considering the purchase of the Securities offered
herein should carefully consider the adverse factors described below. Any one or
more of these factors could have a negative effect on the Company of such impact
as to cause the value of the Company's securities to be greatly diminished.
1. Working Capital; Stockholders' Equity; Prior Periods' Losses and Profits. At
July 31 1997, the Company had working capital of $2,456,122 and stockholders'
equity of $2,851,396. The Company's continued existence is dependent upon it
successfully expanding its business and attaining profitable operations. The
Company reported losses of $672,080, income of $293,552 and losses of $522,044
for the years ended July 31, 1997, 1996 and 1995, respectively. The profit in
1996 was only due to the debt extinguishment of $1,232,728, which after the
deferred tax asset of $492,352 resulted in extraordinary income of $740,376. The
profits (losses) reported included inventory write-offs of $28,101, $50,281 and
$656,248 for the same periods, respectively. In addition, reported interest
expense for the same periods were $81,025, $131,854 and $253,686, respectively.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
2. Working Capital; Cash Flow; Backlog. At July 31, 1997, the Company had
working capital of $2,456,122. For the period ended July 31, 1997 cash flow used
in operations amounted to $654,214. The Company has no material cash commitments
for the current period other than consistent with supporting existing orders,
new orders and contracts. Funds to support said commitments will be provided for
from cash on hand, new receivables and, if necessary, borrowings. As of July 31,
1997 the Company had a backlog of $2,900,000. Of such backlog, $2,800,000 relate
to the Company's PTR-1000 series of products which are subject to the terms of
the blanket-contracts with certain of its largest customers. See "Risk
Factors-Dependence on Large Customers" and "Business-Largest Customers." The
terms of such contracts are not binding and only represent potential purchases,
whereby the Company sets certain prices for its products for the duration of the
contract.
3. Risks Attendant to Expansion. The Company intends to utilize a portion of the
net proceeds of this Offering to hire employees, complete the PTR-1500 designing
and testing of mainframe, design, build and test of the option modules and event
recorders, complete the radio interface for the Company's tone and multiplex
products and market the Company's products. The Company anticipates using
approximately $600,000 to complete this task and have marketable products by
March 1998. Like any business enterprise operating in a specialized and
competitive
13
<PAGE>
market, the Company is subject to many business risks which include, but are not
limited to, unforeseen marketing and promotional expenses, unforeseen negative
publicity and competition. Many of the risks inherent in the Company's business
may be unforeseeable or beyond the control of management. There can be no
assurance that the Company will successfully market the Company's products or
develop new products in a timely or effective manner, which would materially
adversely affect the Company's operating results. See "Use of Proceeds" and
"Business".
4. Potential Need for Additional Financing. The Company believes that the funds
to be raised in this offering, together with the projected revenues of the
Company, will be sufficient to enable the Company to pursue both its present and
its proposed business activities for the ensuing twelve months. There can be no
assurance that such funds will, in fact, be sufficient or that conditions and
circumstances described herein may not result in subsequent cash requirements by
the Company. In the event of such developments, attaining additional financing
under such conditions may not be possible, or even if additional capital may be
otherwise available, the terms on which such capital may be available may not be
commercially feasible or advantageous. See "Use of Proceeds".
5. Governmental Regulation. The Company's manufacturing facilities, in common
with those of the industry generally, are subject to numerous existing and
proposed Federal and state regulations designed to protect the environment,
establish occupational safety and health standards and many other matters. The
Company believes that its operations are in compliance with existing regulations
and does not believe that said compliance has had or will have any material
effect upon its capital expenditures, earnings or competitive position. See
"Business-Governmental Regulation."
6. Management's Broad Discretion in Application of Proceeds. Approximately
$1,077,565, or 39.18%, of the estimated $2,750,000 of the net proceeds will be
applied to working capital and general corporate purposes. Accordingly, the
Company will have broad discretion as to the application of such proceeds
without prior shareholder approval. In addition, the management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of this offering, including funds received upon exercise of outstanding
warrants, in order to address changed circumstances and opportunities. As a
result of the foregoing, the success of the Company will be substantially
dependent upon the discretion and judgment of the management of the Company with
respect to the application and allocation of the net proceeds hereof. See "Use
of Proceeds."
7. Minimal Sales Staff. The Company employs only 2 marketing executives. In
1995, the Company elected a Vice President of Marketing and Sales who introduced
a comprehensive advertising campaign for the major product lines in water/waste
water and utility publications appearing monthly. In addition, the Company has
signed up to attend the major shows pertaining to water, waster water and power
utilities. Although the response to these efforts have shown promise, the
success of the Company's future marketing efforts will depend on the market
environment and the needs of the economy. See "Business of the Company --
Marketing and Sales" and "Employees".
14
<PAGE>
8. Reliance on Component Manufacturers. The Company is dependent on outside
suppliers for all of the subcomponent parts and raw materials necessary to
manufacture the Company's products. A shortage, delay in delivery, or lack of
availability of a given part could lead to manufacturing delays, which could
reduce sales until the problem is remedied. All electrical components of the
Company's products are standard stock items for which a replacement vendor can
be readily obtained. The Company is not dependent upon any single supplier. The
Company purchases some custom parts, primarily printed circuit boards. The
failure of a vendor of one of these customized components could cause a lengthy
delay in production, resulting in a loss of revenues. See "Business-Raw
Materials; Inventory" and "Manufacturing".
9. Dependence on Present Management. The success of the Company is dependent
upon the services of its current management, particularly Robert S. Benou, its
President and its key engineers. The Company has entered into an employment
agreement with Mr. Benou. However, if the employment by the Company of Mr. Benou
terminates, or he is unable to perform his duties, the Company may be
substantially affected. The Company intends on obtaining prior to the offering,
key man insurance on the life of Mr. Benou in the amount of $1,000,000, to be
payable to the Company. If the Company were to lose the services of any of its
other key employees, there is no assurance that the Company would be able to
locate and retain a qualified replacement. The prolonged lack of availability of
any current member of senior management, whether as a result of death,
disability or otherwise, could have an adverse effect upon the business of the
Company. See "Management".
10. Competition: Rapid Technological Change. The market for the Company's
products is very competitive. There are several companies engaged in the
manufacture of products of the type produced by the Company, most of which are
substantially larger and have substantially greater name recognition and greater
financial resources and personnel. The principal elements of competition in the
Company's markets include product quality and reliability, price, service and
delivery. Competition is expected to continue and intensify. The market is also
characterized by rapid technological changes and advances. The Company is an
insignificant factor in the industry. There can be no assurance that the Company
will be able to develop or acquire new products to keep the Company competitive
or stay competitive in general. Lack of market acceptance for the Company's
existing or new products, the Company's failure to introduce new products in a
timely or cost effective manner or its failure to increase functionability of
existing products or remain price competitive, would materially adversely affect
the Company's operating results. There can be no assurance that the Company will
be successful in its product development efforts. See "Business-Research and
Development; New Products" and "Competition".
11. Dependence on Large Customers. Sales to the Company's two major customers
during fiscal 1997 (General Electric and Bonneville Power Administration)
totaled $255,500 and $200,000, respectively (22% and 18%, respectively of all
sales). Sales to the Company's major customer in fiscal 1996 (B.C. Hydro-Canada)
totaled $401,000 (20% of all sales). Sales to the Company's major customer in
fiscal 1995 (United States Government) totaled $424,849 (20% of net sales).
During fiscal 1994, sales to the Company's major customer (Westinghouse Electric
Corp. - Naval
15
<PAGE>
Systems Division) totaled $597,000 (29% of net sales). The Company has three (3)
ongoing contracts, in addition to existing open orders. These may continue to
produce revenue past the date of this prospectus, namely from the General
Electric Company and Bonneville Power Administration. However, these contracts
are blanket contracts, are not binding and only represent potential purchases,
whereby the Company sets certain prices for its products for the duration of the
contract. Thus, investors in this offering are advised that there are no
guaranteed future purchases under such contracts. The loss of General Electric
and Bonneville Power Administration would have a material adverse effect upon
the Company. None of such customers has or had any material relationship other
than business with the Company. See "Business-Large Customers".
The dependence on major customers subjects the Company to significant
financial risks in the operation of its business should a major customer
terminate, for any reason, its business relationship with the Company. In such
event the financial condition of the Company may be adversely affected and the
Company may be required to obtain additional financing, of which there can be no
assurance. The Company has taken into account the decreasing military budget of
the United States. See "Business-History." Currently less than 50% of the
Company's revenues are derived from the military and are expected to diminish as
a percentage of sales.
12. Defense Industry Downsizing - Historical Dependence on Government Contracts.
Recent world events have resulted in a decreased demand for defense related
products causing a general downsizing of the American defense industry. These
factors, along with federal budget constraints, have caused the Company to
realize order cancellations in the amount of $650,000 since 1990 and for another
$600,000 placed on a production hold pending specific releases. The Company's
ability to continue to attract and retain orders from defense contractors, which
as a group accounted for $150,000 in fiscal 1997 or 13% of the Company's total
revenue of $1,123,390, has been affected. The Government shutdown during the
last half of 1995 and early 1996 seriously aggravated an already deteriorating
situation impairing overall sales level growth. While the Company has changed
its strategy for growth by a conversion to primarily commercial business, there
can be no assurance that it will be completely successful in this objective.
13. Lack of Price Stability. The Company's sales to defense-related contractors
and manufacturers have historically occurred in a relatively stable price
environment. Pressure in defense spending may adversely affect prices and profit
margins in that market. While the Company believes that its planned expansion in
the commercial market will help it to better manage such a change in the defense
market, there can be no assurance that it will be completely successful in this
objective.
14. Dilution. Investors in this Offering will suffer immediate substantial
dilution of their investments, to the extent that the net tangible book value
per share of Common Stock upon completion of this Offering will be $1.55,
representing a dilution of $3.45 per share (69%) from the $5.00 offering price
of the Units (attributing no value to the Warrants contained therein). See
"Dilution."
16
<PAGE>
15. Determination of Offering Price. The public offering price of the Units and
the exercise price of the Class A Warrants do not bear any relationship to the
assets, book value or net worth of the Company or any other recognized criteria
of value. Neither the offering price of the Units nor the exercise price of the
Class A Warrants should be regarded as an indication of the present or future
value of the Company. See "Underwriting".
16. Redemption of Redeemable Warrants. The Class A Warrants are subject to
redemption by the Company commencing the earlier of (i) 24 months from the date
of this Prospectus or (ii) 12 months from the date of this Prospectus, with the
consent of the Representative, at a price of $.05 per Warrant if the closing bid
price for the Common Stock equals or exceeds $7.20 per share for any 20 trading
days ending no earlier than the fifteenth trading day prior to the date of the
notice of redemption. In the event that the Warrants are called for redemption
by the Company, Warrantholders will have thirty (30) days during which they may
exercise their rights to purchase shares of Common Stock. If holders of the
Warrants elect not to exercise them upon notice of redemption thereof, and the
Warrants are subsequently redeemed prior to exercise, the holders thereof would
lose the benefit of the difference between the market price of the underlying
Common Stock as of such date and the exercise price of such Warrants, as well as
any possible future price appreciation in the Common Stock. As a result of an
exercise of the Warrants, existing Stockholders may be diluted and the market
price of the Common Stock may be adversely affected. If a Warrantholder fails to
exercise his rights under the Warrants prior to the date set for redemption,
then the Warrantholder will be entitled to receive only the redemption price of
$.05 per Warrant. Redemption of the Warrants could force the holders to exercise
the Warrants at a time when it may be disadvantageous to do so or sell the
Warrants at the then market value of the Warrants at the time of redemption. If
a current prospectus is not in effect, it is unlikely that the Company would
call the warrants for redemption. See "Risk Factors -- Current Prospectus and
State Blue Sky Registration Required to Exercise Class A Warrants" and
"Description of Securities -- Class A Warrants".
17. Current Prospectus and State Blue Sky Registration Required to Exercise
Class A Warrants. Purchasers of Class A Warrants will have the right to exercise
the Class A Warrants only if a current prospectus relating to the shares
underlying the Class A Warrants is then in effect and only if such shares are
qualified for sale under applicable state securities laws of the states in which
the various holders of the Class A Warrants reside. There is no assurance that
the Company will be able to keep this Prospectus covering such shares current.
Moreover, the Company may decide not to seek or may not be able to obtain
qualification of the issuance of its Common Stock in all of the states in which
the ultimate purchasers of Class A Warrants may reside. The Class A Warrants may
be deprived of any value if a current prospectus covering the shares issuable
upon exercise thereof is not kept effective or if such shares are not registered
in the states in which holders of the Class A Warrants reside. See "Description
of Securities -- Class A Warrants".
18. Restrictions on Marketmaking Activities During Warrant Solicitation. To the
extent that the Representative solicits the exercise of Class A Warrants, the
Representative may be prohibited pursuant to the requirements of Regulation M
under the Exchange Act from engaging in marketmaking activities during such
solicitation and for a period of up to five days preceding such
17
<PAGE>
solicitation. As a result, the Representative may be unable to continue to
provide a market for the Company's securities during certain periods while the
Class A Warrants are exercisable. The Representative is not obligated to act as
a marketmaker. See "Underwriting".
19. Nasdaq Listing and Continued Listing Requirements. The Company's Common
Stock and Class A Warrants are currently listed on the Nasdaq SmallCap Market,
Inc. ("Nasdaq"). For continued listing on Nasdaq, a company, among other things,
must have $2,000,000 in net tangible assets, 500,000 shares in the public float,
$1,000,000 in market value of public float and a minimum bid price of $1.00 per
share. If the Company is unable to satisfy the requirements for continued
quotation on Nasdaq, trading, if any, in the Common Stock and Warrants offered
hereby would be conducted in the over-the-counter market in what are commonly
referred to as the "pink sheets" or on the NASD OTC Electronic Bulletin Board.
As a result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the securities offered hereby. The
above-described rules may materially adversely affect the liquidity of the
market for the Company's securities.
20. "Penny Stock" Regulations; Risk of Low-Priced Securities. The Securities and
Exchange Commission (the "Commission") has adopted regulations which generally
define "penny stock" to be an equity security that has a market price (as
defined in the regulations) of less than $5.00 per share, subject to certain
exceptions. On the Effective Date, the Securities will initially be exempt from
the definition of "penny stock". If, however, the Securities offered hereby are
removed from Nasdaq, the Company's Securities may be subject to rules of the
Commission that impose additional sales practice requirements on broker-dealers
effecting transactions in penny stocks. In most instances, unless the purchaser
is either (i) an institutional accredited investor, (ii) the issuer, (iii) a
director, officer, general partner or beneficial owner of more than 5% of any
class of equity security of the issuer of the penny stock that is the subject of
the transaction, or (iv) an established customer of the broker-dealer, the
broker-dealer must make a special suitability determination for the purchaser of
such securities and have received the purchaser's prior written consent to the
transaction. Additionally, for any transaction involving a penny stock, the
rules of the Commission require, among other things, the delivery, prior to the
transaction, of a disclosure schedule prepared by the Commission relating to the
penny stock market and the risks associated therewith. The broker-dealer also
must disclose the commissions payable to both the broker-dealer and its
registered representative and current quotations for the securities. Finally,
among other requirements, monthly statements must be sent to the purchaser of
the penny stock disclosing recent price information for the penny stock held in
the purchaser's account and information on the limited market in penny stocks.
Consequently, the penny stock rules may restrict the ability of broker-dealers
to sell the Common Stock or Class A Warrants and may affect the ability of
purchasers in this Offering to sell the Common Stock in the secondary market.
21. Restricted Shares of Common Stock Eligible for Future Sale. Immediately
prior to the sale of the Shares hereunder, the Company had an aggregate
2,815,738 shares of its Common Stock issued and outstanding, 315,356 of which
are "restricted securities," which may be sold only in compliance with Rule 144
under the Securities Act of 1933, as amended. Rule 144 provides, in
18
<PAGE>
essence, that a person holding restricted securities for a period of one year
after payment therefor may sell, in brokers' transactions or to market makers,
an amount not exceeding 1% of the outstanding class of securities being sold, or
the average weekly reported volume of trading of the class of securities being
sold over a four-week period, whichever is greater, during any three-month
period. (Persons who are not affiliates of the Company and who have held their
restricted securities for at least two years are not subject to the volume or
transaction limitations.) Any such sales could have a material adverse effect on
the market price for the Common Stock, should a trading market develop. All of
the Company's officers and directors have agreed not to sell or transfer any
shares of Common Stock prior to __________, 1999 (eighteen (18) months from the
date of this Prospectus), without the prior written consent of the
Representative. See "Underwriting."
22. Representative's Unit Purchase Option. In connection with this Offering, the
Company will sell to the Representative, for nominal consideration, a warrant to
purchase an aggregate of 70,000 Units each Unit consisting of one (1) share of
the Company's Common Stock and four (4) Class A Warrants (the "Representative's
Unit Purchase Option"). The Representative's Unit Purchase Option will be
exercisable commencing one year after the Effective Date and ending four years
after such date, at a price of $6.00 per unit, subject to certain adjustments.
The holders of the Representative's Unit Purchase Option will have the
opportunity to profit from a rise in the market price of the Company's
securities, without assuming the risk of ownership. The Company may find it more
difficult to raise additional capital if it should be needed for the business of
the Company while the Representative's Unit Purchase Option is outstanding. At
any time when the holders thereof might be expected to exercise them, the
Company would probably be able to obtain additional capital on terms more
favorable than those provided by the Representative's Unit Purchase Option. See
"Underwriting."
23. Dependence on Qualified Personnel. Because of the technological nature of
the Company's business, the Company is dependent upon its ability to attract and
retain technologically qualified personnel. There is significant competition for
technologically qualified personnel and the Company may not be successful in
recruiting such qualified personnel. See "Management."
24. Additional Authorized Shares Available for Issuance May Adversely Affect the
Market. The Company is authorized to issue 20,000,000 shares of its Common
Stock, $1.00 par value. After the sale of the Units offered hereby, there will
be a total of 3,515,738 shares of Common Stock issued and outstanding (not
including treasury stock, See "Financial Statements"). However, the total number
of shares of Common Stock issued and outstanding does not include the exercise
of up to 1,135,750 Class A Warrants to purchase up to 1,135,750 shares of the
Company's Common Stock issued in 1995, the 1995 Unit Purchase Option to purchase
up to 41,000 shares of Common Stock and 20,500 Class A Warrants to purchase
20,500 shares of Common Stock, the exercise of up to 2,800,000 Class A Warrants
included in the Units offered to investors in this Offering to purchase
2,800,000 shares of Common Stock, the Representative's option to purchase up to
70,000 shares of Common Stock and 280,000 Class A Warrants to purchase 280,000
shares of Common Stock, the Representative's Over-Allotment Option of 105,000
Units consisting of 105,000 shares of Common Stock and 420,000 Class A Warrants
to purchase 420,000 shares of Common Stock and the
19
<PAGE>
1,200,000 shares of Common Stock issuable upon exercise of the 1,200,000 Class A
Warrants being offered by the Selling Securityholders (assuming the Selling
Securityholders exercise their right to convert the Convertible Bridge Notes
(see "Bridge Financing"). After reserving a total of 6,072,250 shares of Common
Stock for issuance upon the exercise of all the warrants to purchase Common
Stock, the Company will have at least 10,428,014 shares of authorized but
unissued capital stock available for issuance without further shareholder
approval (of which 155,239 has been reserved for conversion of all of the
Company's Series A and Series B Preferred Stock outstanding). In addition, the
Company is authorized to issue 2,000,000 shares of Preferred Stock (of which
156,197 is outstanding prior to this Offering). See "Description of Securities."
Pursuant to the terms of the Underwriting Agreement, the Company's officers,
directors, and principal stockholders have agreed not to sell any of their
shares of capital stock for a period of eighteen (18) months following the date
of this Prospectus without the prior written consent of the Representative.
Also, the Company has agreed not to issue any additional securities for a period
of twenty-four (24) months following the date of this Prospectus without the
prior written consent of the Representative other than in certain circumstances
(see "Underwriting"). The sale of a significant number of these shares in the
public market may adversely affect prevailing market prices of the Company's
securities following this offering. See "Underwriting."
25. No Common Stock Dividends. The Company has not paid any dividends on its
Common Stock and does not anticipate paying dividends on its Common Stock in the
foreseeable future. The future payment of dividends is directly dependent upon
future earnings of the Company, its financial requirements and other factors to
be determined by the Company's Board of Directors. For the foreseeable future,
it is anticipated that any earnings which may be generated from the Company's
operations will be used to finance the growth of the Company even if the
Company's operations are profitable. See "Dividends".
26. Lack of Patent Protection or Proprietary Rights. Other than as set forth
below, the Company currently does not have any patent or trademark applications
pending. However, the Company may file patent or trademark applications relating
to certain of the Company's products. If patents or trademarks were to issue,
there can be no assurance as to the extent of the protection that will be
granted to the Company as a result of having such patents or trademarks or that
the Company will be able to afford the expenses of any complex litigation which
may be necessary to enforce their proprietary rights. Except as may be required
by the filing of patent or trademark applications, the Company will attempt to
keep all other proprietary information secret and to take such actions as may be
necessary to insure the results of its development activities are not disclosed
and are protected under the common law concerning trade secrets. Such steps will
include the execution of nondisclosure agreements by key Company personnel and
may also include the imposition of restrictive agreements on purchasers of the
Company's products and services. There is no assurance that the execution of
such agreements will be effective to protect the Company, that the Company will
be able to enforce the provisions of such nondisclosure agreements or that
technology and other information acquired by the Company pursuant to its
development activities will be deemed to constitute trade secrets by any court
of competent jurisdiction.
