OPTION AGREEMENT
OPTION AGREEMENT between CONOLOG CORPORATION, a Delaware
corporation, having an address at 5 Columbia Road, Somerville, New Jersey, 08876
(the "Company"), and CLOG II LLC, a New York limited liability company, having
an address at 64 Shelter Lane, Roslyn, New York 11577 (the "Optionee"), dated as
of the 29th day of November, 2000.
WHEREAS, the Company desires to grant the Optionee the
irrevocable right and option to purchase the Company's convertible debentures,
and the Optionee is willing to accept such irrevocable right and option, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of one dollar and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, it is hereby agreed as follows:
1. Grant of Option. The Company hereby grants the irrevocable right and
option (the "Option") to purchase the Company's convertible debentures in the
form and having the terms and conditions set forth in Exhibit A attached hereto
(the "Convertible Debentures"), from time to time as hereinafter provided, in
the principal amount of up to $2,040,000, the face amount of each such
Convertible Debenture being equal to the purchase price paid by the Optionee for
such Convertible Debenture hereunder. Notwithstanding the foregoing, with
respect to the initial $100,000 principal amount of Convertible Debentures, (i)
the provisions of Sections 1 and 3 of the Form of Convertible Debenture attached
hereto as Exhibit A shall not be included therein; and (ii) the issuance or sale
by the Company of any shares of Common Stock, or any securities exchangeable for
or convertible into shares of Common Stock, or any option, right or warrant to
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acquire shares of Common Stock or such exchangeable or convertible securities at
a price (or effective exchange or conversion price) less than the current market
price per share (as defined in Section 2.4(c) of the form Convertible Debenture)
shall constitute an Event of Default unless used to repay such $100,000
Convertible Debenture including accrued interest in full, provided, however, the
Company can issue up to 500,000 bonus shares to its employees during any
12-month period.
2. Term of Option; Exercise.
(a) The Option shall terminate on November 29, 2002 subject to
extension by the Company. The Option shall be exercisable in whole or in
part, as determined by the Optionee, provided, however, that no exercise
shall be permitted for less than $25,000 at any one time.
(b) The Option is exercisable in full as of the date hereof. The
Option shall be exercised by written notice to the Secretary or Treasurer
of the Company at its then principal office. The notice shall specify the
principal amount of the Convertible Debenture as to which the Option is
being exercised and shall be accompanied by payment in full of the purchase
price for such Convertible Debenture. The option price shall be payable in
United States dollars, and may be paid by bank or certified check drawn on
a United States bank or by wire transfer of immediately available funds to
an account specified by the Company. Each Convertible Debenture will be
executed and delivered by the Company to the Optionee concurrently with the
funding of the exercise of the Option. Alternatively, if the Optionee
notifies the Company that it desires to simultaneously convert the
Convertible Debenture into Common Shares of the Company, the Company
instead will deliver to the Optionee the shares of Common Stock
concurrently with the funding of the exercise of the Option.
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3. Registration of Shares Being Acquired.
(a) On or before January 10, 2001, the Company will use its best
efforts to file a registration statement (the "Registration Statement")
with the Securities and Exchange Commission (the "Commission") covering the
3,000,000 shares of common stock into which the Convertible Debentures are
convertible (collectively, the "Conversion Shares"). The Company will use
its best efforts to have the Registration Statement declared effective as
soon as possible after the filing thereof, and to keep the Registration
Statement current and effective for a period of one year or until such
earlier date as all of the Conversion Shares registered pursuant to the
Registration Statement shall have been sold or otherwise transferred.
(b) The Company shall supply prospectuses and such other documents as
the Optionee may request in order to facilitate the public sale or other
disposition of the Conversion Shares, use its best efforts to register and
qualify any of the Conversion Shares for sale in such states as the
Optionee designates provided that the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or execute a
general consent to service of process in any jurisdiction in any action and
do any and all other acts and things which may be reasonably necessary or
desirable to enable the Optionee to consummate the public sale or other
disposition of the Conversion Shares. The Optionee will pay its own legal
fees and expenses and any underwriting discounts and commissions on the
Conversion Shares sold by the Optionee but shall not be responsible for any
other expenses of such registration.