20
<PAGE>
The Company uses the trademark INIVEN for its commercial products. The
Company believes that its prospects are dependent primarily upon its ability to
offer its customers high quality, reliable products at competitive prices rather
than on its ability to obtain and defend patents and trademarks. The Company
does not believe that its INIVEN trademark is of material importance to the
Company's business. See Business-Patents and Trademarks."
21
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Units being offered hereby, after the deduction of the underwriting discounts
and the expenses of this offering, are estimated at $2,750,000 ($3,206,750 if
the Representative's Over-Allotment Option is exercised). The Company will not
receive any proceeds from the sale of securities by the Selling Securityholders.
The Company intends to allocate the net proceeds of this offering in
the approximate amounts set forth below:
Approximate Percentage
Approximate Amount of Net Proceeds
------------------ ----------------------
Repayment of Bridge Debt(1) $156,200 5.68%
Design, Research and Development(2) $600,000 21.82%
Repayment of Other Debt(3) $916,235 33.32%
Working Capital(4) $1,077,565 39.18%
---------- ------
Total $2,750,000 100%
- --------
(1) Represents payment of bridge financing consisting of promissory notes
bearing interest at 8% per annum which are payable on the earlier of
(a) December 31, 1997 or (b) the date on which this Offering closes.
The Company used the proceeds of the bridge financing to pay certain
expenses in connection with this offering and for working capital
purposes. See "Bridge Financing", and "Selling Securityholders". This
amount assumes the conversion of the Convertible Bridge Notes. See
"Bridge Financing." This amount includes approximately $6,200 in
accrued interest on the Bridge Notes.
(2) Represents funds used to complete the design, development and
implementation of the PTR-1500 quad system and its related option
modules.
(3) Represents payment of debt obligation due to CNL Holdings, Inc. bearing
interest at the rate of 4% per annum. $ 916,235 was loaned to the
Company between March and June 1997, which are repayable upon the
earlier of (i) the closing of this offering or (ii) one year from the
date of each of such loans. The Company used the proceeds of such loans
for the design and development of the PTR-1500 and for working capital
purposes.
(4) Working Capital will be used for general corporate purposes such as
salaries and purchase of inventory, marketing expansion, research and
product development. Assumes conversion of the Convertible Bridge
Notes. See "Bridge Financing."
22
<PAGE>
Any additional proceeds received from the purchase of additional Units
by the Underwriters to cover over-allotments or from the exercise of the Class A
Warrants will be added to the Company's working capital.
Pending use as set forth above, the Company will invest the net
proceeds of the offering in short-term interest bearing investment grade
securities.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
July 31, 1997 as adjusted to give effect to the shares of Common Stock offered
in this Registration. This table should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Registration
Statement.
<TABLE>
<CAPTION>
AT JULY 31, 1997
-------------------------------------------
ACTUAL ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.50; Series A;
4% cumulative; 162,000 shares authorized,
155,000 shares issued and outstanding $ 77,500 $ -- $ 77,500
Preferred Stock, par value $.50; Series B;
$.90 cumulative; 50,000 shares authorized;
1,197 shares issued and outstanding 597 -- 597
Preferred Stock, par value $5.00, 2,000,000
shares authorized after offering
(-0- shares before offering)
Common Stock, par value $1.00 authorized
20,000,000 shares; issued 2,803,473 shares including
8,776 shares held in Treasury before offering; after
offering 3,503,473(1) 2,803,473(1) 700,000 3,503,473
Additional paid in capital 3,782,513(1) 2,050,000 5,832,513
Retained earnings (deficit) (3,680,953) -- (3,680,953)
Treasury stock (131,734) -- (131,734)
----------- -----------
TOTAL STOCKHOLDERS'
EQUITY 2,851,396 -- 5,601,396
----------- -----------
TOTAL CAPITALIZATION $ 2,851,396 -- $ 5,601,396
=========== ===========
</TABLE>
(1) Reflects 700,000 shares of Common Stock included in the Units being
offered herewith; net proceeds to the Company are estimated at
$2,750,000 after giving effect to Underwriters discounts and expenses
of the Offering.
24
<PAGE>
Bridge Financing
In December 1996 and January 1997, the Company obtained bridge
financing from six (6) lenders in the amount of $200,000. These lenders are the
individuals identified in this Prospectus as "Selling Securityholders." In
exchange for making the loans to the Company, each Selling Securityholder
received two (2) promissory notes (the "Bridge Notes"). Certain Bridge Notes are
in the aggregate principal amount of $150,000 (the "Principal Bridge Notes") and
the other Bridge Notes are in the aggregate principal amount of $50,000 (the
"Convertible Bridge Notes"). Each of the Bridge Notes bears interest at the rate
of eight percent (8%) per annum. The Bridge Notes are due and payable upon the
earlier of (i) January 31, 1999 or (ii) the date on which this offering closes.
The Company intends to use a portion of the net proceeds of the offering to
repay the Bridge Notes. See "Use of Proceeds." The Convertible Bridge Notes are
convertible into a total of 1,200,000 Class A Warrants. The proceeds of the
bridge financing were used by the Company to pay certain expenses in connection
with this offering and to increase working capital. Each Class A Warrant
contained in the Convertible Bridge Notes is identical to the Class A Warrants
offered hereby.
The registration statement, of which this Prospectus is a part, also
covers the resale of the Class A Warrants that may be acquired by the Selling
Securityholders in the bridge financing, as well as the Common Stock issuable
upon exercise of the Class A Warrants by the Selling Securityholders or their
transferees.
The Company's agreement with the Selling Securityholders provided that
the Company would include in its registration statement a prospectus covering
the Class A Warrants owned by the Selling Securityholders and the underlying
Common Stock. See "Selling Securityholders."
DIVIDENDS
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors of the Company. To date, the Company has
neither declared nor paid any dividends on its Common Stock nor does the Company
anticipate that such dividends will be paid in the foreseeable future. Rather,
the Company intends to apply any earnings to the expansion and development of
its business. Any payment of cash dividends on the Common Stock in the future
will be dependent upon the Company's earnings, financial condition, capital
requirements and other factors which the Board of Directors deems relevant. See
"Risk Factors- No Common Stock Dividends" and "Description of Securities."
25
<PAGE>
DILUTION
Prior to this offering, there were 2,815,738 shares of the Company's
Common Stock outstanding. As of July 31, 1997, the net tangible book value of
the Company was $2,693,498. The net tangible book value per share of the
Company, immediately prior to this offering is, therefore, $.95. Net tangible
book value per share represents the amount of the Company's tangible assets
(total assets less total liabilities and intangible assets) divided by the
number of shares of Common Stock outstanding.
After giving effect to the sale of the Units (attributing no value to
the Warrants contained therein) offered hereby and after receipt of the
estimated net proceeds therefrom, without giving any effect to the exercise of
the Representative's Over-Allotment Option, and assuming the conversion of
$50,000 in Convertible Bridge Notes (See "Bridge Financing"), the pro forma net
tangible book value of the Company would be $1.55 per share. Investors in this
Offering, therefore, will sustain an immediate dilution to the extent of $3.45
per share of Common Stock purchased. Dilution represents the difference between
the offering price of the shares and the net tangible book value per share
immediately after completion of the offering. The following table illustrates
this dilution:
Offering price per share...................................... $ 5.00
Net tangible book value per share before Offering............. $ .95
Increase per share attributable to the Offering............... $ .60
Net tangible book value per share after Offering.............. $ 1.55
Dilution per share to new investors........................... $ 3.45
The following table sets forth the percentage of equity to be purchased
by investors in this Offering compared to the percentage of equity to be owned
by the current shareholders, and the comparative amounts paid for the shares of
Common Stock by the investors in this Offering as compared to the total
consideration paid by the present stockholders. The table assumes the conversion
of $50,000 in Convertible Bridge Notes. This does not take into effect the
exercise of Class A Warrants or the Representative's over-allotment option.
Percentage of
Shares Percentage of Total Total
Purchased Total Shares Consideration Consideration
--------- ------------ ------------- -------------
New Investors 700,000 20% $ 3,500,000 34.7%
Present Stockholders 2,815,738 80% $ 6,585,986 65.3%
--------- ---- ------------ -----
Total 3,515,738 100% $ 10,085,986 100%
26
<PAGE>
Selected Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the more detailed financial statements and
notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales and other income $ 1,123,390 $ 1,924,466 $ 2,090,933 $ 2,044,860 $ 1,486,298
Net loss before extraordinary items $ (672,080) (446,824) (522,044) (1,182,988) (322,005)
Extraordinary item (1) -- 740,376 -- -- --
Income (loss) from continuing operations (672,080) 293,552 (522,044) (1,182,988) (322,005)
Net income (loss) (672,080) 293,552 (522,044) (1,182,988) (322,005)
Income (loss) from continuing operations per
share - primary (.42) .28 (12.01) (27.22) (7.41)
Net income (loss) per share - primary (.42) .28 (12.01) (27.22) (7.41)
Net income (loss) per share - fully diluted (.42) .20 (12.01) (27.22) (7.41)
Total assets 4,339,752 3,927,834 3,882,235 3,739,294 4,601,015
Long-term debt and capitalized lease obligations 4,973 34,103 3,829,625 3,732,961
</TABLE>
(1) On August 16, 1995 the Company's bank debt was restructured resulting
in debt foregiveness of $1,232,728. This created a deferred tax asset
at July 31, 1995 of $492,352. When the debt foregiveness occurred, the
Company wrote off its deferred tax asset against the forgiveness of
debt, resulting in extraordinary income of $740,376.
27
<PAGE>
AT JULY 31, 1997
----------------------------------------
ACTUAL ADJUSTMENT AS ADJUSTED
---------- ------------ -----------
Working Capital $2,456,122 $2,750,000(1) $5,206,122
Total Assets 4,339,752 2,750,000(1) 7,089,752
Long-Term Liabilities -0- -0- -0-
Stockholders' Equity 2,851,396 2,750,000(1) 5,601,396
(1) Reflects 700,000 shares of Common Stock included in the Units being
offered herewith; net proceeds to the Company are estimated to be
$2,750,000 as follows:
Gross proceeds from offering $ 3,500,000
Discounts, commissions 350,000
Estimated offering expenses 225,000
Consulting agreement 70,000
Non-accountable expenses (Underwriter) 105,000
---------------
Net additions to cash $ 2,750,000
===============
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
In order to summarize the Company's operating results for the past
three years, the following tables indicate the percentage relationships of
income and expense items in the statements of income and the percentage changes
in those items for such years.
<TABLE>
<CAPTION>
Income & Expense Items as a
Percentage of Revenue from
Operations For the Income & Expense Percentage
Years Ended July 31, Items Increase/Decrease
- ---------------------------- --------------------------------- ----------------------------
1996 1995 1994
to to to
1997 1996 1995 1997 1996 1995
- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
100.00% 100.00% 100.00% Sales & other income (41.63)% (8.00)% 2.2%
- ------ ------ ------
84.16 67.20* 92.20* Cost of products sold (27.92) (32.90) (4.20)
67.55 49.20 44.20 Selling, general & administrative (19.86) 2.40 8.40
7.21 6.80 12.10 Interest (38.55) (48.00) (30.0)
- ------ ------ ------ ------ ------
158.92 123.20 (148.50) Total costs & expenses (24.70) (23.60) (3.80)
- ------ ------ ------ ------ ------
(52.92) (23.20) (48.50) Income (loss) before taxes 48.22 (56.00) (14.30)
.90 -- (23.50) Income taxes (credits) 494.20 (100.00)
- ------ ------ ------ ------ ------
(59.82) (23.20)% (25.0)% Income (loss) before extraordinary 50.41% (14.40)% (14.30)%
item
</TABLE>
- ----------
* Includes write-offs for obsolete or excess inventories which were
$28,101, $50,281 and $656,248 for 1997, 1996 and 1995, respectively.
The inventory write-offs were military related and in management's
opinion these items will not be reordered in the foreseeable future.
The Company believes that material adjustments will not recur in future
periods.
29
<PAGE>
Year ended July 31, 1997 Compared to 1996.
A summary of income, costs and expenses for the year ended July 31,
1997 and corresponding period of the previous year follows:
For the Year ended July 31,
---------------------------
1997 1996
---- ----
Revenue 1,123,390 1,924,466
Costs and expenses 1,795,470 2,371,290
Net-Income (Loss) after
taxes, before extraordinary
item (672,080) (446,824)
Total revenue decreased $801,076 or 42% from $1,924,466 to $1,123,391
in 1997. This decrease was attributable to delays in the release of tone
protection orders from the Bonneville Power Administration and other customers.
The Company attributes these delays to the budget constraints for various
utilities and to the pending release of the new advanced tone protection device,
the PTR-1500. The Company essentially completed the prototypes during the first
fiscal quarter of 1998 and plans to ship prototypes to GE during November 1997
and sales to occur in the second quarter of fiscal 1998.
Gross Margins for the year totaled $177,910 and $632,185 respectively,
representing 15.8% and 32.9% of revenues. Gross margins for 1997 were lower than
1996 due to the low utilization of the factory in fiscal 1997 over 1996.
The Company was able to partially offset some of these losses by
shifting its internal resources to new product development. Prior to this
quarter the Company engaged outside contractors almost exclusively to complete
its product development. During the current quarter the Company used to a
greater extent its captive resources including design, engineering and
production. Historically, the Company has used part time, temporary factory
personnel and outside contractors to adjust its workforce for large changes in
production demands.
The backlog of orders for the Company's PTR-1000 series of products
consists of multi-year blanket - contracts at fixed prices for the duration of
the contracts. There is no obligation or penalty if the contracts expire prior
to additional orders being placed for the total value of the contracts. The
contracts do not provide for any guaranteed purchases, however, the Company has
received order releases against the blanket-order for the PTR-1000 from
Bonneville Power Authority and BC Hydro and anticipates additional releases from
existing customers for ongoing projects. The Company does not expect other
factors to contribute to a reduction in revenues in fiscal 1998. See "Risk
Factors Dependence on Large Customers" and "Business - Largest Customers."
30
<PAGE>
As of July 31, 1997, the Company's backlog of orders was approximately
$2,900,000 compared to $3,400,000 as of July 31, 1996.
Selling, General and Administrative expenses, which are a fixed costs
to the Company (not variable), decreased from $946,954 in 1996 to $758,880 in
1997 representing a decrease of 19.9%. This decrease is the result of cost
cutting initiatives in the form of manpower reductions and reduced expenditures
for sales and marketing expenses. These initiatives were taken by management
during the year to help offset the drop in sales during fiscal 1997.
Cost of sales decreased from $1,242,001 in 1996 to $917,379 in 1997,
representing a 26% decrease reflecting the reduction in material costs.
Interest expense totaled $81,026 for the year ended July 31, 1997
compared to $134,854 for the year ended July 31, 1996. This decrease was a
result of lower amounts of borrowings due to the paydown of the credit facility
during the year.
As a result of the foregoing, the Company reported a net loss of
$672,080 or $0.42 per share. This compares to a net income of $293,552 or $.28
per share for the same period last year.
1996 Compared to 1995
On August 16, 1995, the Company offered 235,750 Units (the "Units") at
a price of $10.00 per Unit. Each Unit consisted of two (2) shares of Common
Stock, par value $1.00 per share ("Common Stock"), and one (1) Redeemable Class
A Warrant for Common Stock ("Class A Warrant"). The Common Stock and Class A
Warrants were immediately detachable and separately tradeable. Each Class A
Warrant entitled the holder to purchase one share of the Company's Common Stock,
at an exercise price of $6.00, subject to adjustment, from August 17, 1996
through August 16, 1998. The Class A Warrants are subject to redemption by the
Company at anytime after August 17, 1996 on not less than 30 days notice at $.05
per warrant, provided the average closing price of the Common Stock for 20
consecutive trading days ending within 15 days prior to the notice exceeds $7.20
per share.
The costs of the offering were deducted from the proceeds from the sale
of stock.
On August 16, 1995, the Company effected a 1- for - 100 reverse stock
split of its Common Stock on all shares of Common Stock outstanding.
On August 16, 1995, holders of 19,360 shares of the Company's Series B
Preferred Stock (including Robert Benou and Arpad J. Havasy, officers and
directors of the Company) converted their shares of Series B Preferred Stock
into 387,200 (3,872 post-split) shares of Common Stock.
31
<PAGE>
On August 16, 1995, $381,533 of the $420,179 of accrued dividends on
the Series B Preferred Stock at December 31, 1994 were converted into 76,307
shares of Common Stock (represents a $5.00 per share assigned value of Common
Stock) and the remaining dividends due to such holders (including Messrs. Benou
and Havasy) were waived.
On August 16, 1995, accrued salaries through April 28, 1995 of $309,109
owed by the Company to Mr. Benou were converted into 61,822 shares of Common
Stock (represents a $5.00 per share assigned value of Common Stock).
On August 16, 1995, in connection with the August 1995 Offering, the
Bank exchanged their existing loan agreement (which as of such date had
outstanding debt of $4,382,728 which included accrued interest of $584,728) for
the following:
(a) $250,000 cash
(b) $1,025,000 five-year term loan
(c) 375,000 common shares of the Company (valued at $5.00 per
share)
The debt forgiveness of $1,232,728 on restructuring of the obligation
less the tax benefit thereon is accounted for as an extraordinary gain to the
Company.
Revenues for the year ended July 31, 1996 decreased to $1,924,416 from
$2,090,933 for the year ended July 31, 1995 representing a decrease of 8%.
Revenues declined as a result of a decline in sales in the military sector. The
Company completed a large sale of switches to the military in fiscal 1996 and
did not have a comparable sale for fiscal 1995.
Gross margins for the year totaled $632,1841 and $163,194,
respectively, representing 32.9% and 7.8% of revenues. Gross margins were higher
in 1996 due to the obsolete inventory write-off in 1995. Without the inventory
write-off the 1996 and 1995 gross margin would have been 35.5% and 39.3%
respectively. The gross margin for 1996 was lower than 1995 without the
inventory write-off due to the fact that the higher than normal discounts were
offered and taken on two major sales.
Selling, general and administrative expenses increased from $924,524 in
1995 to $946,954 in 1996, representing an increase of 2.4%. These expenses
increased as a result of an expansion of the employment base and an increase in
advertising and promotion costs.
Interest expense totaled $134,854 for the year ended July 31, 1996 as
compared to $253,686 in interest expense for the year ended July 31, 1995. The
Company reached a debt restructuring agreement with the Bank during 1995 that
resulted in having no interest expense for the quarter ended April 30, 1995.
As a result of the foregoing, the Company reported a net profit of
$293,552 or $.28 per share. The 1996 net profit was inclusive of a debt
compromise of $740,376 net of a tax benefit of $492,352. This compares to a net
loss of $522,044, or $.12 per share for the same period last year
32
<PAGE>
(after retroactive effect to a 1 for 100 reverse split on August 16, 1995 and
after extraordinary item in 1996).
Without the debt compromise and the related tax benefit in 1996 there
would have been a loss of $446,824 or $.43 per share.
As of July 31, 1996 Registrant's backlog of orders stands at
approximately $3.4 million, a mix of military and commercial telecommunication
products. The Company anticipates its commercial shipments to grow as a
percentage of total sales for the foreseeable future.
1995 Compared to 1994
Total revenue increased $46,000, or 2.2% from $2,045,000 in 1994 to
$2,091,000 in 1995. The increase was attributable to an expansion in the
commercial sector of the Company's business, which contributed $1,422,000 or 68%
of total revenues in 1995, compared to $1,300,000 or 64% of total revenues in
1994.
Costs of sales totaled $1,271,000 for the year ended July 31, 1995 as
compared to $1,068,000 for the comparable period ended July 31, 1994,
representing 60.8% and 52.2% of net revenues, respectively. Cost of sales
increased as a result of product mix during the comparable years.
A charge of $656,000 for inventory write-off was recorded during the
year. This amount was exclusively due to certain inventories purchased for
military programs in prior periods that were phased out. There was a comparable
charge of $945,000 in fiscal 1994.
The Company determined during the first quarter of 1995 that there was
not sufficient information from the Government's Defense-Electronic Supply
Center ("DESC") facility to permit the Company to make a quantitative
determination for future sales. Inventory which totaled $656,000 was written off
after management made an analysis of parts maintained for military and
government orders compared to available inventories. This amount consisted of
$318,000 for raw materials, $249,000 for work in progress and $89,000 for
finished goods. There were comparable charges of $945,000 in the twelve month
period ended April 30, 1994. This analysis consisted of a study of the
forecasted requisitions of upcoming orders of the DESC, Conolog's principle
defense customer. On examination of prospective sales, it was determined that
the government has no requirements for Conolog's military products for at least
the next twelve to eighteen months.
As a result of the foregoing, gross profit margins totaled $163,914 or
7.8% of sales for the fiscal year ended July 31, 1995 as compared to $32,330 or
1.6% of sales for the same twelve month period in 1994. Exclusive of inventory
adjustments, gross profit margins would have been 39% for the year ended July
31, 1995 and 48% for the year ended July 31, 1994.
Selling, General and Administrative Expense totaled $925,000 or 44.2%
of revenues, as compared to $853,000 or 41.7% of revenues for the comparable
period last year.
33
<PAGE>
As a result of the foregoing, an operating loss of $761,000 was
realized for the year ended July 31, 1995 as compared to an operating loss of
$821,000 for the same period last year.
Interest expense for the twelve months totaled $254,000 compared to
$362,000 for the fiscal year ended July 31, 1994. The bank had agreed to fix the
total interest owed as of January 31, 1995 and to keep the amount unchanged
through August 16, 1995. Accordingly, no interest expense was accrued from
February 1, 1995 through July 31, 1995.
As a result of the foregoing, the Company incurred a net loss of
$522,000 for the twelve months ended July 31, 1995, compared to a net loss of
$1,183,000 for the same period last year. The loss in 1995 was reduced by the
income tax benefit derived from previously incurred operating losses not
deducted. The losses, as a result of the Registration, will be deductible
against forgiveness of indebtedness income.
As of July 31, 1995 the Company's backlog totaled $1.3 million,
consisting of a mix of military and commercial telecommunication products,
compared to $1.5 million at July 31, 1994. The Company anticipates its
commercial shipments to continue to grow as a percentage of total sales in the
foreseeable future.
Financial Condition, Liquidity and Capital Resources
Financial Condition, Liquidity and Capital Resources at July 31, 1997
Working capital at July 31, 1997 was $2,456,122 compared to $1,914,981
at year ended July 31, 1996. The improvement in the working capital is the
result of a planned inventory increase of $236,012. This is primarily attributed
to the building of the PTR-1500 tone protection device. The Company will be
delivering to the General Electric Company prototype units during November 1997.
Production units are expected to be delivered during the second fiscal quarter
of fiscal 1998.
Accounts receivable have decreased from $304,020 at year-end July 31,
1996 to $109,571 at July 31, 1997. This decrease of $194,449 is the result of
lower average sales for fiscal 1997 versus 1996.
The Company received $200,000 in net proceeds from a bridge financing.
The bridge financing was evidenced by two promissory notes executed by each
investor that aggregated $150,000 ("Principal Bridge Notes") and $50,000
("Convertible Bridge Notes"), respectively. The Principal Bridge Notes are
payable on the earlier of December 31, 1997 or upon closing of the next public
offering. The Convertible Bridge Notes contain the same terms as with respect to
the Principal Bridge Notes, except that same is convertible into 1,200,000 Class
A Warrants. See "Bridge Financing." The funds received from the bridge financing
were used to reduce overdue payables and resume the product development of the
PTR-1500 Series Project.
34
<PAGE>
During the year ended July 31, 1997 the Company received $916,235 in
loans from CNL Holdings, Inc.
The Company is using significant amounts of cash in operations and
plans to meet its operating cash requirement for the next twelve (12) months, in
addition to existing cash balances and cash generated from operations, with
loans from officers, banks and loans secured in private transactions.
1996 Compared to 1995
Working capital at July 31, 1996 was $1,914,981 compared to a deficit
of $2,229,171 at year ended July 31, 1995. The improvement in the working
capital is the result of the August 1995 Offering, as described in more detail
under Results of Operations.
The Company was technically in default of its bank loan to the Bank due
to non-payment of principal and interest since January 1996. However, the Bank
agreed to defer any payments at this time since they signed an allonge agreement
with the Company in September 1996 (see "Credit Facility and Agreement with CNL
Holdings, Inc." below). The total debt is on the balance sheet as current as of
July 31, 1996. Interest has been accrued through July 31, 1996.
Accounts receivable increased from $171,541 at year-end July 31, 1995
to $304,020 at July 31, 1996. This increase was caused by slower payment
procedures by certain Government agencies, a smaller discount policy currently
offered to customers of normal sales and sales having been made to several
customers for export with acceptance at destination, which historically extends
the collection period.
Management felt that it had leased or acquired sufficient equipment to
meet its capital expenditure needs for the next year. Obligations under capital
leases which were in effect were approximately $34,000 for the year and somewhat
less thereafter. Historically, the Company has always leased equipment. Its
annual lease obligations have ranged from $59,000 in 1993 to its 1996 figure of
$34,000. The Company's liquidity and working capital have been effected by these
obligations and will continue to be so since the operation is dependent upon the
use of this equipment.
For the past year, the Company's marketing emphasis has been directed
to the utility industry since its Iniven line produces a variety of products
used by them. Most of the products offered must be tested for quality,
endurance, etc. for a period of time by the potential customer. Management is of
the opinion that much of the testing will be completed in the coming year and
sales will be forthcoming from the results of these tests. Accordingly, it is
anticipated that sales and profits will be higher in the next twelve months as
compared to the past twelve months.
1995 Compared to 1994
35
<PAGE>
At July 31, 1995, the Company had a working capital deficit of
$2,229,000 and a shareholder deficit of $1,944,000. The Company increased its
liquidity on August 24, 1995, through the sale of common stock in a public
offering. The net proceeds received from the August 1995 Offering were
approximately $1,527,000, which caused working capital to increase by that
amount. In addition, the shareholders' deficit of $1,944,000 changed to a
surplus of approximately $3,100,000 as a result of the proceeds of the stock
offering and the restructuring of the bank loan permitted by the additional
equity.
During the fiscal year, the Company decreased its inventory from
$2,990,000 to $2,600,000. The decrease in inventory was caused primarily by a
$656,000 writedown of certain of the Company's slow-moving military products,
partially offset by increased requirements in stocking levels for commercial
parts. The Company increased its sales and marketing efforts late in the year as
part of its strategy to improve its revenues. The increase in operating expenses
resulting from these efforts adversely affected the liquidity of the Company.
The Company plans to continue to accelerate its sales, marketing and research
and development efforts at increased levels for the foreseeable future.
The Company has no material commitments for capital expenditures as of
the date hereof. The Company anticipates, however, acquiring additional
equipment and fixtures (for example, test equipment and manufacturing equipment)
and may consider a subcontractor for increased manufacturing volume in the
future, as increased requirements may dictate. The Company has begun to evaluate
a number of make-or-buy operations in order to assure adequate resources for
future production.
Inflation
Management believes that the results of operations have not been
affected by inflation and management does not expect inflation to have a
significant effect on its operations in the future.
Credit Facility and Agreement with CNL Holdings, Inc.
The principal amount owing to the Bank under the Company's Credit
Facility at July 31, 1996 was $1,012,500 and the unpaid accrued interest was
$57,196. The Bank and the Company entered into the Conolog Corporation Allonge,
dated as of September 11, 1996, pursuant to which the Amended and Restated Term
Note dated as of August 2, 1995 between the Company and the Bank (the "Note")
was amended to permit the conversion by the Bank of the unpaid principal and
interest due under the Note into 1,400,000 shares of the Company's Common Stock
on or before April 16, 1997. The conversion right was exercisable by the Bank or
its assignee. The Bank had deferred all payments of principal and interest under
the Note until April 16, 1997.
The Bank and CNL Holdings, Inc. ("CNL") entered into an Option and
Purchase, Sale and Assignment Agreement (which was amended as described below)
dated as of September 12, 1996 (the "Option Agreement"). Under the original
Option Agreement the Bank granted an option to
36
<PAGE>
CNL to purchase all of the Bank's interest in (i) the Amended and Restated Term
Loan Agreement dated as of August 2, 1995 between the Company and the Bank, (ii)
the Note and (iii) the 375,000 shares of the Company's Common Stock owned by the
Bank. CNL paid $150,000 to the Bank for the option, which had an exercise price
of $1,500,000 and an expiration date of April 15, 1997.
The Company and CNL entered into an agreement (which was amended as
described below) dated as of September 12, 1996 (the "CNL Agreement"), whereby
CNL agreed to loan up to $2,500,000 to the Company under certain circumstances
(as described below).
Pursuant to the original CNL Agreement the proceeds of the sale of the
Acquired Shares were to be applied as follows: the first $1,500,000 was to be
paid to CNL for the payments made to the Bank pursuant to the Option Agreement;
50% of the balance, up to $2,500,000, will be loaned to the Company (the
"Loans") within five days of CNL's receipt of the proceeds.
Each loan was to be evidenced by a Note bearing interest at the rate of
4% per annum to be due 12 months from the date of such Loan. At maturity, the
Company will have the option to pay each Loan, together with all accrued
interest thereon, by issuing shares of a new Series C Preferred Stock (the
"Series C Preferred") having a value of $5.00 per share for purposes of such
repayment.
The Series C Preferred will be non-voting and carry a cumulative
dividend of 8% per annum which may be payable by the issuance of shares of
Common Stock valued at $5.00 per share up to a maximum of 40,000 shares per
annum. The Series C Preferred will be convertible into Common Stock at the rate
of one share of Common Stock for each share of Series C Preferred and have a
liquidating preference of $5.00 per share.
On January 31, 1997, the Bank and the Company entered into Amendment
No. 1 to the Conolog Corporation Allonge dated September 11, 1996 (the
"Allonge") (which previously amended the Amended and Restated Term Note dated as
of August 2, 1995 between the Company and the Bank(previously defined as
the"Note")). The original Allonge provided that the Bank may convert the entire
unpaid principal and interest due under the Note ("Debt Claim") into 1,400,000
shares of Common Stock of the Company at any time on or before April 15, 1997.
The amended Allonge provided the Bank the right to convert all or, if it so
desires, only a portion of the Debt Claim. The number of shares issuable upon
conversion of a portion of the Debt Claim was to be calculated on the basis of 1
share for each $3.00 of the Debt Claim being converted with the balance of the
1,400,000 shares to be issued when all of the Debt Claim has been converted.
On January 31, 1997, the Bank and CNL entered into Amendment No. 1 to
the Option Agreement. The amended Option Agreement required CNL, on or before
February 5, 1997, to purchase from the Bank for an aggregate purchase price of
$600,000, no less than (i) 133,333 shares of Common Stock for $399,999 and (ii)
$200,001 of the Debt Claim represented by the Note. CNL purchased such Common
Stock and portion of the Debt Claim on February 5, 1997. CNL had the right to
exercise the remainder of the option on or before April 15, 1997. CNL had the
right to purchase from the Bank additional shares of Common Stock owned by the
Bank at the price of $3.00
37
<PAGE>
per share and portions of the Debt Claim from time to time. CNL purchased such
Common Stock and portion of the Debt Claim on February 5, 1997.
On January 31, 1997, the Company and CNL entered into an Amendment to
the CNL Agreement. The amended CNL Agreement provided that in the event not all
of the Debt Claim was converted into shares of Common Stock by the Bank prior to
CNL's acquisition of the Note, CNL would promptly convert the remaining portion
of the Debt Claim into shares of Common Stock in accordance with the Note. In
addition, the proceeds of the sale of the Acquired Shares were to be applied as
follows: First to reimburse CNL for payments made to the Bank pursuant to Option
Agreement; 50% of the balance, up to $2,500,000, to be loaned to the Company
within five days of CNL's receipt of the proceeds.
The balance under the option (as of March 15, 1997) was
$750,000(evidencing an option to purchase 241,667 shares of Common Stock and the
Note, convertible into 1,333,333 shares of Common Stock). On March 26, 1997, CNL
exercised a portion of its option to purchase shares of Common Stock, by
purchasing a portion of the principal amount of the Note ($720,000) and
converted such portion of the Note into 240,000 shares of Common Stock at $3.00
per share, leaving a balance due under the option at $30,000. On March 27, 1997,
CNL exercised the remaining portion of the option in consideration of $30,000.
On such date, the remaining portion of the Note was converted into 1,093,333
shares of Common Stock, the Bank transferred 241,667 shares of Common Stock to
CNL and the Debt Claim was extinguished.
Management believes that the foregoing transactions benefited the
Company and its stockholders. The exercise by CNL of its option under the Option
Agreement converted the remaining Debt Claim, the Company had the opportunity
to, in effect, exchange its debt for equity and eliminated the Company's default
under the Credit Facility. To date, $916,235 has been loaned to the Company by
CNL. See "Use of Proceeds."
The Company is using significant amounts of cash in operations and
plans to meet its operating cash requirement for the next twelve (12) months, in
addition to existing cash balances and cash generated from operations, with
loans from officers, banks and loans secured in private transactions.
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<PAGE>
MARKET PRICE FOR SECURITIES
The Company's Common Stock and Class A Warrants are traded on the
Nasdaq SmallCap Market, under the symbols CNLG and CNLGW. Prior to the August
1995 Offering, the Common Stock was traded on the OTC Bulletin Board.
The following table sets forth, for the periods indicated, the high and
low prices of the Company's Units (which no longer trade), Common Stock and
Class A Warrants traded on the Nasdaq SmallCap Market for the third and fourth
quarters of 1995, all of 1996 and first three quarters of 1997. Such quotations
represent inter-dealer prices, without retail markups, markdowns or commissions
and may not necessarily represent actual transactions. As of _________, 1997,
the Company's Common Stock was held by approximately ___ shareholders of record.
<TABLE>
<CAPTION>
Units Common Stock Class A Warrant
----- ------------ ---------------
1995 High Low High Low High Low
- ---- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Third Quarter 18.5 14 8.50 5.75 4 2
Fourth Quarter 19.25 14.75 9.25 6.25 3.25 1.25
1996
- ----
First Quarter 15 11 8.125 3.875 2 .9375
Second Quarter 11.25 11.25 6.5625 4.25 1.5 1.0156
Third Quarter 6.25 2.25 1.5 .5625
-------- --------
Fourth Quarter 3.875 2.375 1.25 .50
-------- --------
1997
- ----
First Quarter 5.875 3 .9375 .625
-------- --------
Second Quarter 6.125 2.375 1 .375
-------- --------
Third Quarter 5.625 2.25 .875 .25
-------- --------
</TABLE>
39
<PAGE>
BUSINESS
General
Conolog Corporation, a Delaware corporation (the "Company" or
"Conolog") is engaged in the design, manufacture (directly or through
subcontractors) and distribution of small electronic and electromagnetic
components and subassemblies for use in telephone, radio and microwave
transmission and reception and other communication areas that are used in both
military and commercial applications. The Company's products are used for
transceiving various quantities, data and protective relaying functions in
industrial, utility and other markets.
History
The Company was organized in 1968 and was engaged primarily in the
design and manufacture of electronic components and systems for military
applications.
The Company, in July 1971, merged with DSI Systems, Inc., then engaged
in the development and manufacture of terminal viewers for digital retrieval of
microfilm. Later that year, the name was changed from DSI Systems, Inc. to
Conolog Corporation.
By 1980 it became apparent that the military segment of the business
was growing while the terminal viewer segment was a drain on cash and other
resources. By the year end the terminal viewer business was discontinued and the
inventory relating thereto was written off, allowing the Company to concentrate
on its military business.
In 1981 the Company acquired one of its customers, INIVEN Corporation
("INIVEN"). At that time, the Company was manufacturing, on behalf of INIVEN, a
line of transmitters and receivers used for controlling and transceiving the
measurement of the flow of gases and liquids, by gas and water utilities, for
controlling the flow of waste water and sewage and measuring and controlling
traffic.
Since the 1980's, Conolog has been an active participant in providing
electromagnetic wave filters for major military programs, such as the Patriot
Missile, Hawk Missile and Sea Sparrow Missile. In addition to these projects,
Conolog components are currently used by the military in tanks, the Apache
helicopters and the MK-50 torpedoes.
During 1987, the Company made the strategic decision to redirect the
Company's focus from military to commercial markets. Since that time, the
Company has refocused on manufacturing and marketing its products for the
commercial marketplace rather than depend on the military and defense-related
markets. The effort has included the introduction of new products, the redesign
of existing products and increased advertising and marketing efforts, as
permitted by its limited financial resources. The percentage of revenues
attributed to products manufactured for use in commercial applications increased
from approximately 4% of sales in 1981 ($171,000) to approximately 85% of sales
in 1997 ($900,000). The decision to embark on this program entailed a major
design effort, including the
40
<PAGE>
coordination of outside engineering consultants to develop a complete line of
products aimed at the Company's target markets. The emphasis was on products for
electric utilities, cogeneration of power, gas and water companies, traffic
control for departments of transport (DOT) and airports utilizing DSP (Digital
Signal Processing) technology. DSP designs have long term stability with minimum
or no maintenance, allowing the Company to offer customers a product line with a
12 year warranty - a first on the market. The 12 year warranty has been part of
the Company's marketing of its products since 1988. The Company does not believe
this is customary in the industry. The terms of the warranty covers parts, labor
and operation of units. All the Company's products are functionally tested
before shipment. Experience has demonstrated the reliability of the designs. All
returns were for non warranty causes and for the most part, were chargeable to
the customer. The Company does not provide the right of merchandise return.
Testing of the Company's first commercial product group, the
Teleprotection Series PTR-1000, was under way in the latter part of 1992 by
Bonneville Power Administration. This detailed test permitted the Company to
"fine tune" the product for power transmission applications. In March 1994, the
PTR-1000 was approved for use by such utility and thereafter by other utilities
and municipalities. To date, the Company has sold and delivered over 800
PTR-1000 sets to 18 utilities and 5 municipalities, most of which are installed
and in service.
Following the PTR-1000, in 1993, the Company introduced its "98 Series"
Tone Products for water, gas, telephone and oil companies, waste water, traffic
control and airports. In 1994 the Company unveiled the Power Supply Series
(allowing the various utilities to power-up the equipment from any power
source), the "40 Series" for transmission of analog variable data (water levels,
gas pressures and temperature) and the Multiplexer Series, which permits the
transmission of up to 900 separate data points, again using a telephone line,
microwave link, or satellite. In 1994 the Company also introduced the "68
Series" tone products. This series is the "98 Series" repackaged mechanically
specifically for customers with older systems wanting to upgrade to DSP
technology without the expense of a complete mechanical installation. The "68
Series" offers the entire line offered by the "98 Series". In 1995, the Company
introduced a stand alone "98 Series" transmitter and receiver for field
installations and a wide range of fiber optic interfaces for INIVEN products.
The fiber optic interface is also available as a stand alone coupling device.
The Company launched its industrial grade 1200 Baud Modem for data
transmission/communication, and completed the PTR-1000 System options. Through
1997, the Company designed and is in the process of completing and building the
PTR-1500 Quad System, Protection Equipment, exclusively for the General Electric
Company ("GE"), to be labeled GE-NS50 Series, for worldwide sales as detailed in
the agreement between GE and Conolog dated April 1, 1997.
Due to the end of the cold war and the downsizing of the American
military, the Company experienced unexpected sharp reductions of military
contracts in fiscal 1993 (the Company's fiscal year end is July 31) resulting in
a 50% decline in the Company's sales for that year, down to $1,486,298 from $2,
997,308 in fiscal 1992. The sales of new products could not replace the decrease
in military sales. The Company, however, continued to pursue sales as
aggressively as its available resources would permit. Sales in fiscal 1994
increased to $2,044,860, a 37% increase over fiscal 1993. Sales in fiscal 1995
were $2,090,933 a 2% increase over fiscal 1994. Sales in fiscal 1996 were
$1,924,466 an 8%
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<PAGE>
decrease from fiscal 1995. Sales in fiscal 1997 were $1,123,390 a 42% decrease
from fiscal 1996. Revenues from the Company's military product sales represented
approximately 60%, 30%, 23% and 10% of sales of the Company in fiscal 1994,
1995, 1996 and 1997, respectively, reflecting the Company's emphasis on
commercial sales and markets.
General Description; Products
The Company is engaged in the design and manufacture of (i)
transducers, which are electromagnetic devices which convert electrical energy
into mechanical and other forms of physical energy, or conversely convert
mechanical and other forms of physical energy into electrical energy; (ii)
digital signal processing (DSP) systems and electromagnetic wave filters for
differentiation among discreet audio and radio frequencies; (iii) audio
transmitters and modulators, for the transmission over telephone lines,
microwave circuits, or satellite, of electrical signals obtained from
transducers, data generated in electronic code form or by computers or other
similar equipment (not manufactured by the Company); (iv) audio receivers and
demodulators which are small systems which receive and decode the signals from
the audio transmitters and convert them into digital codes for input into
computers, teletypes or other similar equipment (not manufactured by the
Company) or convert such signals into mechanical or other form of energy, such
as opening or closing valves, or starting or stopping a motor; (v) magnetic
"networks" which are devices that permit the matching or coupling of different
types of communication equipment together or many identical or similar equipment
together or onto telephone or other transmission lines so as not to cause
interference; and (vi) analog transmitters and receivers, which permit the
coding/transmission and receiving/decoding of a constantly variable data, such
as the water level in a tank, pressure in a pipe or temperature, by actually
displaying the exact information at the receiving end in digital form for
storing in a computer or other devices, or by physically displaying the
information in a visual fashion such as a numerical readout or meter.