(c) The Company will notify the Optionee immediately, and confirm the
notice in writing: (i) when the Registration Statement or any
post-effective amendment thereto becomes effective and (ii) of the receipt
of any comments or communications from the Commission regarding the
Registration Statement (and shall furnish copies of same to the Optionee)
or of the
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receipt of any stop order or of the initiation, or to the best of the
Company's knowledge, the threatening, of any proceedings for that purpose.
(d) If at any time when a prospectus relating to the Conversion Shares
is required to be delivered under the Securities Act of 1933, as amended
(the "Act"), any event shall have occurred as a result of which, in the
reasonable opinion of counsel for the Company or counsel for the Optionee,
the Registration Statement as then amended or supplemented, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
or if, in the reasonable opinion of either such counsel, it is necessary at
any time to amend the Prospectus to comply with the Act, the Company will
notify the Optionee promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the
Act and will furnish the Optionee copies thereof.
4. Indemnification.
(a) Whenever pursuant to this Agreement or the Convertible Debentures
a registration statement is filed under the Act, amended or supplemented,
the Company will indemnify and hold harmless the Optionee (hereinafter
called the "Distributing Holder"), and each person, if any, who controls
(within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter, against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which the Distributing Holder, any such
controlling person or any such underwriter may become subject, under the
Act or otherwise, insofar as such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus
or final prospectus constituting a part
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thereof or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arise out of or are based upon any violation or
alleged violation by the Company of the Act, the Securities and Exchange
Act of 1934, as amended, any other applicable securities law, or any rule
or regulation thereunder relating to the offer or sale of the Conversion
Shares; and will reimburse the Distributing Holder and each such
controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person
or underwriter in connection with investigating or defending any such loss,
claim, damage, expense, liability or action, provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage, expense or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, said preliminary prospectus,
said final prospectus, or said amendment or supplement in reliance upon and
in conformity with written information furnished by such Distributing
Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each
person, if any, who controls the Company (within the meaning of the Act)
against any losses, claims, damages, expenses, or liabilities, joint and
several, to which the Company or any such director, officer, or controlling
person may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, expenses, or liabilities arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained
in said registration statement, said preliminary prospectus, said final
prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not
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misleading, in each case to the extent, but only to the extent that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement in
reliance upon and in conformity with written information furnished by such
Distributing Holder for use in the preparation thereof; and will reimburse
the Company or any such director, officer, or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, expense,
liability, or action.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party,
give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party under this Section
except to the extent that the indemnifying party is actually prejudiced in
its ability to defend such action.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, provided, however, that any indemnified party shall have
the right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the employment thereof
at the indemnifying party's expense has been
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specifically authorized by the indemnifying party in writing, (ii) such
indemnified party shall have been advised by such counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party and in the
reasonable judgment of such counsel it is advisable for such indemnified
party to employ separate counsel or (iii) the indemnifying party has failed
to assume the defense of such action and employ counsel reasonably
satisfactory to the indemnified party, in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on
behalf of such indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys (plus separate local counsel, if retained by the
indemnified party) at any time for all such indemnified parties.
(e) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is a party and
indemnity could have been sought hereunder by such indemnified party,
unless such settlement is for money damages only and includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding.
5. Shares to be Fully Paid; Reservation of Shares; Etc. The Company
covenants and agrees that the Conversion Shares, Preferred Stock and all shares
of common stock which may be issued pursuant to the terms of the Preferred Stock
will, upon issuance, be duly and validly issued, fully paid and nonassessable.
The Company further covenants and agrees that so
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long as any Convertible Debentures are outstanding, the Company will at all
times have authorized and reserved a sufficient number of shares of its Common
Stock to provide for the conversion of the Convertible Debentures and the
Preferred Stock and that it will have authorized and reserved a sufficient
number of shares of Common Stock for issuance upon conversion of the Convertible
Debentures and the Preferred Stock. The Company agrees to use its best efforts
to cause all Conversion Shares to be listed on Nasdaq and each securities
exchange, if any, on which similar securities issued by the Company are then
listed.