Such products are used in radio and other transmissions, telephones and
telephone exchanges, air and traffic control, automatic transmission of data for
utilities, teleprinting of transmitted data such as news and stock market
information and for use by electric utilities in monitoring power transmission
lines for faults and/or failures. The Company's products are used by customers
engaged in or manufacturing equipment for the activities described. The
Company's products may be used independently or in combination with other
products to form a system type configuration, whereby the Company's equipment is
pre-assembled in a large cabinet with other equipment in a configuration that
would provide the end user with protection as well as operational status
displays.
Present Status/Business Product Description
The Company is presently engaged and focused in two basic market areas:
(A) Military Sales - Direct contract sales to the military
- As subcontractor to systems producers
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<PAGE>
- Foreign governments
(B) Commercial Sales (Under the tradename "INIVEN"
(a Division of Conolog))
- Direct sales to end users
- Sales to system assemblers
- Sales to contractors/installers
(C) Commercial Sales - As Manufacturing Subcontractor to
Systems Producers.
(A) Military Sales
Since 1992 the Company's engineering staff is dedicated to "INIVEN"
commercial designs and does not engage in any new designs for military
applications. The Company actively participates in bids only for parts the
Company has designed since inception in 1968. Presently there are approximately
400 designs that are applicable to these repeat residual sales.
These residual sales are primarily for the Company's electromagnetic
wave filters used in military radios, vehicles (cars, trucks or tanks), portable
(backpack), special signaling equipment and exchanges (as in field command
posts), weapon/missile guidance and control (patriot missile, tomahawk,
pave-paws), torpedo active signal recognition and differentiation mounted in the
nose cone of the torpedo (MK-30, Captor, MK-50 torpedoes), ship to ship teletype
signaling filters used in deployment of ships (UCC-1 and UCC-4 systems) as well
as many other signaling applications where accurate electromagnetic frequency
control is required.
The Company markets the above military sales directly and through
independent manufacturing sales representatives on a commission basis.
(B) Commercial "INIVEN" Sales and Products
"INIVEN" equipment is designed around four (4) core product groups:
(1) PTR Teleprotection Series
(Protective Tone Relaying Communications Terminal,
which includes the PTR-1000 and the PTR-1500
designed exclusively for GE).
(2) Audio Tone & Telemetry Equipment
(Audio Tone Control, Telemetering and Data
Transmission Systems), which includes Series "98",
"68", "40" and "GEN-1".
(3) Multiplex Supervisory Control System
43
<PAGE>
(4) Communication Link Multihead Fiber Optic Couplers and
Industrial Grade 1200 Baud Modems.
(1) PTR-1000 Teleprotection Series
This product is designed for use exclusively by electric power
generators (electric utilities and cogenerators) in order to protect their
transmission and distribution lines. The PTR-1000, by monitoring the output
signal of the transmission equipment in less than one hundred of a second
protects the transmission and distribution lines.
The PTR-1000 are installed in pairs, one unit at each end of the line.
Each unit is connected and in constant communication with the other, as they
continuously monitor the line for faults. In the event of a fault occurring
(such as a downed line or a short circuit) at either end and when confirmed by
the receiving PTR-1000 unit, the line is immediately isolated for shut down,
averting costly damage and downtime.
The PTR-1000 system is composed of a transmitter, dual receivers, a
logic card (brain center and controller of the system), relay module, line
interface module and power supply module. The transmitters at each end are
independent and transmit (continuously) the status (information being monitored)
at their end of the line.
In the event of a fault, the information is transmitted to the PTR-1000
at the other end of the line and once confirmed by both its receivers (this
duality is designed such that both receivers must agree before any action is
taken), it will, when programmed to do so, isolate that end of the line.
Generation and distribution of electric power entails expensive equipment at
both ends of the line. Faults causing interruption of transmission can cause
costly replacement of failed equipment and loss of revenue caused by downtime
for repairs.
The PTR-1500, designed exclusively for GE in accordance with a seven
year agreement, is a quad system and performs as 2 duals or 4 singles with many
unique features such as multiple line operation, event recording with date stamp
with optional analog or digital transmission modes including optic fiber
interface.
The PTR Teleprotection Series is designed for global use by electric
utilities and any entity generating power for its own consumption with resale of
surplus power to an electric utility, such as cities, municipalities,
cooperatives and large corporations that find it more economical to generate
their own electricity.
The PTR Teleprotection Series target market is worldwide, as follows:
o New installations; i.e., new transmission lines, new distribution
segments, for utilities and cogenerators.
44
<PAGE>
o Existing installations not properly protected, improving efficiency and
down time.
o Existing installations for upgrading to PTR technology, again improving
efficiency and down time.
Sales efforts for the PTR-1000 are presently being conducted by the
Company's marketing executives, through independent manufacturers'
representatives and through distributors. Sales are targeted primarily to the
largest utilities and co-generators.
According to McGraw-Hill, Inc. Electrical World (Electric Utilities of
the United States), in the United States alone, there are over 500 large
entities generating electricity. They are:
o Investor-owned
o Municipal Systems
o Cooperative Systems
o Federal, State and District systems.
The Company intends to utilize a portion of the net proceeds of this
Offering to provide it with capital which it can use to expand its sales
efforts, expand sales to international markets and complete the design,
engineering and testing of the PTR-1500 option modules and the PTR-1000
enhancements. To date, the Company has sold and delivered over 800 PTR-1000 sets
to 18 utilities and 5 municipalities, most of which are installed and in
service.
(2) Audio Tone and Telemetry Equipment
For many years there has been a need for a modularly independent system
that would permit a user, from a distance, to control functions such as opening
a valve, starting a motor, shutting down a compressor, changing a traffic
signal, control landing lights at an airport, activate a hazard warning on a
highway, and in return allow the user to receive information, such as the liquid
level in a tank, the pressure in a pipe, the rate of flow out of a compressor,
the flow of traffic, the status of a traffic light, airport lights, or
confirmation that a command was performed. Such information is transmitted and
received and the control functions are performed from a distance utilizing
telephone lines, microwave link or direct wire.
These applications, by their nature, can be accomplished with slow
speed signaling systems composed of a transmitter on one end and a receiver on
the other to carry out the necessary instructions provided by the transmitter.
Each set (transmitter/receiver combination) is called a channel. Because of the
slow speed, up to 30 channels could be made to transmit and receive signals, in
either direction on a single telephone line, microwave link or direct wired line
at the same time. This parallel transmission permits each transmitter/receiver
pair to be independent of all the others.
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<PAGE>
This product segment includes the first generation equipment, known as
GEN-1, followed by later generations which include technological improvements
and programmable capabilities to include:
o GEN-1 Series - First generation with electromagnetic modules and first
generation programmable modules without electromagnetic modules.
o "98" and "68" Series - The latest generation applies DSP and
microprocessor technology with full programmability, in the field or at
the factory.
o "40" Series - Designed to function with the "98" or "68" series;
transmits and receives variable analog data.
GEN-1 and GEN-1 Programmable Series
The diversity of applications for this equipment makes it available for
a wide range of users who are not restricted to a single industry. Typical
industrial uses include: the measurement of water and gas, waste water,
gasoline, oil, traffic, and electricity. Typical users include: utilities,
co-generators, airports, navy yards, telephone companies, paper and pulp
processors and wherever remote control and data acquisition is required.
Because of the ease of use and installation, there is much GEN-1 type
equipment installed and used in the United States by a wide spectrum of diverse
users. Since the Company's line has a distinct mechanical configuration, the
Company designed its GEN-1 Programmable units and other improvements as
replacements for existing units. These account for approximately 20% of the
Company's commercial sales. The Company's line of GEN-1 equipment is extensive
and provides the user with the ability to perform multiple control functions,
status monitoring as well as continuous variable data monitoring, such as a
level in a tank or pressure gauge.
Sales for this line are primarily for the replacement of existing
installations and for expansion of these installations where it would not be
economical to install the latest technology, which would not be mechanically
compatible.
Sales to this market are made in the same manner as the PTR-1000 market
except that manufacturers' representatives specialize in selling to this diverse
market.
"98," "68" and "40" Series
These series represent the Company's latest designs in the audio tone
equipment utilizing the more advanced DSP technology, which provides high
accuracy and long term stability. These features have allowed the Company to
greatly improve the scope, density and number of functions that can be performed
on a single phone line, microwave link or direct line.
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<PAGE>
Given this technology and the high-reliability and quality standards of
the Company's products, the Company has recently (first quarter 1994) started to
offer a 12 year warranty for all of its commercial products. This warranty has
been favorably received by customers. Based upon its past experience, the
Company does not believe that its extended warranty will result in any material
repair or replacement expenses.
Sales of these products are made by the same persons who sell the
Company's GEN-1 products, but are also directed to encompass more sophisticated
users with larger amounts of data and control points. The mechanical
configuration of the "98" series is more compact, permitting more equipment in a
given space, while performing many more functions when it is connected to the
"40" Series. The "68" Series is the "98" Series repackaged mechanically
specifically for customers with older systems permitting them to upgrade their
systems to DSP technology. The "40" Series, when connected to the "98" or "68"
in the same chassis, permits the continuous monitoring of variable data. Typical
applications for these products include transmission of the variable data (such
as volume, temperature, pressure and moisture) for water, gas, industrial gases,
oil , gasoline, transportation equipment and telephone exchanges, and for use at
airports, tunnels and bridges and for security and electricity systems.
The Company intends to utilize a portion of the net proceeds of this
offering to expand this line of products to include radio as a transmission
line, and design, produce and sell a line of fiber optic interface equipment and
to expand sales for new applications and new installations, including foreign
sales.
(3) Multiplex Supervisory (IM) Control System
This product is a response to the cost and scarcity of dedicated phone
lines (connections whereby the phone link is dedicated to one subscriber), and
enables customers with high volumes of supervisory data (where many functions
are monitored from a single site) to transmit data on fewer phone lines (i.e.,
with more data per channel, up to a maximum of 30 channels per line).
Using the "98" DSP Series as its communications link, the Company
designed the Multiplexer Supervisory Control System to handle 8 times the normal
capacity per channel. The microprocessor based system allows a single telephone
line to handle up to 900 data inputs.
This product line, because of its data density capability, may be
utilized for a very broad range of applications. This product has only recently
been introduced and the Company sales efforts for it are being conducted through
its existing independent manufacturers sales representatives.
A portion of the net proceeds of this offering will be used by the
Company to complete the next design phase to couple the multiplexer directly
onto fiber optic cable and 8 line applications and add radio as a communication
link.
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<PAGE>
(4) Fiber Optic Link and Data Modem
The expansion of fiber lines by the Company's customers and their need
to switch equipment from phone lines to fiber prompted the Company to design and
introduce a fiber-optic-coupler line to interface with the many different fiber
heads. In addition to complete data interface couplers the Company launched a
series of 1200 Baud Modems (Industrial Grade) for operation under the same
environmental specifications in line with the Company's products.
(C) Commercial Subcontract Manufacturing to Systems Producers
Since the downsizing of the American Military, the Company has actively
sought manufacturing subcontract orders to fill the production void created by
the severe drop in military production. In June 1996 the Company negotiated and
entered into a renewable annual agreement with the General Electric Company, GE
Electrical Distribution and Control and its participating affiliated companies
for the manufacture of sub-systems, board assemblies and magnetic filters and
other products consistent with the Company's expertise. The success of this
agreement has prompted the Company to pursue other system producers to more
fully utilize the Company's manufacturing capacity.
Competition
The market for the Company's products is very competitive. There are
several companies engaged in the manufacture of products of the type produced by
the Company, most of which are substantially larger and have substantially
greater name recognition or greater financial resources and personnel. The major
competitive factors include product quality and reliability, price, service and
delivery. Competition is expected to continue and intensify. The market is also
characterized by rapid technological changes and advances. The Company would be
adversely affected if its competitors introduced technologically superior
products or offered these products at significantly lower prices than the
Company's products. The Company has at least 20 competitors world wide and
believes it has no significant market share. See "Risk Factors - Competition;
Rapid Technological Change."
Marketing and Sales
In general, the Company's products are marketed by means of
telemarketing and customer contacts by the Company's direct sales force and
through independent manufacturing sales representatives and distributors. The
Company employs only 2 marketing executives.
Military - The Company markets its military sales directly and through
independent manufacturers sales representatives.
Commercial - The Company markets the PTR-1000 by means of Company sales
personnel, through independent manufacturers representatives, and
through distributors, focusing mainly on the largest utilities and
co-generators. In the United States alone there are over 500 large
entities generating electricity which are identified as investor-owned,
municipal systems,
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<PAGE>
cooperative systems and federal, state and district systems. The
Company intends to utilize a portion of the proceeds of this Offering
to expand its sales efforts and expand sales to international markets.
The Company markets it Gen-1 and Gen-1 Programmable Series, as well as
its "98" Series, "68" Series and "40" Series, in the same way as the
PTR-1000 except that the manufacturers representatives used by the
Company specialize in selling to the diverse markets that utilize such
products. The Company intends to utilize a portion of the net proceeds
of this Offering for international sales.
Largest Customers
Sales to the Company's two major customers during fiscal 1997 (General
Electric and Bonneville Power Administration) totaled $255,500 and $200,000,
respectively (22% and 18%, respectively of all sales). Sales to the Company's
major customer in fiscal 1996 (B.C. Hydro-Canada ) totaled $401,000 (20% of all
sales). Sales to the Company's major customer in fiscal 1995 (United States
Government) totaled $424,849 (20% of net sales). During fiscal 1994, sales to
the Company's major customer (Westinghouse Electric Corp. - Naval Systems
Division) totaled $597,000 (29% of net sales). The Company has three (3) ongoing
contracts, in addition to existing open orders. This may continue to produce
revenue past the date of this prospectus, namely from the General Electric
Company and Bonneville Power Administration. The loss of General Electric and
Bonneville Power Administration would have a material adverse effect upon the
Company. None of such customers has or had any material relationship other than
business with the Company. See "Risk Factors - Dependence on Large Customers."
The terms of the blanket-contracts the Company has with General Electric,
Bonneville Power Administration and its Canadian distributors are not binding
and only represent potential purchases, whereby the Company set certain prices
for its products for the duration of the contract. The contracts are subject to
cancellation under the terms of such contracts. See "Risk Factors - Dependence
on Large Customers."
Raw Materials; Inventory
The Company believes that it has adequate sources of raw materials
available for use in its business. The Company's products are assembled from a
variety of standard electronic components, such as integrated circuits,
transformers, transistors, passive components (ie., resistors, capacitors and
inductors), diodes and assorted hardware such as printed circuit boards,
connectors and faceplates. The Company is not dependent upon any single
supplier. The Company also purchases a number of other electronic components and
sub-assemblies from various suppliers. There has been no material increase in
the cost of most raw materials and the Company has no reason to anticipate any
significant shortage of raw materials in the future. The Company generally is
required to maintain adequate amounts of raw material and parts inventories to
meet delivery requirements of customers and to assure itself of a continuous
availability of these items. See "Risk Factors-Reliance on Component
Manufacturers."
In the past the Company manufactured and held in its inventory finished
products pursuant to the military's specifications and based upon the military's
forecast for future quantities and delivery schedules. When those military
procurements were discontinued as a result of the end of the cold war
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<PAGE>
and the downsizing of the military establishment, the Company wrote off large
portions of its military inventory. The Company no longer manufactures inventory
to meet forecasts but only to fill specific orders. Therefore, the Company does
not anticipate any future large inventory build-ups or write-downs from military
products.
Manufacturing
Of the 15,700 square feet that the Company occupies at 5 Columbia Road
in Somerville, NJ, approximately 10,000 square feet are dedicated to
manufacturing. The Company assembles, under normal workload conditions, all the
products it sells. To accommodate the peak demands that occur from time to time
the Company has developed a number of subcontractors to assemble boards to the
Company's specifications. All assemblies, however, are inspected and fully
tested by the Company's quality, engineering and testing departments. The
Company maintains test equipment and every product is burned-in (i.e., each
product is run at full power for 48 hours) and tested prior to shipment. This
control, together with design reliability, has permitted the Company to offer a
12-year warranty on all its commercial products.
Research and Development; New Products
Amounts expended by the Company in the last three fiscal years for
research and development activities have not been material although the Company
is currently engaged in product design and development. The Company utilized a
portion of the net proceeds of the August 1995 Offering to design a fiber optic
digitizer and a 1200 baud modem which can be sold as a separate product or
jointly with the Company's products which will enable all the Company's INIVEN
products to transmit directly onto fiber optic cables, and thus open a new
market for the Company's products. In addition, the Company completed the
PTR-1000 series option modules and the standard modules of the PTR-1500 Quad
Series to be sold exclusively worldwide by GE as its Model NS50. The Company
also intends to utilize a portion of this Offering proceeds to add designs that
will extend its product capability to handle new data inputs not presently
available. There can be no assurance that the Company will be able to
successfully develop and add designs to its products.
Patents and Trademarks
The Company does not have any patents covering any of its present
products. The Company uses the trademark INIVEN for its commercial products. The
Company believes that such trademark is recognized in the Company's industry.
The Company believes that its prospects are dependent primarily upon its ability
to offer its customers high quality, reliable products at competitive prices
rather than on its ability to obtain and defend patents and trademarks. The
Company does not believe that its INIVEN trademark is of material importance to
the Company's business.
50
<PAGE>
Backlog
As of July 31, 1997 and 1996, the Company had a backlog of
approximately $2,900,000 and $3,400,000, respectively. It is anticipated that
this backlog will be filled during the balance of the 1998 fiscal year ending
July 31, 1998.
Foreign Operations
In fiscal 1996 and 1995 the Company had foreign sales of $401,000 to
B.C. Hydron-Canada and $140,000 to the Government of Israel, respectively. In
the year ended July 31, 1997, the Company had no foreign sales.
Governmental Regulation
The Company's manufacturing facilities, in common with those of
industry generally, are subject to numerous existing and proposed Federal and
state regulations designed to protect the environment, establish occupational
safety and health standards and cover other matters. The Company believes that
its operations are in compliance with existing regulations and does not believe
that such compliance has had or will have any material effect upon its capital
expenditures, earnings or competitive position. With respect to military sales,
the Company is not subject to any special regulations. The products manufactured
are done so in accordance with accepted commercial practices.
Employees
As of July 31, 1997, the Company employed 31 persons, including 2 in
management, 2 in sales, 2 in clerical, 1 in accounting, 1 in purchasing, 3 in
engineering and 20 in production. The Company has enjoyed good labor relations
and has suffered no work stoppage.
Properties
The Company, owned facilities, which management considers adequate for
the Company's present requirements, are located at 5 Columbia Road, Somerville,
NJ. The facilities, which are used for manufacturing, sales and its executive
offices, comprise 15,700 square feet. The Company's employees are not
represented by any union.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding the
officers and directors of the Company as of the Effective Date.
NAME AGE POSITION
- ---- --- --------
Robert S. Benou 62 President and Director
Arpad J. Havasy 60 Executive Vice President, Secretary, Treasurer
and Director
Louis S. Massad 59 Director
Marc R. Benou 29 Vice President, Assistant Secretary and
Director
Thomas Fogg 61 Vice President-Engineering
The term of each director expires at the time of the next annual
meeting of stockholders. Each officer holds office at the pleasure of the Board
of Directors. The Company has no "significant" employees other than the
executive officers. There are no arrangements or understandings pursuant to
which either of the directors or officers was selected as such.
Robert S. Benou has served as President and a Director of the Company
since 1968. Mr. Benou is responsible for military products, new product
development and supervision of sales and marketing. 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.
Arpad J. Havasy has served as the Company's Executive Vice President
and Director since 1968. Mr. Havasy is a graduate of Electromos E's Gepeszeti
Technikum (Hungary) and the University of Budapest. In addition, Mr. Havasy has
attended courses at both Rutgers University and the American Management
Association. Mr. Havasy is on total disability.
Louis S. Massad has been a Director of the Company since April 1995.
Mr. Massad was Vice President, Chief Financial Officer and Director of Computer
Power Inc. from 1986 to 1996. Mr. Massad is presently a registered
representative of C.J.M. Planning Corp., a member of the NASD. Mr. Massad holds
a BS and MS degree from Cairo University (Egypt) and an MBA from Long Island
University, New York.
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<PAGE>
Marc R. Benou joined the Company in 1991 and is responsible for
material, purchasing and inventory control. In March 1995, he was elected Vice
President, Assistant Secretary and a Director . Mr. Benou attended Lehigh and
High Point University and holds a BS degree in Psychology and a BS in Business
Administration and Management. Marc R. Benou is the son of Robert S. Benou, the
Company's President.
Thomas R. Fogg joined the Company in 1976 as Chief Engineer responsible
for analog and guidance projects. Since 1986, when he became Vice
President-Engineering, he 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.
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<PAGE>
Executive Compensation
The following table sets forth the cash compensation (consisting
entirely of salary) paid (or accrued for) by the Company to its President, the
only executive officer whose aggregate remuneration exceeded $100,000 in each of
the three Company's fiscal years ended July 31, 1997, 1996 and, 1995:
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
Other
Name and Fiscal Year- Annual
Principal End Comp-
Position --- Salary Bonus ensation Awards Payouts
- -------- ------ ----- -------- ------ -------
Restricted
Stock Options/SA LTIP All Other
Awards SARS Payouts Compensation
------ ---- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert Benou, 1997 $150,000 -- -- -- --
President (1)
1996 $150,000 -- -- -- --
1995 $150,000 -- -- -- --
</TABLE>
- -----------------
(1) See "Certain Relationships and Related Transactions".
The Company did not grant any stock options or stock appreciation
rights during the fiscal year ended July 31, 1997 to any of its officers,
directors or employees. As of July 31, 1997 none of them had any outstanding
stock options or stock appreciation rights. Furthermore, none of them received
awards under long-term incentive plans that are stock based during the three
fiscal years referred to above. However, these and other benefits may be adopted
in the future if they are authorized by the Board of Directors.
Stock Option Plan
On May 15, 1995, the Board of Directors of the Company adopted and on
August 14, 1995, the shareholders approved the Conolog Corporation 1995/1996
Stock Option Plan (the "Option Plan"). The Option Plan is designed to permit the
Company to grant either incentive stock options under Section 422A of the
Internal Revenue Code (the "Code") or nonqualified stock options. Under the
Option Plan, a Stock Option Committee (the "Option Committee") of the Board is
authorized to grant options to purchase up to 200,000 shares of stock to key
employees, officers, directors and consultants of the
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<PAGE>
Company. The Option Committee administers the Option Plan and designates the
optionees, the type of options to be granted (i.e., nonqualified or incentive
stock options), the number of shares subject to the options, and the terms and
conditions of each option. The terms and conditions include the exercise price,
date of grant, and date of exercise of each option. An employee may, at the
discretion of the Option Committee, be permitted to exercise an option and make
payment by giving a personal note.
Incentive stock options may only be granted to employees of the Company
and not to directors or consultants who are not so employed. The exercise price
for incentive stock options must be at least one hundred percent (100%) of the
fair market value of the Common Stock as determined by the Option Committee on
the date of grant. All incentive stock options under the Option Plan must be
granted within ten (10) years from the date of adoption of the Option Plan and
each option must be exercised, if at all, within ten (10) years of the date of
grant. In no event may any employee be given incentive stock options whereby
more than $100,000 of options become exercisable for the first time in a single
calendar year. All incentive stock options must be exercised by an optionee
within three (3) months after termination of the optionee's employment, unless
such termination is as a result of death, disability or retirement. In the event
an optionee's employment is terminated as a result of death or disability, such
optionee or his designated beneficiary shall be entitled to exercise any and all
options for a period of twelve (12) months after such termination. If an
optionee's employment is terminated as a result of retirement, the optionee
shall be entitled to exercise his options for a period of twenty four (24)
months following such termination.
Nonqualified stock options under the Option Plan are generally subject
to the same rules as discussed above. Nonqualified stock options may, however,
also be granted to directors and consultants, whether or not such individuals
are employees of the Company. The exercise price for nonqualified stock options
may not be granted at less than eighty-five percent (85%) of the fair market
value of the shares on the date of grant.
No incentive stock options or nonqualified options have been granted.
Employment Agreements
The Company has entered into 5-year employment agreement commencing
June 1, 1997 and ending May 31, 2002, with Robert Benou. Under his employment
agreement, Mr. Benou will receive an annual base salary of $150,000 for the
first year of employment with an increase of $20,000 in November 1997 and
$20,000 per annum each year thereafter, if the Company is profitable (defined as
"income before income tax provision.") In addition, Mr. Benou is entitled to an
annual bonus equal to 6% of the Company's annual "income before income tax
provision". The employment agreement also entitles him to the use of an
automobile and to employee benefit plans, such as life, health, pension, profit
sharing and other plans. Under the employment agreement, employment terminates
upon death or disability of the employee and employee may be terminated by the
Company for cause. The Company intends to maintain a $1 million life insurance
policy on the life of Robert Benou. Reference is hereby made to the Employment
Agreement which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
55
<PAGE>
The Company has entered into 5-year employment agreement commencing
June 1, 1997 and ending May 31, 2002, with Marc Benou. Under his employment
agreement, Mr. Benou will receive an annual base salary of $55,000 for the first
year of employment with an increase of $6,000 per annum each year thereafter. In
addition, 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-K.
The employment agreement also entitles him to the use of an automobile and to
employee benefit plans, such as life, health, pension, profit sharing and other
plans. Under the employment agreement, employment terminates upon death or
disability of the employee and employee may be terminated by the Company for
cause. Reference is hereby made to the Employment Agreement which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
Representative's Right to Appoint Director
The Underwriting Agreement between the Company and the Representative
provides that for three years after the completion of this Offering, the
Representative will have the right to nominate one person to serve on the
Company's Board of Directors, and upon such nomination the Board shall take the
action necessary to cause the Representative's nominee to be elected to the
Board. If the Representative does not exercise this right, it may appoint an
advisor, who will be entitled to attend all meeting of the Board of Directors.
To date, the Representative has not advised the Company as to whether it intends
to exercise either right. See "Underwriting".
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 16, 1995, the Company effected a 1-for-100 reverse stock
split of its Common Stock on all shares of Common Stock outstanding as of that
date.
On August 16, 1995, holders of 19,360 shares of the Company's Series B
Preferred Stock (Robert Benou and Arpad J. Havasy, officers and directors of the
Company) converted their shares of Series B Preferred Stock into 387,200 shares
of Common Stock (3,872 post-split shares).
On August 16, 1995, $381,533 of the $420,179 of accrued dividends on
the Series B Preferred Stock at December 31, 1994 were converted into 76,306
shares of Common Stock and the remaining dividends due to such holders (Messrs.
Benou and Havasy) were waived.
As of April 30, 1995, Messrs. Benou and Havasy have advanced $139,196
to the Company for working capital purposes. No formal repayment plan or
interest charges have been established at this time. In addition, the officers
have not been paid their salaries since August 1, 1992.
On August 16, 1995, accrued salaries of $309,109 owed by the Company to
Mr. Benou were converted into 61,822 shares of Common Stock.
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<PAGE>
Payment of the Company's liabilities to the Bank under the Credit
Facility were guaranteed by Mr. Benou to the extent of $965,000 and Mr. Havasy
to the extent of $492,000. Their respective guarantees were secured by a pledge
to the Bank of all Common Stock and Series B Preferred Stock owned by each of
them. As a result of the August 1995 Offering, the Bank released the guarantees.
Article Eighth of the Company's Certificate of Incorporation provides
that the Company shall, to the full extent permitted by Section 145 of the
Delaware General Corporation Law, as amended from time to time, indemnify all
persons whom it may indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation to provide indemnification to a director, officer,
employee or agent of the corporation, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding, if such party acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful as
determined in accordance with the statute, and except that with respect to any
action which results in a judgment against the person and in favor of the
corporation the corporation may not indemnify unless a court determines that the
person is fairly and reasonably entitled to the indemnification.
Section 145 further provides that indemnification shall be provided if
the party in question is successful on the merits.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person in connection with the securities
being registered) the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Company has adopted a policy that transactions with affiliated
entities or persons will be on terms no less favorable than could be obtained
from unrelated parties and that all transactions between the Company and its
officers, directors, principal shareholders and affiliates will be approved by a
majority of the Company's Board of Directors.
57
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of outstanding
shares of Common Stock of the Company as of the date hereof by any person who,
to the knowledge of the Company, owns beneficially more than 5% of the
outstanding Common Stock, by all directors of the Company, and by the directors
and officers of the Company as a group.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of Percentage of Outstanding Shares(1) After
Beneficial Owner Beneficial Ownership Before Offering Offering
---------------- -------------------- --------------- --------
<S> <C> <C> <C>
Robert S. Benou (2) 200,039 7.1% 5.69%
Arpad J. Havasy (2) 50,117 1.78% 1.43%
Marc R. Benou (2) 40,000 1.42% 1.14%
Louis S. Massad (2) 5,000 .18% .142%
Thomas Fogg (2) 20,200 .72% .57%
All Directors and
Officers as A
Group (5 persons) 315,356 11.20% 8.97%
</TABLE>
- ----------
(1) Does not include treasury stock. See "Financial Statements".
(2) The address for these individuals is c/o Conolog Corporation, 5
Columbia Road, Somerville, New Jersey 08876.
58
<PAGE>
DESCRIPTION OF SECURITIES
Capitalization
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock and 2,000,000 shares of Preferred Stock. Prior to this
Offering, the Company had 2,815,738 shares of Common Stock outstanding (not
including treasury stock), 155,000 shares of Series A Preferred Stock
outstanding (162,000 authorized) and 1,197 shares of Series B Preferred Stock
outstanding (50,000 authorized).
Common Stock
The Company had 2,815,738 shares of Common Stock outstanding prior to
the Offering (not including treasury stock).
Holders of the Common Stock are entitled to one vote for each share in
the election of directors and in all other matters to be voted on by the
stockholders. There is no cumulative voting in the election of directors. The
By-laws of the Company require that only a majority of the issued and
outstanding shares of Common Stock must be represented to constitute a quorum
and to transact business at a stockholders meeting.
Holders of Common Stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors with respect to the
Common Stock out of funds legally available therefor and, in the event of
liquidation, dissolution or winding up of the Company, to share ratably in all
assets remaining after payment of liabilities and payments to holders of
Preferred Stock. (See "Preferred Stock" below.) There are presently no plans to
pay dividends with respect to the shares of Common Stock. See "Dividends". The
holders of Common Stock have no preemptive or conversion rights and are not
subject to further calls or assessments. There are no redemption or sinking fund
provisions applicable to the Common Stock. The Common Stock currently
outstanding is, and the Common Stock issuable upon exercise of the Class A
Warrants and Class B Warrants (described below) after payment of the applicable
exercise price will, when issued, be validly issued, fully paid and
nonassessable.
Preferred Stock
The Company is authorized to issue 2,000,000 shares of Preferred Stock,
issuable in series, of which there are outstanding 155,000 shares of Series A
Preferred Stock, $.50 par value (162,000 authorized) and 1,197 shares of Series
B Preferred Stock, $.50 par value (50,000 authorized).
Series A Preferred Stock
Holders of Series A Preferred Stock are entitled to receive, out of
funds legally available therefor, dividends at the rate of 4% per annum ($.02
per share) of the par value thereof. The Series A Preferred
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<PAGE>
Stock has no voting rights. Series A Preferred Stock ranks senior to all other
capital stock of the Company and upon dissolution, holders of such shares are
entitled to receive 100% of the par value thereof and all accrued and unpaid
dividends prior to any payment to any holder of capital stock of the Company. In
addition, each share of Series A Preferred Stock may be exchanged for one (1)
share of Common Stock upon surrender of the Series A Preferred Stock and payment
of $1,200 per share. The Company may redeem the Series A Preferred Stock at $.50
per share plus accrued and unpaid dividends. As of July 31, 1997, there was
$86,800 in accrued and unpaid dividends.
Series B Preferred Stock
Holders of Series B Preferred Stock are entitled to receive, out of
funds legally available therefor, dividends at the rate of $.90 per share. The
Series B Preferred Stock has no voting rights. Series B Preferred stock ranks
senior to all capital stock of the Company but junior to the Series A Preferred
Stock, and upon dissolution, holders of such shares are entitled to receive 100%
of the par value thereof and all accrued and unpaid dividends prior to any
payment to any holder of capital stock of the Company but after payment to the
holders of Series A Preferred Stock. In addition, each share of Series B
Preferred Stock is convertible into .20 shares of Common Stock. As a result of
the 1-for-100 reverse split on the Effective Date, the total number of shares of
Common Stock that may be issued upon conversion of the Series B Preferred Stock
is 239. The Company may redeem the Series B Preferred Stock at $15.00 per share
plus accrued and unpaid dividends. As of July 31, 1997, there was $27,937 in
accrued and unpaid dividends.
General
The Board of Directors has the authority to issue Preferred Stock in
one or more series and to fix the rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. At present, the Company has no other
plans to issue any additional shares of Preferred Stock.
Class A Warrants
In connection with the August 1995 Offering and with bridge financing
that preceded such offering, the Company issued 1,135,750 Class A Warrants. Each
Class A Warrant entitles the holder thereof to purchase one share of Common
Stock at an exercise price of $6.00 from August 17, 1996 until August 31, 2002,
subject to certain adjustments. The original expiration date was August 16,
1998. On November 21, 1997, the Company announced the extension of such
expiration date to August 31, 2002. The Class A Warrants may be exercised in
whole or in part. In connection with this Offering, the Company will issue
2,800,000 additional Class A Warrants.
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<PAGE>
The Class A Warrants were issued under a warrant agreement dated as of
August 16, 1995 (as amended and restated on , 1997, the "Warrant Agreement")
between the Company and Continental Stock Transfer & Trust Company (the "Warrant
Agent"). The following is a general summary of certain provisions contained in
the Warrant Agreement and is qualified in its entirety by reference to the
Warrant Agreement, a copy of which has been filed as an exhibit to the
Registration Statement, of which this Prospectus is a part.
The Board of Directors of the Company has the right to amend the terms
of the Warrant Agreement at its discretion to, among other things, reduce the
exercise price or extend the exercise period of the Class A Warrants; provided
however, that no amendment adversely affecting the rights of the holders of
Class A Warrants may be made without the approval of the holders of a majority
of the affected Class A Warrants.
Commencing the earlier of (i) 24 months from the date of this
Prospectus or (ii) 12 months from the date of this Prospectus, with the consent
of the Representative, the Company has the right to redeem all the Class A
Warrants at a price of $.05 per Class A Warrant upon not less than 30 days'
prior written notice; provided that before any redemption of Class A Warrants
can take place, the average closing price of the Company's Common Stock as
reported on Nasdaq shall have been $7.20 per share for 20 consecutive trading
days ending within 15 days prior to the date on which notice of redemption is
sent.
In order for a holder to exercise his or her Class A Warrants, and as
required in the Warrant Agreement, there must be a current registration
statement on file with the Securities and Exchange Commission and various state
securities commissions to continue registration of the shares of Common Stock
underlying such warrants. The Company will be required to file post-effective
amendments when events require such amendments. There can be no assurance that
the registration statement can be kept current. If it is not kept current for
any reason, the Class A Warrants will not be exercisable and will be deprived of
any value. The Company has agreed to use its best efforts to maintain a current
registration statement to permit the issuance of the Common Stock upon exercise
of the Class A Warrants.
Holders of the Class A Warrants will be protected against dilution of
the interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, stock dividends,
stock-splits, reclassifications and mergers. In the event of the complete
liquidation and dissolution of the Company, the Class A Warrants terminate.
Holders of the Class A Warrants will not have voting power and will not be
entitled to dividends. In the event of liquidation, dissolution or winding up of
the Company, holders of the Class A Warrants will not be entitled to participate
in the Company's assets.
Pursuant to the Underwriting Agreement, the Company has agreed to pay
to the Representative and/or any registered broker-dealer which is a member of
the National Association of Securities Dealers, Inc. ("NASD") a commission equal
to four percent of the exercise price of each Class A Warrant exercised
provided: (1) at least one year has elapsed from the date of this Prospectus,
(2) the market price for the Common Stock is greater than the exercise price of
the Class A Warrants; (3) the Representative or such other NASD broker-dealer
member has solicited the holder to exercise the Class A Warrant with
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<PAGE>
such solicitation being confirmed in writing by each holder; and (4) the
compensation arrangements were disclosed to the holder at the time of exercise,
such disclosure being confirmed in writing by said holder. The commission is
further conditioned upon the Company's Warrant Agent being furnished by the
Representative or NASD broker-dealer member with a certificate stating that:
(i) the Class A Warrants exercised were not held in a discretionary
account;
(ii) the Representative or the NASD member did not, within 10 business
days immediately preceding the solicitation of the exercise of the
Class A Warrant or the date of such exercise, bid for or purchase the
Common Stock of the Company or any securities of the Company
immediately convertible into or exchangeable for the Common Stock
(including the Class A Warrants) or otherwise engage in any activity
that would be prohibited by Regulation M under the Securities Exchange
Act of 1934, as amended, to one engaged in a distribution of the
Company's securities; and
(iii) in connection with the solicitation, the Representative and/or
the NASD member disclosed to the person exercising the Class A Warrant
the compensation it would receive upon exercise of the Class A Warrant.
In connection with the August 1995 Offering, the Company agreed to pay
a similar solicitation fee to the underwriter of the August 1995 Offering and/or
a NASD broker-dealer who solicited the exercise of a Class A Warrant issued in
connection with the August 1995 Offering.
Transfer Agent/Warrant Agent
The Company's transfer agent for the Common Stock and, Class A Warrants
is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004. Continental Stock Transfer & Trust Company also serves as the Warrant
Agent for the Class A Warrants.
SHARES AVAILABLE FOR FUTURE SALE
Immediately prior to the sale of the Common Stock hereunder, the
Company had an aggregate of 2,815,738 shares of its Common Stock issued and
outstanding, 315,356 of which are "restricted securities," which may be sold
only in compliance with Rule 144 under the Securities Act of 1933, as amended.
Rule 144 provides, in essence, that a person holding restricted securities for a
period of one year after payment therefor may sell, in brokers' transactions or
to market makers, an amount not exceeding 1% of the outstanding class of
securities being sold, or the average weekly reported volume of trading of the
class of securities being sold over a four-week period, whichever is greater,
during any three-month period. (Persons who are not affiliates of the Company
and who had held their restricted securities for at least two years are not
subject to the volume or transaction limitations.) Any such sales could have a
material adverse effect on the market price for the Common Stock, should a
trading market develop.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement by and between the Company and the Representative ("Underwriting
Agreement"), the Company has agreed to sell to the Underwriters, as set forth
below, for whom IAR Securities Corp. is the Representative, on a firm commitment
basis, a total of 700,000 Units, each unit consisting of one (1) share of Common
Stock and four (4) Class A Warrants.
Underwriters Number of Units
------------ ---------------
IAR Securities Corp. ............................. __________
________________ ............................. __________
Total.................................... 700,000
The Company has agreed to sell the Units to the Representative at a
discount of ten percent of the public offering price thereof. The Company has
also agreed to pay the Representative a nonaccountable expense allowance in the
amount of 3% of the offering price of the Units, including the Units purchased
pursuant to the Over-Allotment Option. In addition, the Company has agreed to
pay all costs of issuance of the Units, including blue sky fees and related
counsel fees, but not including fees and expenses of the Representative's
counsel. The Company estimates that it will incur costs of $225,000 in
connection with this Offering, not including the Representative's 3%
non-accountable expense allowance and the $70,000 financial consulting fee
payable to the Representative. As part of the underwriting arrangements, the
Company will enter into a contract to retain the Representative as a financial
consultant to the Company for a two-year period commencing as of the close of
the sale of the Securities offered hereby at an annual fee of $35,000, for a
total of $70,000, payable in full at the closing of this offering. The Company
has agreed to pay the Representative an investment banking fee for future
consummated transactions of the Company, if any, introduced by the
Representative, including mergers, acquisitions and joint ventures, during the
five years following the completion of the Offering equal to 5% of the first
$4,000,000 of consideration involved in the transaction, 4% of the next
$1,000,000, 3% of the next $1,000,000, and 2% of the excess, if any, over
$6,000,000.
The Company has agreed to indemnify the Representative against certain
liabilities which may be incurred in connection with this offering, including
certain civil liabilities under the Securities Act of 1933, as amended, and
where such indemnification is not available, to contribute to the payments the
Representative may be required to make in respect of such liabilities.
The Underwriting Agreement further provides that for three years after
the completion of this Offering, the Representative will have the right to
nominate one person to serve on the Company's Board of Directors, and upon such
nomination the Board shall take the action necessary to cause the
Representative's nominee to be elected to the Board. If the Representative does
not exercise this right, it may appoint an advisor, who will be entitled to
attend all meetings of the Board of Directors.
63
<PAGE>
The Company and its officer or directors have agreed not to issue,
sell, offer to sell or otherwise dispose of any shares of the Company's Common
Stock, or securities convertible into Common Stock, owned by them, for a period
of eighteen (18) months (twenty-four (24) months in case of the Company) from
the date of this Prospectus, without the prior written consent of the
Representative (other than (with respect to issuances by the Company) in certain
circumstances such as issuance of Common Stock by the Company in connection with
the exercise of outstanding warrants and up to 50,000 restricted shares to
employees and in connection with mergers and acquisitions, so long as such newly
issued shares (other than in connection with the exercise of outstanding
warrants) are not sold prior to the date which is twenty-four months from the
date of this Prospectus).
The Company has granted the Representative an Over-Allotment Option,
which is exercisable for 45 days from the date hereof, to purchase up to an
aggregate of 105,000 additional Units, all at the offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. The
Representative may exercise the Over-Allotment Option solely for the purpose of
covering over-allotments incurred in the sale of shares Units offered hereby.
The Representative has advised the Company that sales to certain
dealers may be made at a public offering price less a concession not in excess
of _%. The Representative does not intend to confirm sales of more than one
percent of the Units offered hereto to any accounts over which it exercises
discretionary authority.
The public offering price of the Units do not bear any relationship to
the assets or book value, net worth or other criteria of value of or applicable
to the Company.
The Underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934, as amended.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specific maximum. Syndicate covering transactions involve purchases of the
Company's securities in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Underwriter to reclaim a selling concession from a syndicate member when the
securities originally sold by such syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the securities to be higher than they would otherwise be in the absence
of such transactions.