6. Representations and Warranties of the Optionee. The Optionee hereby
represents and warrants to the Company as follows:
(a) The Optionee has the full right, power and authority to enter into
this Agreement and to carry out and consummate the transactions
contemplated herein. This Agreement constitutes the legal, valid and
binding obligation of the Optionee.
(b) No authorization or approval of, or filing with, or compliance
with any applicable order, judgment, decree, statute, rule or regulation
of, any court or governmental authority, or approval, consent, release or
action of any third party, is required in connection with the execution and
delivery by the Optionee of, or the performance or satisfaction of any
agreement of the Optionee contained in or contemplated by, this Agreement.
(c) The Optionee acknowledges that it and each of its members has
received and reviewed all publicly filed documents concerning the Company
and has had an opportunity to meet with and ask questions of the management
of the Company.
(d) The Optionee and each of its members is an accredited investor
within the meaning of Rule 501 of the Commission under the Securities Act,
has the financial ability to bear the economic risk of its or his
investment, can afford to sustain a complete loss of such investment and
has adequate means of providing for its or his current needs and personal
contingencies, and has
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no need for liquidity in its or his investment in the Company; and the
amount invested in the Company by the Optionee does not constitute a
substantial portion of its or his net worth.
(e) The Optionee is acquiring the Convertible Debentures for
investment and not with a view to the sale or distribution thereof, for its
own account and not on behalf of others and has not granted any other
person any right or option or any participation or beneficial interest in
any of the securities. The Optionee acknowledges its understanding that the
Conversion Shares constitute restricted securities within the meaning of
Rule 144 of the Commission under the Act, and that none of such securities
may be sold except pursuant to an effective registration statement under
the Act or in a transaction exempt from registration under the Act, and
acknowledges that it understands the meaning and effect of such
restriction. The Optionee has sufficient knowledge and experience in
financial and business matters so that it is capable of evaluating the
risks and merits of the purchase of the Conversion Shares. The Optionee is
aware that no Federal or state regulatory agency or authority has passed
upon the sale of the Conversion Shares or any of the terms of the Preferred
Stock or the terms of the sale or the accuracy or adequacy of any material
provided to the Optionee and that the price of the Conversion Shares was
negotiated between the Optionee and the Company and does not necessarily
bear any relationship to the underlying assets or value of the Company and
that the terms of the Preferred Stock was negotiated between the Optionee
and the Company and does not necessarily bear any relationship to the
underlying assets or value of the Company. THE OPTIONEE UNDERSTANDS THAT AN
INVESTMENT IN THE SHARES BEING PURCHASED BY IT INVOLVES A HIGH DEGREE OF
RISK.
(f) THE OPTIONEE UNDERSTANDS THAT IN CONNECTION WITH ITS EVALUATION OF
THE COMPANY, THE OPTIONEE MAY HAVE BEEN PROVIDED WITH ACCESS TO CERTAIN
INFORMATION CONCERNING THE COMPANY WHICH HAS NOT BEEN PUBLICLY DISCLOSED.
THE OPTIONEE FURTHER UNDERSTANDS THAT ANY
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TRADING BY IT IN SECURITIES OF THE COMPANY USING NON-PUBLIC INFORMATION
COULD CONSTITUTE A VIOLATION OF FEDERAL AND STATE SECURITIES LAWS AND/OR
OTHER LAWS AND MAY SUBJECT IT TO CRIMINAL AND/OR CIVIL PENALTIES AND
LIABILITY. In view of the foregoing, the Optionee agrees not to (i)
purchase or sell, including a short sale, any of the Company's securities
or rights to purchase or sell such securities as long as the Optionee is in
possession of material non-public information or (ii) disclose any
non-public information to any other person.
(g) There is no finder's fee or brokerage commission payable with
respect to the purchase by the Optionee of the Convertible Debentures or
the consummation of the transactions contemplated by this Agreement and the
Optionee agrees to indemnify and hold harmless the Company from and against
any and all cost, damage, liability or expense (including fees and expenses
of counsel) arising out of or relating to claims for such fees or
commissions, except to the extent that any such fees or commissions have
been directly incurred by the Company.
7. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Optionee as follows:
(a) The Company has the full right, power and authority to enter into
this Agreement and to carry out and consummate the transactions
contemplated herein. This Agreement constitutes the legal, valid and
binding obligation of the Company. This Agreement has been duly authorized
by all necessary corporate action, including, without limitation, Board of
Directors approval, and no other corporate approval, including, without
limitation, approval by the shareholders of the Company, is required in
connection therewith.
(b) No authorization or approval of, or filing with, or compliance
with any applicable order, judgment, decree, statute, rule or regulation
of, any court or governmental authority, or approval, consent, release or
action of any third party, including, without limitation, the
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Nasdaq Stock Market, is required in connection with the execution and
delivery by the Company of, or the performance or satisfaction of any
agreement of the Company contained in or contemplated by, this Agreement.
(c) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power, legal right and authority to conduct its
business and own, lease and operate its properties as and in the places
where such business is now conducted and such properties are now owned,
leased or operated.
(d) The Company is not in violation of, breach of or default under,
and no event (including, without limitation, execution of and consummation
of the transactions provided for in this Agreement) has occurred which with
the passage of time or notice from or action by any party thereto or
otherwise could result in a violation of or default under its certificate
of incorporation or by-laws, any indenture, mortgage, security, loan, lease
or other material agreement to which the Company is a party or by which it
is bound or result in the creation, imposition or acceleration of any
material lien of any nature in favor of any other person. The par value of
the shares of Common Stock of the Company is $.01 per share.
(e) No representation, warranty or statement, written or oral, made by
the Company in this Agreement or in any schedule, exhibit, certificate or
other document furnished or to be furnished to the Optionee, including any
and all documents filed with the Securities and Exchange Commission within
the past 12 months, pursuant hereto or otherwise, in connection with the
transactions contemplated hereby, has contained, contains or will contain
at the closing date any untrue statement of a material fact or has omitted,
omits or will omit at the closing date a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading. Without limiting the generality of the foregoing, the Company
is current in all filings required under the Exchange Act.
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(f) There is no finder's fee or brokerage commission payable with
respect to the sale by the Company of the Convertible Debentures or the
consummation of the transactions contemplated by this Agreement and the
Company agrees to indemnify and hold harmless the Optionee from and against
any and all cost, damage, liability or expense (including fees and expenses
of counsel) arising out of or relating to claims for such fees or
commissions, except to the extent that any such fees or commissions have
been directly incurred by the Optionee.
(g) The Company meets the requirements for the use of Form S-3 for
registration of the sale by the Optionee of the Conversion Shares and the
Company shall file all reports required to be filed with the SEC in a
timely manner so as to maintain such eligibility for the use of Form S-3.
All financial statements required to be included in, or incorporated by
reference into, the Form S-3 have been previously filed by the Company with
the SEC.
8. Agreement of the Optionee Concerning Voting. While the Optionee holds
any Conversion Shares, it agrees to vote such shares in the same manner and
proportion as the other shareholders of the Company (e.g., if a shareholder vote
on a proposal is required and, of the votes cast, 60% vote for, and 40% vote
against the proposal, the Conversion Shares will be voted 60% for, and 40%
against the proposal).
9. Further Assurances. From and after the date of this Agreement and the
date of Closing, each party hereto shall from time to time, at the request of
the other party and without further consideration, do, execute and deliver, or
cause to be done, executed and delivered, all such further acts, things and
instruments as may be reasonably requested or required more effectively to
evidence and give effect to the transactions provided for in this Agreement.
10. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered against receipt or if
mailed by first class registered or certified mail return
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receipt requested, addressed to the parties at their respective addresses set
forth on the first page of this Agreement, with copies to their respective
counsel, Milberg Weiss Bershad Hynes & Lerach LLP, Att: Arnold N. Bressler,
Esq., One Pennsylvania Plaza, New York, New York 10119, in the case of the
Company, and Certilman Balin Adler & Hyman, LLP, Att: Fred S. Skolnik, Esq., 90
Merrick Avenue, East Meadow, New York 11554, in the case of the Optionee, or to
such other person or address as may be designated by like notice hereunder.