The Company has agreed, upon completion of this offering, to sell to
the Representative or its nominee, for $.001 per option, the Representative's
Unit Purchase Option to purchase 70,000 Units each Unit consisting of one (1)
share of Common Stock and four (4) Class A Warrants. The Representative's Unit
Purchase Option will be exercisable for a four-year term, commencing one year
after the date of this Prospectus, at an exercise price of $8.00 per Unit, 160%
of the public offering price of the Units. The Representative's Unit Purchase
Option will be restricted from exercise, sale, transfer, assignment or
hypothecation (except to officers of the Representative or of any other
broker-dealer which participates
64
<PAGE>
in this Offering) for a period of one year from the date of this Prospectus. The
Representative's Unit Purchase Option also provides that on two occasions, upon
the request of the Representative or holders of a majority interest in the
Representative's Unit Purchase Option or the underlying securities, at any time
during the four-year period commencing one year after the Effective Date, the
Company will prepare and file a post-effective amendment or new registration
statement permitting the sale of the Representative's Unit Purchase Option
and/or the underlying securities and use its best efforts to keep the
registration statement effective for a nine-month period following the effective
date of such post-effective amendment or new registration statement. The Company
will bear the cost of the first such registration statement, but the holders
will bear all costs incident to the second such registration statement. If the
Company files a registration statement relating to an equity offering under the
provisions of the Securities Act at any time during the five-year period
commencing on the date of this Prospectus, the holders of the Representative's
Unit Purchase Option or underlying securities will have the right, subject to
certain conditions, to include in such registration statement, at the Company's
expense, all or part of the underlying securities at the request of the holders.
The number of Units covered by the Representative's Unit Purchase Option and the
exercise price are subject to adjustment upon certain events to prevent
dilution.
For the life of the Representative's Unit Purchase Option, the holders
thereof will have the opportunity to profit from a rise in the market price of
the Securities with a resulting dilution in the interests of other stockholders.
The Representative's registration rights may result in substantial expense to
the Company at a time when it may not be able to afford such expense and may
impede future financing. The Company may find that the terms on which it could
obtain additional capital may be adversely affected while the Representative's
Unit Purchase Option is outstanding.
The Company has also agreed to pay the Representative a warrant
solicitation fee equal to 4% of the Class A Warrant exercise price for any of
the publicly held Class A Warrants, when exercised, at any time commencing one
year after the date of this Prospectus, provided that the Representative or any
NASD member firm has solicited such exercise, as evidenced in writing signed by
the warrant holder, and that (a) the market price of the Common Stock on the
date that any such Class A Warrant is exercised is greater than the exercise
price of the Class A Warrant; (b) prior specific written approval for exercise
is received from the customer if the Class A Warrant is held in a discretionary
account; (c) disclosure of this compensation arrangement is made prior to or
upon the exercise of such Class A Warrant; (d) solicitation of the exercise is
not in violation of Regulation M of the Exchange Act; and (e) solicitation of
the exercise is in compliance with NASD Notice to Members 81-38. In addition,
unless granted an exemption by the Commission from Regulation M under the
Exchange Act, the Representative will be prohibited from engaging in any market
making activities or solicited brokerage activities with respect to the
Company's Securities for the period up to five business days prior to any
solicitation of the exercise of any Class A Warrant until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right the Representative may have to receive a fee for the
exercise of the Class A Warrants following such solicitation. As a result, the
Representative may be unable to continue to provide a market for the Company's
Securities during certain periods while the Warrants are exercisable.
65
<PAGE>
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus is a part also
relates to the offer and sale of 1,200,000 Class A Warrants issuable upon
exercise of the Convertible Bridge Notes and the shares of Common Stock
underlying such Class A Warrants (the "Selling Securityholder's Securities") by
the Selling Securityholders or their transferees. See "Bridge Financing." All of
such Class A Warrants are expected to become tradeable on or about the date of
this Prospectus. Sales of the Class A Warrants being offered by Selling
Securityholders or the Common Stock underlying the Class A Warrants, or even the
potential of such sales, would likely have an adverse effect on the market
prices of the Securities being offered for sale by the Company.
The following table sets forth the beneficial ownership of the
securities of the Company held by each person who is a Selling Securityholder
and by all Selling Securityholders as a group prior to this Offering and after
this Offering, assuming all of the Class A Warrants owned by the Selling
Securityholders are sold.
<TABLE>
<CAPTION>
Class A Percent of Class A
Warrants Owned Warrants Owned
----------------------- ---------------------
Prior to After Prior to After
Offering Offering Offering Offering
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Name of Beneficial Owner
Ekistics, Inc. (1) 300,000 0 12.84% 0%
Blue Star Group Investment, Ltd (2) 696,000 0 29.80% 0%
James Solakian 120,000 0 5.14% 0%
Bruce Ungerleider 30,000 0 1.28% 0%
Harold Yordy 27,000 0 1.16% 0%
Michael Yordy 27,000 0 1.16% 0%
Total 1,200,000 0 51.37% 0%
</TABLE>
- ----------
(1) The beneficial owners of such entity are Gregory Roberts and Noel
Roberts.
(2) Blue Star Group Investments, Ltd. is a corporation organized under the
laws of the British Virgin Islands. George Zahalan is the sole officer
and director of Blue Star Group Investments, Ltd. The sole shareholder
of Blue Star Group Investments, Ltd. is Med Trust Company Limited as
trustee of a trust, the grantor of which is David Meridor and whose
beneficiaries are members of the Meridor family.
None of the Selling Securityholders are affiliated with the Company in
any capacity, has had any business relationship with the Company at any time nor
owned any of the Company's Common Stock beneficially or of record prior to this
Offering (other than Mr. Solakian who is the owner of 107,250 shares of Common
Stock).
66
<PAGE>
The securities offered thereby may be sold from time to time directly
by the Selling Securityholders. Alternatively, the Selling Securityholders may
from time to time offer such securities through underwriters, dealers or agents.
The distribution of securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder, to the extent required, a prospectus will be
distributed which will set forth the number of securities being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for securities
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Exchange Act, and the regulations thereto, any person engaged
in a distribution of the securities of the Company offered by the Selling
Securityholders may not simultaneously engage in market-making activities with
respect to such securities of the Company during the applicable "cooling off"
period (up to 5 days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Regulation M, in
connection with transactions in such securities, which provisions may limit the
timing of purchase and sales of such securities by the Selling Securityholders.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York
10022. Bernstein & Wasserman, LLP has served, and continues to serve, as counsel
to the Representative on matters unrelated to this Offering. Certain legal
matters in connection with this offering will be passed upon for the
Representative by Lester Morse, P.C., 111 Great Neck Road, Great Neck, NY 11021.
67
<PAGE>
EXPERTS
The financial statements of Conolog Corporation have been included
herein and in the Registration Statement in reliance upon the report of
Rosenberg Rich Baker Berman & Company, independent certified public accounts,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
68
<PAGE>
Index to the Financial Statements
Conolog Corporation
July 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Reort ..................................... F-1
Balance Sheets - July 31, 1997 and 1996 ......................... F-2
Statements of Operations - Years Ended July 31, 1997,
1996 and 1995 ................................................. F-3
Statements of Stockholders' Equity (Deficiency) - Years
Ended July 31, 1997, 1996 and 1995 ............................ F-4
Statements of Cash Flows - Years Ended
July 31, 1997, 1996 and 1995 .................................. F-5
Notes to Financial Statements ................................... F-6-11
</TABLE>
<PAGE>
[LETTERHEAD OF ROSENBERG RICH BAKER BERMAN & COMPANY]
Independent Auditors' Report
Board of Directors
Conolog Corporation
We have audited the accompanying balance sheets of Conolog Corporation at July
31, 1997 and 1996 and the related statements of operations, stockholders' equity
(deficiency) and cash flows for each of the three years in the period ended July
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Conolog Corporation at July 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended July 31, 1997 in conformity with generally
accepted accounting principles. Furthermore, it is our opinion that the
schedules referred to above present fairly the information set forth therein in
compliance with the applicable accounting regulation of the Securities and
Exchange Commission.
Maplewood, New Jersey
October 13, 1997
F-1
<PAGE>
Conolog Corporation
Balance Sheets
<TABLE>
<CAPTION>
July 31,
-----------------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Assets
Current Assets
Cash $ 503,217 $ 178,213
--------------- --------------
Accounts receivable - less allowances of $6,000
and $14,000 in 1997 and 1996, respectively 109,571 304,020
--------------- --------------
Inventories
Finished goods 1,705,782 1,494,289
Work-in-process 498,070 129,675
Materials and supplies 969,940 1,313,816
--------------- --------------
3,173,792 2,937,780
Other current assets 44,085 43,517
Deferred offering costs 113,813 -
--------------- --------------
3,944,478 3,463,530
--------------- --------------
Property, Plant and Equipment
Land and improvements 34,524 34,524
Building and improvements 663,630 659,477
Machinery and equipment 1,291,838 1,289,578
Furniture and fixtures 336,001 330,735
--------------- --------------
2,325,993 2,314,314
Less allowance for depreciation and amortization 1,938,188 1,880,408
--------------- --------------
387,805 433,906
--------------- --------------
Other assets 7,469 30,398
--------------- --------------
Total Assets $ 4,339,752 $ 3,927,834
=============== ==============
</TABLE>
See notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
July 31,
-----------------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Liabilities
Current Liabilities
Note payable - bank $ - $ 1,012,500
Notes payable - other 916,235 -
Accounts payable 188,510 280,629
Accrued payroll 15,644 41,716
Accrued interest 17,374 64,699
Bridge loan 200,000 -
Other accrued expenses 146,791 115,723
Current maturities of capitalized lease obligations 3,802 33,282
--------------- --------------
Total Current Liabilities 1,488,356 1,548,549
--------------- --------------
Other Liabilities
Capitalized lease obligations, less current maturities - 4,973
--------------- --------------
Stockholders' Equity
Preferred Stock, par value $.50; Series A; 4% cumulative;
162,000 shares authorized; 155,000 shares issued and
outstanding 77,500 77,500
Preferred Stock, par value $.50; Series B; $.90 cumulative;
50,000 shares authorized; issued and outstanding 1,197
shares in 1997 and 1,167 in 1996 597 597
Common Stock, par value $1.00; 20,000,000 shares
authorized; issued 2,803,473 shares in 1997 and
1,035,186 in 1996, including 8,776 shares held in Treasury 2,803,473 1,035,186
Additional Paid-In Capital 3,782,513 4,401,636
Retained Earnings (Deficit) (3,680,953) (3,008,873)
Treasury Shares at Cost (131,734) (131,734)
--------------- --------------
Total Stockholders' Equity 2,851,396 2,374,312
--------------- --------------
Total Liabilities and Stockholders' Equity $ 4,339,752 $ 3,927,834
=============== ==============
</TABLE>
F-2
<PAGE>
Conolog Corporation
Statements of Operations
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Sales and other income $ 1,123,390 $ 1,924,466 $ 2,090,933
--------------- --------------- ---------------
Costs and Expenses:
Cost of products sold 917,379 1,242,001 1,270,771
Selling, general and administrative 758,880 946,954 924,524
Interest 81,026 131,854 253,686
Write-off of obsolete or excess inventories 28,101 50,281 656,248
--------------- --------------- ---------------
1,785,386 2,371,090 3,105,229
--------------- --------------- ---------------
Loss Before Income Taxes and Extraordinary Items (661,996) (446,624) (1,014,296)
Income taxes (benefit) 10,084 200 (492,252)
--------------- --------------- ---------------
Net Loss Before Extraordinary Items (672,080) (446,824) (522,044)
Extraordinary Item - 740,376 -
--------------- --------------- ---------------
Net Income (Loss) $ (672,080) $ 293,552 $ (522,044)
=============== =============== ===============
(Loss) from Continuing Operations Per Share $ (.42) $ (.43) $ (12.01)
=============== =============== ===============
Net Income (Loss) Per Share - Primary $ (.42) $ .28 $ (12.01)
=============== =============== ===============
- Fully Diluted $ (.42) $ .20 $ (12.01)
=============== =============== ===============
</TABLE>
See notes to the financial statements.
F-3
<PAGE>
Conolog Corporation
Statement of Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>
Series A Series B Additional
Preferred Preferred Common Paid-in
Stock Stock Stock Capital
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at July 31, 1994 $ 77,500 $ 10,661 $ 52,239 $ 952,994
Net loss for the year - - - -
--------------- --------------- -------------- ---------------
Balance at July 31, 1995 77,500 10,661 52,239 952,994
Public stock offering - (10,064) 982,947 3,448,642
Net income for the year - - - -
--------------- --------------- -------------- ---------------
Balance at July 31, 1996 77,500 597 1,035,186 4,401,636
Debt to equity conversion - - 1,408,787 (277,623)
Additional shares issued to
employees - - 359,500 (341,500)
Net loss for the year - - - -
--------------- --------------- -------------- ---------------
Balance at July 31, 1997 $ 77,500 $ 597 $ 2,803,473 $ 3,782,513
=============== =============== ============== ===============
<CAPTION>
Total
Stockholders
Retained '
Earnings Treasury Equity
(Deficit) Stock (Deficiency)
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance at July 31, 1994 $ (2,383,794) $ (131,734) $ (1,422,134)
Net loss for the year (522,044) - (522,044)
-------------- --------------- ---------------
Balance at July 31, 1995 (2,905,838) (131,734) (1,944,178)
Public stock offering (396,587) - 4,024,938
Net income for the year 293,552 - 293,552
-------------- --------------- ---------------
Balance at July 31, 1996 (3,008,873) (131,734) 2,374,312
Debt to equity conversion - - 1,131,164
Additional shares issued to
employees - - 18,000
Net loss for the year (672,080) - (672,080)
-------------- --------------- ---------------
Balance at July 31, 1997 $ (3,680,953) $ (131,734) $ 2,851,396
============== =============== ===============
</TABLE>
See notes to the financial statements.
F-4
<PAGE>
Conolog Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) $ (672,080) $ 293,552 $ (522,044)
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities
Common stock base compensation 18,000 - -
Deferred income taxes - 492,352 (492,352)
Depreciation and amortization 57,781 64,994 60,396
Gain on disposition of equipment - (3,420) -
Provision for losses on accounts receivables (8,000) 9,000 -
(Increase) Decrease in Operating Assets
Accounts receivable 202,449 (141,479) 74,529
Inventories (236,012) (339,653) 392,058
Other current assets (568) (17,834) (3,394)
Increase (Decrease) in Operating Liabilities
Accounts payable (92,119) (7,001) 12,330
Accrued expenses and other liabilities 76,335 (1,068,177) 417,484
-------------- ------------- -------------
Net Cash (Used) by Operating Activities (654,214) (717,666) (60,993)
-------------- ------------- -------------
Cash Flows From Investing Activities
Purchase of property, plant and equipment (11,680) (43,163) (19,625)
Proceeds from sale of equipment - 18,666 -
-------------- ------------- -------------
Net Cash Used in Investing Activities (11,680) (24,497) (19,625)
-------------- ------------- -------------
Cash Flows From Financing Activities
Deferred offering costs (113,813) 86,154 (86,154)
Increase from public stock offering - 4,421,525 -
Proceeds from borrowings 916,235 - -
Increase (Decrease) in bridge loan 200,000 (200,000) 200,000
Repayments of long-term borrowings (34,453) (2,836,008) (38,681)
(Increase) reductions in other assets 22,929 (20,580) 325
Dividends paid - (396,587) -
Increase (decrease) in due to officers - (161,705) 17,302
-------------- ------------- -------------
Net Cash Provided by Financing
Activities 990,898 892,799 92,792
-------------- ------------- -------------
Net Increase in Cash 325,004 150,636 12,174
Cash at Beginning of Period 178,213 27,577 15,403
-------------- ------------- -------------
Cash at End of Period $ 503,217 $ 178,213 $ 27,577
============== ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest paid $ 77,349 $ 772,773 $ 102,816
Taxes paid $ 10,084 $ 125 $ 50
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Capitalized lease obligations incurred for use of
equipment $ - $ - $ 56,550
Additional common stock was issued upon conversion of
$1,131,164 of long-term debt and accrued interest payable.
</TABLE>
See notes to the financial statements.
F-5
<PAGE>
Conolog Corporation
Notes to the Financial Statements
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The principal business activity of Conolog Corporation (the "Company")
is the design, manufacturing and distribution of small electronic and
electromagnetic components and subassemblies for use in telephone,
radio and microwave transmission and reception and other communication
areas. The Company's products are used for transceiving various
quantities, data and protective relaying functions in industrial,
utility and other markets. The Company's customers include primarily
industrial customers, which include power companies and various
branches of the military.
Revenue Recognition
Sales are recognized when the products are shipped. Sales under certain
fixed-price-type contracts, where progress payments are received, are
recognized when work is performed, under the percentage-of-completion
method, in accordance with Statement of Position 81-1, Accounting for
Performance of Construction Type and Certain Production-Type contracts.
Inventories
Inventories are stated principally at average cost which is not in
excess of market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less allowances for
depreciation and amortization. Depreciation and amortization are
computed by the straight-line method over the estimated useful lives of
the assets.
Income (Loss) Per Share of Common Stock
Income (loss) per share of common stock is computed by dividing net
earnings (loss) (after dividends on preferred shares) by the weighted
average number of shares of Common Stock outstanding during the year.
The effect of assuming the exchange of the Series A Preferred Stock and
Series B Preferred Stock in 1997 and 1995 would be anti-dilutive.
Income Taxes
Deferred income taxes have been provided for in accordance with
Statement No. 109 of the Financial Accounting Standards Board. Deferred
income taxes arise from timing differences resulting from income and
expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or
noncurrent, depending on the classification of the assets and
liabilities to which they related. Deferred taxes arising from timing
differences that are not related to an asset or liability are
classified as current or noncurrent depending on the periods in which
the timing differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-6
<PAGE>
Conolog Corporation
Notes to the Financial Statements
NOTE 2 - WRITE-OFF OF OBSOLETE OR EXCESS INVENTORIES
During 1997, the Company recorded a write-off of obsolete or excess
inventories of $28,101. During 1996 and 1995, the Company recorded a
write-off of obsolete or excess inventories of $50,281 and $656,248,
respectively.
The inventory written off was military related. In management's opinion
these items will not be reordered in the foreseeable future.
NOTE 3 - NOTES PAYABLE - BANK
On September 11, 1996, the Company entered into an allonge agreement with
the bank whereby the bank may at any time before April 15, 1997 convert the
then unpaid amount of principal and interest due under the Amended and
Restated Term Note dated as of August 2, 1995 in the original principal
amount of $1,025,000 into 1,400,000 shares of the Company's Common Stock
(the "Notes Shares").
On September 12, 1996 the bank entered into an option and purchase, sale
and assignment agreement (the "Option Agreement") with CNL Holdings, Inc.
(CNL) whereby the bank would sell the Note Shares referred to above, along
with the 375,000 common shares of the Company it currently owns (the "Bank
Shares") for $1,500,000 to CNL.
On September 12, 1996 CNL entered into an agreement with the Company
whereby the Company would use its best efforts to file a Registration
Statement with the Securities and Exchange Commission covering the 375,000
Bank Shares and the 1,400,000 Note Shares (collectively the "Acquired
Shares"). Such Registration Statement shall be declared effective as soon
as possible after the filing thereof, and kept current and effective for a
period of two years or until such time as all shares registered pursuant
therewith have been sold or otherwise transferred. The proceeds of the sale
of the Acquired Shares shall be applied as follows: The first $1,500,000
shall be paid to reimburse CNL for payments made to the bank pursuant to
the Option Agreement. Fifty percent of the balance of the proceeds, not to
exceed $2,500,000, shall be loaned to the Company by CNL. The balance of
the proceeds belong to CNL. The amounts loaned by CNL to the Company shall
be evidenced by notes which shall be due twelve months after making such
loan and shall bear interest at the rate of 4% per annum. At maturity of
the loans, the Company will have the option to repay the loan balance and
accrued interest by issuing a new Series C Preferred Stock (the "Preferred
Stock") valued at $5.00 per share. The Preferred Stock will be non-voting
and will carry a cumulative dividend of 8% per annum, which may be payable
by the issuance of shares of common stock valued at $5.00 per share up to a
maximum of 40,000 shares per annum.
On January 31, 1997, the Bank and Conolog entered into Amendment No. 1 to
the Option and Purchase, Sale and Assignment Agreement dated September 12,
1996. The amended Option Agreement now provides that on or before February
5, 1997, CNL will purchase from the Bank for an aggregate purchase price of
$600,000, no less than (i) 133,333 shares of Common Stock for $399,999,
subject to the approval of IAR Securities Corp. and (ii) $200,001 of the
Debt Claim represented by the note. CNL thereafter may exercise the
remainder of the option on or before April 15, 1997. In addition, CNL may
purchase from the Bank additional shares of Common Stock owned by the Bank
at the price of $3.00 per share and portions of the Debt Claim from time to
time. On February 3, 1997, CNL paid the Bank $600,000 consummating the
purchase of the above 200,000 shares. On January 31, 1997, $200,001 of the
Debt to the Bank was adjusted resulting in all accrued interest in the
amount of $106,298 being reduced and the remaining being applied to
principal.
F-7
<PAGE>
Conolog Corporation
Notes to the Financial Statements
NOTE 3 - NOTES PAYABLE - BANK (Continued)
On March 26, 1997, CNL completed the exercise of the "Option Agreement"
with the Bank effectively eliminating all debts and liens with the Bank.
NOTE 4 - NOTES PAYABLE - OTHER
CNL Holdings, Inc. loaned the Company $916,235. The notes will be due
during the fiscal year July 31, 1998 and shall bear interest at the rate of
4% per annum. The loans are payable in cash or Series C Preferred Stock, at
the Company's option at $5.00 per share. Interest is payable in Common
Stock up to a maximum of 40,000 shares per annum.
There is no relationship between CNL Holdings and the Company except as
specifically detailed above.
NOTE 5 - BRIDGE LOAN
The Company received $200,000 in net proceeds from several investors in a
private placement. Each investor received two (2) Promissory Notes.
Promissory Notes (the "Final Note") totaling $150,000 are due and payable
on the earlier of January 31, 1999 or the closing of the Company's next
public offering. The Second Convertible Note (the "Second Note"), totaling
$50,000 plus accrued interest is payable on the earlier of January 31, 1999
or the closing of the Company's next public offering, or convertible at the
time the next Registration Statement is declared effective by the
Securities and Exchange Commission and at the option of the selling
security holders into a total of 1.2 million Class A Warrants. Each Class A
Warrant contained in the Second Note is identical to the Company's
currently outstanding Class A Warrants.
The Company has granted the lenders a security interest in its property
located at 5 Columbia Road, Somerville, NJ (collateral).
NOTE 6 - LEASES
The Company leases automobiles, machinery and equipment, and furniture and
fixtures under leases which expire over the next three years. The rental
payments are based on minimum rentals and charges for mileage in excess of
specified amounts for the automobiles. The leases for machinery and
equipment and furniture and fixtures contain a bargain purchase option
exercisable after the initial lease term.
Property, plant and equipment include the following amounts for leases that
have been capitalized:
<TABLE>
<CAPTION>
July 31,
------------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Machinery and equipment $ 303,574 $ 303,574
Less allowance for amortization 273,538 263,832
--------------- ---------------
$ 30,036 $ 39,742
=============== ===============
</TABLE>
F-8
<PAGE>
Conolog Corporation
Notes to the Financial Statements
NOTE 6 - LEASES (Continued)
Lease amortization is included in depreciation expense.
Future minimum payments, by year and in the aggregate, under capital leases
consisted of the following as of July 31, 1997:
<TABLE>
<CAPTION>
1998
<S> <C>
Total minimum lease payments $ 4,208
Less amounts representing interest 406
--------------
Present value of net minimum lease payments 3,802
Less, current maturities of capitalized lease obligations 3,802
--------------
Long-term capitalized lease obligations $ 0
==============
</TABLE>
The Company leases various equipment under noncancellable operating leases
expiring through July 2000. Future minimum rental payments under the above
leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ended July 31,
1998 $ 4,808
1999 4,808
2000 4,808
--------------
$ 14,424
==============
</TABLE>
Total rental expense for all operating leases of the Company amounted to
approximately $7,659, $10,353 and $11,447 during the years ended July 31,
1997, 1996 and 1995, respectively.
NOTE 7 - CAPITAL STOCK
The Series A Preferred Stock provides 4% ($.02 per share) cumulative
dividends, which were $86,800 in arrears at July 31, 1997. In addition,
each share of Series A Preferred Stock may be exchanged for one share of
Common Stock upon surrender of the Preferred Stock and payment of $1,200
per share. The Company may redeem the Series A Preferred Stock at $.50 per
share plus accrued and unpaid dividends.
The Series B Preferred Stock provides cumulative dividends of $.90 per
share which were $27,937 in arrears at July 31, 1997. In addition, each
five shares of Series B Preferred Stock is convertible into 1 share of
Common Stock. The Company may redeem the Series B Preferred Stock at $15
per share plus accrued and unpaid dividends.
The Company has reserved 155,392 shares of Common Stock for Series A and B
Preferred Stock.
F-9
<PAGE>
Conolog Corporation
Notes to the Financial Statements
NOTE 8 - EXTRAORDINARY ITEM
On August 16, 1995 the Company's Bank debt was restructured resulting in
debt forgiveness of $1,232,728. This created a deferred tax asset at July
31, 1995 of $492,352. When the debt forgiveness occurred, the Company wrote
off its deferred tax asset against the forgiveness of debt, resulting in
extraordinary income of $740,376.
NOTE 9 - INCOME TAXES
Income taxes are comprised of the following:
<TABLE>
<CAPTION>
July 31,
----------------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred Income Taxes (Benefit) $ - $ - $ (492,352)
Current Income Taxes
Federal 9,884 - -
State 200 200 100
-------------- -------------- --------------
$ 10,084 $ 200 $ (492,252)
============== ============== ==============
</TABLE>
Taxable income differs from financial statement income due to the effect of
non-deductible permanent tax differences. These permanent tax differences
include officer's life insurance premiums and non-deductible entertainment
expenses.
At July 31, 1997 the Company has a net operating loss carryforward of
approximately $2,671,000 for financial reporting purposes and approximately
$2,443,000 for tax purposes which is available to offset future Federal
taxable income. For Federal purposes, $253,000 of the carryforward expires
in 2008, $1,232,000 expires in 2009 and $957,000 expires in 2010. For state
purposes the carryforward is approximately $1,604,000; $706,000 expires in
in 2001 and $898,000 expires in 2002. Also, at July 31, 1997 the Company
has unused tax credits available of approximately $103,300 of which $12,100
expires in 2000, $26,300 in 2001 and $64,900 in 2002.
The above net operating loss created deferred tax asset that has been fully
reserved. The amount is $1,329,286.
NOTE 10 - MAJOR CUSTOMERS AND EXPORT SALES
The following summarizes sales to major customers (each 10% or more of net
sales) by the Company:
<TABLE>
<CAPTION>
Sales to
Major Number of Percentage
Year Ended Customers Customers of Total
-------------- --------------- ---------------
<S> <C> <C> <C>
1997 $ 625,134 3 57
1996 401,840 1 21
1995 424,849 1 20
</TABLE>
During 1997 the Company had no export sales. During 1996 the Company
had export sales of $401,840 and none in 1995.
F-10
<PAGE>
Conolog Corporation
Notes to the Financial Statements
NOTE 11 - SUBSEQUENT EVENTS
On September 12, 1997 the Company filed a Registration Statement (S-1) with
the Securities and Exchange Commission. This Statement covers the primary
offering of securities by the Company and the offering of other securities
by certain selling security holders. The Company is registering, under the
primary prospectus 805,000 Units, each unit consisting of one (1) share of
Common Stock and four (4) Class A Warrants. The selling security holders
are registering under an alternate prospectus 1,200,000 Class A Warrants.
At July 31, 1997 all costs associated with this offering were deferred.
These costs will be deducted from the proceeds from the sale of stock.
F-11
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to make such offer or solicitation in such
jurisdiction.
----------
TABLE OF CONTENTS
Page
Prospectus Summary............................................
The Offering..................................................
Summary Financial
Information.................................................
Risk Factors..................................................
Use Of Proceeds...............................................
Capitalization................................................
Bridge Financing..............................................
Dividends.....................................................
Selected Financial Information................................
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................................................
Market Price for Securities ..................................
Business......................................................
Management....................................................
Certain Relationships
and Related Transactions.....................................
Principal Shareholders........................................
Description of
Securities...................................................
Shares Available for
Future Sales.................................................
Underwriting..................................................
Selling Securityholders.......................................
Legal Proceedings.............................................
Legal Matters.................................................
Experts.......................................................
Financial Statements..........................................
----------
Until ________________,1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
700,000 UNITS
CONOLOG CORPORATION
PROSPECTUS
IAR Securities Corp.
______ __, 1997
<PAGE>
Subject to Completion, dated _____ __, 1997
Alternate Prospectus
CONOLOG CORPORATION
1,200,000 Class A Common Stock Purchase Warrants
The securities offered hereby consist of 1,200,000 Class A Common Stock
Purchase Warrants ("Class A Warrants"), of Conolog Corporation, a Delaware
corporation ("Conolog" or the "Company") which have been issued to certain
non-affiliated persons (the "Selling Securityholders"). Each Class A Warrant
entitles the holder to purchase one share of the Company's Common Stock, at an
exercise price of $6.00, subject to adjustment, at any time through August 31,
2002. The Class A Warrants are subject to redemption by the Company commencing
the earlier of (i) 24 months from the date of this Prospectus or (ii) 12 months
from the date of this Prospectus, with the consent of IAR Securities Corp., on
not less than 30 days' notice at $.05 per Warrant, provided the average closing
price of the Common Stock for 20 consecutive trading days ending within 15 days
prior to the notice exceeds $7.20 per share. See "Description of Securities".
The Class A Warrants offered by this Prospectus may be sold from time
to time by the Selling Securityholders or their transferees. No underwriting
arrangements have been entered into by the Selling Securityholders. The
distribution of the securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as principals
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specially negotiated brokerage fees may be paid by the Selling Securityholders
in connection with sales of such securities.
On the date hereof the Company commenced a public offering of 700,000
Units, each Unit consisting of one (1) share of Common Stock and four (4) Class
A Warrants. See "Concurrent Sales."
The Company will not receive any of the proceeds for the sale of
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne by
the Company. See "Selling Securityholders."
The Company's Common Stock and Class A Warrants are currently trading
on the Nasdaq SmallCap Market ("Nasdaq"). On _________, 1997, the closing price
for the Common Stock and Class A Warrants were $_______ and $______,
respectively.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. AN INVESTMENT IN THESE SECURITIES SHOULD BE CONSIDERED ONLY BY THOSE
PERSONS CAPABLE OF SUSTAINING THE LOSS OF
A-1
<PAGE>
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" WHICH BEGIN ON PAGE _____ AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____________________, 1997
A-2
<PAGE>
CONCURRENT SALES
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering (the "Offering")
of securities by the Company was declared effective by the Securities and
Exchange Commission ("SEC"), and the Company commenced the sale of the
securities offered thereby. The securities consist of 700,000 Units, each unit
consisting of one (1) share of Common Stock and (4) Class A Warrants (without
giving effect to the Over-Allotment Option granted to the Representative of the
Offering). Sales of securities under this Prospectus by the Selling
Securityholders or even the potential of such sales may have an adverse effect
on the market price of the Company's securities.
SELLING SECURITYHOLDERS
This registration statement, of which this Prospectus forms a part,
also covers the registration of 1,200,000 Class A Warrants. All of such
securities are expected to become tradeable on or about the date of this
Prospectus. Sales of the Class A Warrants being offered by the Selling
Securityholders hereby or the Common Stock underlying the Class A Warrants or
even the potential of such sales, would likely have an adverse effect on the
market prices of the securities being offered for sale by the Company.
The following table sets forth the beneficial ownership of the
securities of the Company held by each person who is a Selling Securityholder
and by all Selling Securityholders as a group prior to this Offering and after
this Offering, assuming all of the Class A Warrants owned by the Selling
Securityholders are sold.
<TABLE>
<CAPTION>
Class A Percent of Class A
Warrants Owned Warrants Owned
----------------------- --------------------
Prior to After Prior to After
Offering Offering Offering Offering
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Name of Beneficial Owner
Ekistics, Inc.(1) ...................... 300,000 0 12.84% 0%
Blue Star Group Investment, Ltd (2) .... 696,000 0 29.80% 0%
James Solakian ......................... 120,000 0 5.14% 0%
Bruce Ungerleider ...................... 30,000 0 1.28% 0%
Harold Yordy ........................... 27,000 0 1.16% 0%
Michael Yordy .......................... 27,000 0 1.16% 0%
Total ......................... 1,200,000 0 51.37% 0%
</TABLE>
(1) The beneficial owners of such entity are Gregory Roberts and Noel
Roberts.
A-3
<PAGE>
(2) Blue Star Group Investments, Ltd. is a corporation organized under the
laws of the British Virgin Islands. George Zahalan is the sole officer
and director of Blue Star Group Investments, Ltd. The sole shareholder
of Blue Star Group Investments, Ltd. is Med Trust Company Limited as
trustee of a trust, the grantor of which is David Meridor and whose
beneficiaries are members of the Meridor family.
None of the Selling Securityholders are affiliated with the Company in
any capacity, has had any business relationship with the Company at any time nor
owned any of the Company's Common Stock beneficially or of record prior to this
Offering (other than Mr. Solakian who is the owner of 107,250 hares of Common
Stock).
The securities offered thereby may be sold from time to time directly
by the Selling Securityholders. Alternatively, the Selling Securityholders may
from time to time offer such securities through underwriters, dealers or agents.
The distribution of securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder, to the extent required, a prospectus will be
distributed which will set forth the number of securities being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for securities
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Exchange Act, and the regulations thereto, any person engaged
in a distribution of the securities of the Company offered by the Selling
Securityholders may not simultaneously engage in market-making activities with
respect to such securities of the Company during the applicable "cooling off"
period (up to 5 days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Regulation M, in
connection with transactions in such securities, which provisions may limit the
timing of purchase and sales of such securities by the Selling Securityholders.
A-4
<PAGE>
PLAN OF DISTRIBUTION
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions, privately-negotiated transactions or through sales to one
or more broker-dealers for resale of such shares as principals, including the
Representative, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Securityholders in connection with such sales of securities. The
Selling Securityholders and intermediaries through whom such securities are sold
may be deemed "underwriters" within the meaning of the Securities Act with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
At the time of particular offer of securities is made by or on behalf
of a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for shares
purchased from the Selling Securityholder and the discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
A-5
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to make such offer or solicitation in such
jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary...........................................
The Offering.................................................
Summary Financial
Information................................................
Risk Factors.................................................
Use of Proceeds of Company Offering..........................
Capitalization...............................................
Bridge Financing.............................................
Dividends....................................................
Selected Financial Information...............................
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations..................................................
Market Price for Securities..................................
Business.....................................................
Management...................................................
Certain Relationships
and Related Transactions....................................
Principal Shareholders.......................................
Description of
Securities..................................................
Shares Available for
Future Sales................................................
Concurrent Sales.............................................
Selling Securityholders......................................
Plan of Distribution.........................................
Legal Proceedings............................................
Legal Matters................................................
Experts......................................................
Financial Statements.........................................
Until _____________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
1,200,000 CLASS A WARRANTS
CONOLOG CORPORATION
------------
PROSPECTUS
------------
_______ __, 1997
--------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this offering are as follows:
<TABLE>
<S> <C>
SEC filing fee ................................. $ 9,975.24
Nasdaq filing fee .............................. $ 7,500.00
NASD filing fee ................................ $ 3,776.50
Printing and engraving* ........................ $ 40,000.00
Transfer Agent Fees* .......................... $ 2,500.00
Legal fees and expenses* ....................... $ 90,000.00
Accounting fees and expenses* .................. $ 25,000.00
Blue Sky fees and expenses* ................... $ 30,000.00
Miscellaneous expenses* ........................ $ 16,248.26
--------------
Total ................................. $ 225,000.00
</TABLE>
- ------------------------------------
* Indicates expenses that have been estimated for the purpose of filing.
Item 14. Indemnification of Directors and Officers.
Indemnification is provided for in Article Eighth of the Company's
Certificate of Incorporation and such provisions are incorporated herein by
reference.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation to provide indemnification to a director, officer,
employee or agent of the corporation, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding, if such party acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful as
determined in accordance with the statute, and except that with respect to any
action which results in a judgment against the person and in favor of the
corporation the corporation may not indemnify unless a court determines that the
person is fairly and reasonably entitled to the indemnification.
Section 145 further provides that indemnification shall be provided if
the party in question is successful on the merits.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such
II-1
<PAGE>
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person in connection with the
securities being registered) the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities.
There were no underwriting discounts and commissions paid in connection
with the issuance of any shares of Common Stock within the last three (3) years
prior to the date of this Registration Statement other than those paid to I.A.
Rabinowitz & Co., the underwriter of the August 1995 Offering.
On August 16, 1995, holders of 19,360 shares of the Company's Series B
Preferred Stock (Robert Benou and Arpad J. Havasy, officers and directors of the
Company) converted their shares of Series B Preferred Stock into 387,200 shares
of Common Stock (3,872 post-split shares).
On August 16, 1995, $381,533 of the $420,179 of accrued dividends on
the Series B Preferred Stock at December 31, 1994 were converted into 76,306
shares of Common Stock and the remaining dividends due to such holders (Messrs.
Benou and Havasy, officers and directors of the Company) were waived.
On August 16, 1995, accrued salaries of $309,109 owed by the Company to
Mr. Benou (President and Director) were converted into 61,822 shares of Common
Stock
On August 16, 1995, Chase Manhattan Bank converted approximately
$3,000,000 of debt into 375,000 shares of Common Stock.
Each of the foregoing transactions was exempt from registration under
Section 4(2) of the Act as transactions by an issuer not involving a public
offering (as such sales were made to officers, directors or lenders of the
Company). In each case the offering was only made to a limited number of
offerees, all of whom had a long standing close relationship to the issuer, and
was effected by direct negotiation with the issuer.
In December 1996 and January 1997, the Company obtained bridge
financing from six (6) lenders (Ekistics, Inc. - $50,000; James Solakian -
$20,000; Bruce Ungerleider - $5,000; Harold Yordy - $4,500; Michael Yordy -
$4,500; and Blue Star Group Investment, Ltd. - $116,000), in the amount of
$200,000. These lenders are the individuals identified in this Prospectus as
"Selling Securityholders." In exchange for making the loans to the Company, each
Selling Securityholders received two (2) promissory notes (the "Bridge Notes").
Certain Bridge Notes are in the aggregate principal amount of $150,000 (the
"Principal Bridge Notes") and the other Bridge Notes are in the aggregate
principal amount of $50,000 (the "Convertible Bridge Notes"). Each of the Bridge
Notes bears interest at the rate of eight percent (8%) per annum. The Bridge
Notes are due and payable upon the earlier of (i) January 31, 1999 or (ii) the
date on which this offering closes. The Convertible Bridge Notes are convertible
into a total of 1,200,000 Class A Warrants. Each Class A Warrant contained in
the Convertible Bridge Notes is identical to the Class A Warrants offered
hereby. See "Bridge Financing. "The foregoing transaction was exempt from
registration under Section 4(2) of the Act as a transaction by an issuer not
involving
II-2
<PAGE>
a public offering. The offering was only made to a limited number of offerees,
the offering was relatively small and was effected by direct negotiation with
the issuer.
In September 1997, the Company issued 360,000 shares of Common Stock to
eight individuals, all of whom are employees of the Company, as follows: Robert
Benou (200,000), Arpad Havasy (50,000), Marc Benou (50,000) Thomas Fogg
(25,000), Dina Stellwagen (20,000), Louis Massad (10,000), Mary Ann Edwards
(2,500) and Albert S. Lenhardt (2,000). The foregoing transaction was exempt
from registration under Section 4(2) of the Act as a transaction by an issuer
not involving a public offering. The offering was only made to a limited number
of offerees, all of whom had a employer-employee relationship with the issuer,
and involved no investment decision on behalf of such employees.
II-3
<PAGE>
Item 16. Exhibits.
Exhibit No. Description of Exhibit
- ----------- ----------------------
1(aa)+ Form of Underwriting Agreement
1(b)(b)+ Form of Selected Dealer Agreement.
3(a) Certificate of Incorporation - incorporated by reference
to the Registrant's Exhibit 3.01 to Registration Statement
on Form S-1 (File No. 2-31302).
(b) Certificate of Amendment of Certificate of Incorporation -
incorporated by reference to Exhibit 3.02 to the
Registrant's Registration Statement on Form S-1 (File No.
2-31302).
(c) Certificate of Amendment of Certificate of Incorporation
incorporated by reference to Exhibit 4 to the Registrant's
Current Report on Form 8-K for July 1971.
(d) Certificate of Ownership and Merger with respect to the
merger of Data Sciences (Maryland) into the Registrant and
the change of Registrant's name from "Data Sciences
Incorporated" to "DSI Systems, Inc." - incorporated by
reference to Exhibit 3.03(a) to the Registrant's
Registration Statement on Form S-1 (File No. 2-31302).
(e) Certificate of the Designation, Preferences and Relative,
Participating, Option or Other Special Rights and
Qualifications, Limitations or Restrictions thereof of the
Series A Preferred Stock (par value $.50) of DSI Systems,
Inc. - incorporated by reference to Exhibit 3.04 to the
Registrant's Registration Statement on Form S-1 (File No.
2-31302).
(f) Certificate of the Designation, Preferences and Relative,
Participating, Option or Other Special Rights and
Qualifications, Limitations or Restrictions thereof of the
Series B Preferred Stock (par value $.50) of DSI Systems,
Inc. - incorporated by reference to Exhibit 1 to the
Registrant's Current Report on Form 8-K for November 1972.
(g) Certificate of Ownership and Merger respecting merger of
Conolog Corporation into the Registrant and the changing
of the Registrant's name from "DSI Systems, Inc." to
"Conolog Corporation" - incorporated by reference to
Exhibit 3 to the Registrant's Current Report on Form 8-K
for June 1975.