11. Parties in Interest. This Agreement shall be binding upon, and shall
inure to the benefit of and be enforceable by, the parties hereto and their
respective legal representatives, successors and assigns, but no other person
shall acquire or have any rights under this Agreement.
12. Entire Agreement; Modification; Waiver. This Agreement (as below
defined) contains the entire agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes all prior
negotiations and understandings, if any, and there are no agreements,
representations or warranties other than those set forth, provided for or
referred to herein. All exhibits and schedules to this Agreement are expressly
made a part of this Agreement as fully as though completely set forth herein,
and all references to this Agreement herein, in any of such writings or
elsewhere shall be deemed to refer to and include all such writings. Neither
this Agreement nor any provisions hereof may be modified, amended, waived,
discharged or terminated, in whole or in part, except in writing signed by the
party to be charged. Any party may extend the time for or waive performance of
any obligation of any other party or waive any inaccuracies in the
representations or warranties of any other party or compliance by any other
party with any of the provisions of this Agreement. No waiver of any such
provisions or of any breach of or default under this Agreement shall be deemed
or shall constitute a waiver of any other provisions, breach or default, nor
shall any such waiver constitute a continuing waiver.
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13. Interpretation.
(a) This Agreement shall be governed and construed and enforced in
accordance with the laws of the State of New York applicable to contracts
made and to be performed exclusively in that State without giving effect to
the principles of conflict of laws.
(b) All pronouns and words used in this Agreement shall be read in the
appropriate number and gender, the masculine, feminine and neuter shall be
interpreted interchangeably and the singular shall include the plural and
vice versa, as the circumstances may require.
14. Headings; Counterparts. The article and section headings in this
Agreement are for reference purposes only and shall not define, limit or affect
the meaning or interpretation of this Agreement. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date and year first above written.
CONOLOG CORPORATION
By: /s/ Robert S. Benou
-----------------------------
Robert S. Benou, President
CLOG II LLC
By: /s/ Warren Schreiber
-----------------------------
Warren Schreiber, Manager
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Exhibit A
THIS CONVERTIBLE DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, ASSIGNED OR
OTHERWISE TRANSFERRED WITHOUT REGISTRATION THEREUNDER EXCEPT IN
ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION
PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED.
$--------
CONOLOG CORPORATION
CONVERTIBLE DEBENTURE DUE ________________
[ONE YEAR AFTER ISSUANCE]
FOR VALUE RECEIVED, the undersigned, CONOLOG CORPORATION, a
corporation duly organized and existing under the laws of the State of Delaware
(the "Payor"), with its principal business address at 5 Columbia Road,
Somerville, New Jersey 08876, hereby promises to pay to the order of CLOG II LLC
(the "Payee"), with its principal business address at 64 Shelter Lane, Roslyn,
New York 11577, the principal amount of ______________________________
____________ on _________________ [one year after issuance] (the "Maturity
Date"), plus interest at the rate of 8% per annum on the unpaid principal
balance, such interest to be paid on the Maturity Date, together with the
repayment of the principal balance and with all charges, amounts, sums and
interest which have accrued and have not been paid. All payments to be made
pursuant to this Debenture shall be made in such coin or currency of the United
States of America which, at the time of payment, is legal tender for the payment
of public and private debts. All such payments shall be made by electronic funds
wire transfer in accordance with the wire transfer instructions submitted by
Payee as the first payment method option; however, Payee may designate that
payments may be made by bank or certified check, at the offices of the Payee set
forth above or such other place as the Payee shall designate in writing to the
Payor.