(h) Amended By-Laws - incorporated by reference to Exhibit
3(h) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1981.
(i)++ Certificate of Amendment of Certificate of Incorporation
filed August 17, 1995.
(j)++ Certificate of Amendment of Certificate of Incorporation
filed November 19, 1997.
4(a)** Specimen Certificate for shares of Common Stock
II-4
<PAGE>
(b)** Specimen Certificate for Class A Warrant
(c)** Warrant Agreement between Conolog Corporation and
Continental Stock Transfer & Transfer Co.
(cc)* Form of Amended and Restated Warrant Agreement between
Conolog Corporation and Continental Stock Transfer & Trust
Co.
(dd)+ Form of Representative's Unit Purchase Option
(ee)+ Form of Financial Consulting Agreement
5.1* Opinion of Bernstein & Wasserman on legality of securities
being registered.
10.1 Credit Facility documents between Manufacturers Hanover
Trust Company and the Registrant pursuant to which
Registrant obtained a Credit Facility for $4,000,000 -
incorporated by reference to Exhibit 6A-D to the
Registrant's Current Report on Form 8-K dated April 5,
1989.
10.2** Conolog Corporation 1995/1996 Stock Option Plan.
10.3*** Option and Purchase, Sale and Assignment Agreement,
dated as of September 12, 1996 by and between The Chase
Manhattan Bank and CNL Holdings, Inc.
10.3(A)***** Amendment No. 1 dated January 3, 1997 to Option and
Purchase, Sale and Assignment Agreement (dated as of
September 12, 1996), by and between The Chase Manhattan
Bank and CNL Holdings, Inc.
10.4*** Irrevocably Proxy dated as of September 12, 1996 by and
between CNL Holdings, Inc. and Conolog Corporation.
10.5*** Agreement dated September 12, 1996 by and between CNL
Holdings, Inc. and Conolog Corporation.
10.5(A)** Amendment No. 1 dated January 31, 1997 to Conolog
Corporation Allonge.
10.6+ Employment Agreement dated June 1, 1997 between Robert
Benou and Conolog Corporation.
10.7+ Employment Agreement dated June 1, 1997 between Marc
Benou and Conolog Corporation.
10.8++ Form of December 1996/January 1997 Bridge Loan Agreement.
10.9++ Form of Amendment to December 1996/January 1997 Bridge
Loan Agreement
11++ Statement Re: Computation of Per Share Earnings.
II-5
<PAGE>
23.1 * Consent of Bernstein & Wasserman (included in Exhibit
No. 5)
23.2 * Consent of Rosenberg Rich Baker Berman & Company,
Independent Certified Public Accountants.
- ------------------------------------
* Filed herewith.
** Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (33-92424).
*** Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (333-14247).
***** Incorporated by reference to Registrant's Form 8-K filed February 4,
1997.
+ Incorporated by reference to Registrant's Registration Statement on
Form S-1 (333-35489) filed on September 12, 1997.
++ Incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-1 (333-35489) filed on November 6,
1997.
II-6
<PAGE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
Representative at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Representative to permit prompt delivery to each purchaser.
(b) Rule 415 Offering
The undersigned registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-effective
amendment thereto), which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement.
2. For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement relating to the
securities offered, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the provisions referred to in Item 24 of this
Registration Statement or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE>
(d) Rule 430A
The undersigned Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act as part of this Registration Statement as of the time the
Commission declared it effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement for the securities offered in the
Registration Statement, and that the offering of the securities at that time as
the initial bona fide offering of those securities.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 21st day of November, 1997.
CONOLOG CORPORATION
/s/ Robert S. Benou
------------------------------------------
By: Robert S. Benou
President, Director, Chief
Executive Officer, Chief
Financial Officer and Comptroller
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Robert S. Benou President, Director, Chief November 21, 1997
- --------------------------------------- Executive Officer, Chief
Robert S. Benou Financial Officer and Comptroller
/s/Arpad J. Havasy Executive Vice President, November 21, 1997
- --------------------------------------- Secretary, Treasurer and
Arpad J. Havasy Director
/s/ Marc R. Benou Vice President, November 21, 1997
- --------------------------------------- Assistant Secretary and
Marc R. Benou Director
/s/ Louis S. Massad Director November 21, 1997
- ---------------------------------------
Louis S. Massad
</TABLE>
II-9
<PAGE>
AMENDED AND RESTATED WARRANT AGREEMENT
AGREEMENT, dated as of this ___ day of , 1997, by and between Conolog
Corporation, a Delaware corporation ("Company"), and Continental Stock Transfer
& Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, on August 16, 1995 the Company completed a public offering of
up to 235,750 units (the "Units"), each Unit consisting of two shares of Common
Stock (as defined herein), $1.00 per value per share, and one Class A Redeemable
Common Stock Purchase Warrant (the "Class A Warrants") pursuant to an
underwriting agreement (the "1995 Underwriting Agreement") dated August 16, 1995
between the Company and I.A. Rabinowitz & Co., now known as IAR Securities Corp.
("IAR"), and in connection with such offering agreed to the issuance to (i) IAR
or its designees of a Representative's Unit Purchase Option to purchase 20,500
additional Units (the "1995 Representative's Unit Purchase Option") and (ii)
certain investors of bridge units consisting of 900,000 Class A Warrants (the
"1995 Bridge Units"); in connection with all of the above, the Company agreed to
issue up to 1,156,250 Class A Warrants; Hereinafter, the Class A Warrants shall
collectively be referred to as the "Warrants";
WHEREAS, in connection with a public offering of up to 805,000 units
(the "Units"), each Unit consisting of one share of Common Stock, $1.00 per
value per share, and four Class A Warrants pursuant to an underwriting agreement
(the "Underwriting Agreement") dated ____________ between the Company and IAR,
and the issuance to (i) IAR or its designees of a Representative's Unit Purchase
Option to purchase 70,000 additional Units (the "Representative's Unit Purchase
Option") and (ii) certain Selling Securityholder's securities consisting of
1,200,000 Class A Warrants (the "Bridge Units"), the Company will issue up to
4,700,000 additional Class A Warrants;
<PAGE>
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company
of which at the date hereof consists of 20,000,000 authorized shares, $1.00 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (1) only shares of such class designated
in the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants or (ii), in the case of any reclassification,
change, consolidation, merger, sale, or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities, or property provided for in such
section or (iii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or consisting or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
-2-
<PAGE>
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 2 Broadway,
New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean August
17, 1996.
(e) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be $6.00 per share, subject to adjustment from time to time
pursuant to the provisions of Section 9 hereof, and subject to the Company's
right, in its sole discretion, to reduce the Purchase Price upon notice to all
warrantholders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
-3-
<PAGE>
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on (x) August 31, 2002 or such later date as the Company shall, in its
sole discretion, determine, or (y) the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized or required to close, then
5:00 P.M. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized or required to
close. Upon notice to all warrantholders the Company shall have the right to
extend the warrant expiration date.
1. Warrants and Issuance of Warrant Certificates.
(a) A Class A Warrant initially shall entitle the Registered
Holder of the Warrant representing such Warrant to purchase one share of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 5,856,250 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant
-4-
<PAGE>
Exercise Date, upon the exercise of fewer than all Warrants represented by any
Warrant Certificate, to evidence any unexercised warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen, destroyed, or
mutilated Warrant Certificates pursuant to Section 7; (v) those issued pursuant
to the 1995 Representative's Unit Purchase Option and the Representative's Unit
Purchase Option; and (vi) those issued at the option of the Company, in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9 hereof.
(e) Pursuant to the terms of the 1995 Representative's Unit
Purchase Option, IAR may purchase up to 20,500 Warrants and pursuant to the
Representative's Unit Purchase Option, IAR may purchase up to 280,000 Warrants.
2. Form and Execution of Warrant Certificates.
(a) The Class A Warrant Certificates shall be substantially in
the form annexed hereto as Exhibit A, respectively (the provisions of which are
hereby incorporated herein) and may have such letters, numbers, or other marks
of identification or designation and such legends, summaries, or endorsements
printed, lithographed, or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of Section
2(b). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange, or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Class A Warrant Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President, or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and
-5-
<PAGE>
shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company or to hold the particular office referenced in the
Warrant Certificate before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
3. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the securities
deliverable upon such exercise (plus a certificate for any remaining unexercised
Warrants of the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the exercise of
any Warrant and
-6-
<PAGE>
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing.
4. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will, to the extent the Purchase Price is less than
the Market Price (as hereinafter defined), in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval and will
use its reasonable efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws. With respect to any such securities,
however, Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to be
delivered
-7-
<PAGE>
in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
5. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue, and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of
-8-
<PAGE>
transfer and subscription, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or disposed of or
destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement will be
immediately detachable from the Common Stock and transferable separately
therefrom.
6. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable
-9-
<PAGE>
regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
7. Redemption.
(a) On not less than thirty (30) days notice given at any time
after the earlier of (i) ______, 1999 or (ii) or ________, 1998 with the consent
of IAR, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the Market Price of the Common
Stock receivable upon exercise of the Warrant shall equal or exceed $7.20 per
share (the "Target Price"), subject to adjustment as set forth in Section 8(f)
below. Market Price for the purpose of this Section 8 shall mean (i) the average
closing bid price for any twenty (20) consecutive trading days ending within
fifteen (15) days prior to the date of the notice of redemption, which notice
shall be mailed no later than five days after the date thereof, of the Common
Stock as reported by the National Association of Securities Dealers, Inc.
Automatic Quotation System or (ii) the last reported sale price, for twenty (20)
consecutive business days, ending within fifteen (15) days of the date of the
notice of redemption, which notice shall be mailed no later than five days after
the date thereof, on the primary exchange on which the Common Stock is traded,
if the Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it shall mail
a notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (ill) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption.
-10-
<PAGE>
The date fixed for the redemption of the Warrant shall be the Redemption Date.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date specified for, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the redemption price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the redemption
price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, or the
Company issues a stock dividend on its Common Stock, the Target Price shall be
proportionally adjusted by multiplying the Target Price by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which shall
be the total number of shares of Common Stock to be outstanding immediately
after such event.
8. Adjustment of Exercise Price and Number of Shares of Common Stock
or Warrants.
-11-
<PAGE>
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price of the Common Stock (as defined in Section 8) on the
date of the sale or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision, or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying such
Purchase Price by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in subsection 9(f)(G)
below) for the issuance of such additional shares would purchase at such current
market price per share of Common Stock, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately after
the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall still represent the right to purchase one share
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of Common Stock with respect to the Class A Warrants. Each Warrant held of
record prior to such adjustment of the number of Warrants shall become that
number of Warrants (calculated to the nearest tenth) determined by multiplying
the number one by a fraction, the numerator of which shall be the Purchase Price
in effect immediately prior to such adjustment and the denominator of which
shall be the Purchase Price in effect immediately after such adjustment. Upon
each adjustment of the number of Warrants pursuant to this Section 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10 hereof, the number of additional
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization,
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization, or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage, or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization, or other
change, consolidation, merger, sale, or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly
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equivalent as may be practicable to the adjustments provided for in this Section
9. The Company shall not effect any such consolidation, merger, or sale unless
prior to or simultaneously with the consummation thereof the successor (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefore were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to IAR and to each registered holder of
Warrants
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at his last address as it shall appear on the registry books of the Warrant
Agent. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity thereof except as to the holder to whom the
Company failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock
outstanding at any given time shall not include shares of Common Stock owned or
held by or for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall be
considered a Change of Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$.10 in such price; provided that any adjustments which by reason of this
subsection (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for
cash of any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or any securities convertible into or exchangeable
for Common Stock without the payment of any further consideration other than
cash, if any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants, or options
shall consist of cash, whether or not such
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rights, warrants, or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration payable to the
Company upon the exercise of such rights, warrants, or options, plus the
consideration received by the Company for the issuance or sale of such rights,
warrants, or options, plus, in the case of such Convertible Securities, the
minimum aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the exercise of
such rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights, warrants, or
options) is less than the fair market value of the Common Stock on the date of
the issuance or sale of such rights, warrants, or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such rights,
warrants, or options) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities) is less
than the fair market value or the Common Stock on the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such
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Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights
of conversion, exchange, or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase Price
to be in effect after such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities affected by the modification would purchase at
the market price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common Stock
to be issued upon conversion, exchange, or exercise of the modified securities
at the modified rate. Such adjustment shall become effective as of the date upon
which such modification shall take effect.
(vi) On the expiration of any such right, warrant,
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (a) had
the adjustments made upon the issuance or sale of such rights, warrants,
options, or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually delivered (and
the total consideration received therefor) upon the exercise of such rights,
warrants, or options or upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis of the Purchase Price
as adjusted under clause (a) for all transactions (which would have affected
such adjusted Purchase Price) made after the issuance or sale of such rights,
warrants, options, or Convertible Securities.
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(vii) In case of the sale for cash of any shares
of Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to
the number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of the Warrants
comprising the 1995 Representative's Unit Purchase Option or the
Representative's Unit Purchase Option; or
(ii) upon the sale of any shares of Common Stock
in the Company's initial public offering, including, without limitation, shares
sold upon the exercise of any over-allotment option granted to the Underwriters
in connection with such offering; or
(iii) upon the issuance or sale of Common
Stock or Convertible Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants, or options were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(iv) upon the issuance or sale of Common Stock
upon conversion or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities in a private placement unless the issuance
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or sale price is less than 85% of the fair market value of the Common Stock on
the date of issuance, in which case the adjustment shall only be for the
difference between 85% of the fair market value and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or
Convertible Securities to shareholders of any corporation which merges into the
Company or from which the Company acquires assets and some or all of the
consideration consists of equity securities of the Company, in proportion to
their stock holdings of such corporation immediately prior to the acquisition
but only if no adjustment is required pursuant to any other provision of this
Section 9.
(h) Intentionally Omitted.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
of the Warrants then outstanding as of the record date for such transaction, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
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9. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon any exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ Quotation System, the current value shall be
the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(ii) If the Common Stock is not listed or admitted
to unlisted trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
10. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold
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consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
11. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
12. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a warrant that:
(a) The warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
13. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and cancelled by it
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and retired. The Warrant Agent shall also cancel Common Stock following exercise
of any or all of the Warrants represented thereby or delivered to it for
transfer, splitup, combination, or exchange.
14. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order,
or demand of the Company shall be sufficiently evidenced
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by an instrument signed by the Chairman of the Board, President, any Vice
President, its Secretary, or Assistant Secretary, (unless other evidence in
respect thereof is herein specifically prescribed). The Warrant Agent shall not
be liable for any action taken, suffered or omitted by it in accordance with
such notice, statement, instruction, request, direction, order, or demand
believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses, and liabilities, including
judgments, costs, and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses, and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
30 days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act, or deed; but if for any
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reason it shall be necessary or expedient to execute and deliver any further
assurance, conveyance, act, or deed, the same shall be done at the expense of
the Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
15. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and provided, further, that no change in the number or nature
of the securities purchasable upon
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the exercise of any Warrant, or the Purchase Price therefor, or the acceleration
of the Warrant Expiration Date, shall be made without the consent in writing of
the Registered Holder of the Warrant Certificate representing such Warrant,
other than such changes as are specifically prescribed by this Agreement as
originally executed or are made in compliance with applicable law.
16. Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 5 Columbia Road, Somerville, New Jersey 08876, Attention:
President, with a copy sent to Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, New York 10022, Attention: Stuart Neuhauser, Esq. or at such other address
as may have been furnished to the Warrant Agent in writing by the Company and
with an additional copy to IAR Securities Corp., 99 Wall Street, New York City,
New York 10005 (or at such other address for IAR Securities Corp. as may have
been furnished to the Warrant Agent in writing by the said IAR Securities Corp.
or the Company); and if to the Warrant Agent, at its Corporate office.
17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
18. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy, or claim, in equity or at law,
or to impose upon any other person any duty, liability, or obligation.
19. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier
date upon which all Warrants have been exercised, except that the Warrant Agent
shall account to the Company for cash held by it and the provisions of Section
15
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hereof shall survive such termination.
20. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a
single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CONOLOG CORPORATION
By:_____________________________
Robert S. Benou
President
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:______________________________
Its
Authorized Officer
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EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. W Class A Warrants
VOID AFTER AUGUST 31, 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
CONOLOG CORPORATION
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $1.00 par value ("Common Stock"), of CONOLOG CORPORATION, a Delaware
corporation (the "Company"), at any time between August 17, 1996 and the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of CONTINENTAL STOCK TRANSFER & TRUST COMPANY
as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment
of $6.00 (the "Purchase Price") in lawful money of the United States of America
in cash or by official bank or certified check made payable to Conolog
Corporation.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Amended and Restated Warrant Agreement (the "Warrant Agreement")
dated _____________, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
-1-
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on
August 31, 2002, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
-2-
<PAGE>
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant commencing the earlier of (i)
, 1999 or (ii) , 1998, with the consent of IAR
Securities Corp., provided the Market Price (as defined in the Warrant
Agreement) for the securities issuable upon exercise of such Warrant shall
exceed $7.20 per share. Notice of redemption shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
CONOLOG CORPORATION
By: _____________________________
Robert S. Benou
President
Date: ______________________________
-3-
<PAGE>
[Seal]
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its
Authorized Officer
-4-
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert social security or other identifying number)
and be delivered to
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------
--------------------------------------
--------------------------------------
(Address)
-5-
<PAGE>
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
If this Warrant has been solicited by a member of the National Association of
Securities Dealers, Inc., the name of such firm is:__________:
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
--------------------------------------------
(please insert social security or other identifying number)
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
-6-
<PAGE>
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
CONTINENTAL STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
-7-
<PAGE>
November 24, 1997
Board of Directors
Conolog Corporation
5 Columbia Road
Somerville, NJ 08876
Re: Conolog Corporation
Registration Statement on Form S-1
Gentlemen:
We have acted as counsel for Conolog Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a registration statement (the "Registration Statement") on Form
S-1, File No. 333-35489, under the Securities Act of 1933, relating to the
public offering of 700,000 units (the "Units"), each Unit consisting of one (1)
share of the Company's Common Stock, par value $1.00 per share (the "Common
Stock") and four (4) Class A Redeemable Common Stock Purchase Warrants (the
"Class A Warrant"). The offering also involves the grant to the Underwriters of
an option to purchase an additional 105,000 of such Units to cover
over-allotments in connection with the offering, the sale to the Underwriter of
an option the ("Unit Purchase Option") to purchase up to 70,000 of such Units,
and the registration of an additional 1,200,000 Class A Warrants on behalf of
selling stockholders (the "Selling Securityholder's Securities").
We have examined the Certificate of Incorporation and the By-Laws of
the Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to the
offering of the Units, drafts of the Warrant Agreement and Unit Purchase Option,
draft forms of certificates representing the Common Stock and the Warrants,
originals or copies of such records of the Company, agreements, certificates of
public officials, certificates of officers and representatives of the Company
and others, and such other documents, certificates, records, authorizations,
proceedings, statutes and judicial decisions as we have deemed necessary to form
the basis of the opinion expressed below. In such examination, we have assumed
the genuiness of all signatures, the authenticity of all documents submitted to
us as originals and the conformity to originals of all documents submitted to us
as copies thereof.
<PAGE>
Conolog Corporation
November 24, 1997
Page 2
As to various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Company and
others.
Based on the foregoing, we are of the opinion that:
1. All shares of Common Stock included in the Units have been duly
authorized and, when issued and sold in accordance with the Prospectus, will be
validly issued.
2. The Class A Warrants and the Unit Purchase Option have been duly
authorized and, when issued and sold in accordance with the Prospectus, will be
validly issued.
3. The Class A Warrants included in the Selling Securityholder's
Securities have been duly authorized and when paid for will be validly issued,
fully paid and nonassessable; and, when sold in accordance with the appropriate
prospectus (the "Selling Securityholder Prospectus") forming a part of the
Registration Statement, will continue to be duly authorized, validly issued,
fully paid and nonassessable.
4. The shares of Common Stock issuable upon exercise of the Class A
Warrants, the Unit Purchase Option and the Class A Warrants included in the
Selling Securityholders Securities have been duly authorized and reserved for
issuance and, when issued in accordance with the terms of the Class A Warrants,
the Unit Purchase Option or the Class A Warrants included in the Selling
Securityholders Securities, as the case may be, will be duly authorized, validly
issued, fully paid and nonassessable.
We hereby consent to be named in the Registration Statement, the
Prospectus and the Selling Securityholder Prospectus as attorneys who have
passed upon legal matters in connection with the offering of the securities
offered thereby under the caption "Legal Matters."
We further consent to your filing a copy of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
BERNSTEIN & WASSERMAN, LLP
B&W/jm
<PAGE>
[LETTERHEAD OF Rosenberg Rich Baker Berman & Company]
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Amendment to the Registration Statement on
Form S-1 of our report dated October 13, 1997, relating to the financial
statements of Conolog Cororation, and to the reference to our Firm under the
caption "Experts" in the Prospectus.
/s/ Rosenberg Rich Baker Berman & Co.
Maplewood, New Jersey
November 21, 1997