1. Repayment Option; The Preferred Stock. At maturity, the Company will have the
option to repay the Debenture, together with all accrued interest thereon, by
issuing a new Series C Preferred Stock (the "Preferred Stock"). For purposes of
such repayment, the shares of Preferred Stock shall be valued at $5.00 per
share. As more particularly described in Exhibit A hereto, 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 additional shares of Series C Preferred Stock
valued at $5.00 per share. The Preferred Stock will be convertible into common
stock at the rate of
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Exhibit A
one share of common stock for each share of Preferred Stock. The Preferred Stock
will carry a liquidating preference of $5.00 per share.
2. Conversion.
2.1 Right to Convert. The Payee shall have the right, one or more times at
its option, at any time and from time to time, to convert the principal amount
of this Debenture, or any portion of such principal which is at least
Twenty-five Thousand Dollars ($25,000), into that number of fully-paid and
nonassessable shares of Common Stock of the Payor, obtained by dividing the
principal amount of the Debenture or portion thereof surrendered for conversion
by the conversion price of $ 0.68 per share.
2.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege, the Payee shall surrender this Debenture to the Payor and
shall give written notice of conversion in the form provided herein to the Payor
that the Payee elects to convert this Debenture or the portion thereof specified
in said notice.
As promptly as practicable (but not more than two days) after the surrender
of this Debenture and the receipt of such notice as aforesaid, the Payor shall
issue and shall deliver to the Payee or designee, by overnight mail or by hand,
a certificate or certificates for the number of full shares issuable upon the
conversion of such Debenture or portion thereof in accordance with the
provisions of this Debenture and a check or cash in respect of any fractional
interest in respect of a share of Common Stock arising upon such conversion as
provided in Section 2.3 of this Debenture. In each case this Debenture shall be
surrendered for partial conversion, the Payor shall also promptly execute and
deliver to the Payee a new Debenture or Debentures in an aggregate principal
amount equal to the unconverted portions of the surrendered Debenture. In the
event the registration statement referred to in Section 4 hereof shall have
theretofore been declared effective by the Securities and Exchange Commission
(the "SEC"), all certificates representing shares of Common Stock issued upon
conversion of this Debenture shall be free of any restrictive legend thereon.
Each conversion shall be deemed to have been effected on the date on which
this Debenture shall have been surrendered and such notice shall have been
received by the Payor, as aforesaid, and the Payee shall be deemed to have
become on said date the holder of record of the shares issuable upon such
conversion; provided, however, that any such surrender on any date when the
stock transfer books of the Payor shall be closed shall constitute the Payee as
the record holder thereof for all purposes on the next succeeding day on which
such stock transfer books are open.
No adjustment of the number of shares to be issued upon conversion shall be
made for interest accrued on this Debenture prior to the date it is surrendered
or for dividends on any shares issued upon the conversion of this Debenture
prior to the date it is surrendered. Upon conversion of this Debenture, the
Payor's obligation with respect to accrued interest shall be discharged in full.
2.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon
conversion of Debentures. If any
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Exhibit A
fractional shares of stock would be issuable upon the conversion of this
Debenture, the Payor shall make a payout therefor in cash at the current market
value thereof. The current market value of a share of Common Stock shall be the
closing price of the day (which is not a legal holiday) immedi ately preceding
the day on which this Debenture (or specified portions thereof) is deemed to
have been converted and such closing price shall be determined as provided in
subsection (c) of Section 2.4.
2.4 Adjustment of Conversion Price. The conversion price shall be adjusted
from time to time as follows:
(a) Dividends, Etc. In case the Payor shall on any one or more
occasions after the date of this Debenture (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class), (ii) subdivide its outstanding Common
Stock, or (iii) combine its outstanding Common Stock into a smaller number of
shares, the conversion price in effect immediately prior thereto shall be
adjusted so that the holder of any Debenture thereafter surrendered for
conversion shall be entitled to receive the number of shares of capital stock of
the Payor which he would have owned or have been entitled to receive after the
happening of any of the events described above had this Debenture been converted
immediately prior to the happening of such event. An adjustment made pursuant to
this subsection (a) shall become effective immediately after the record date.
(b) Other Distributions. The purpose of this subsection is to
provide a means to reduce the Payee's conversion price in the event the assets
of the Payor are materially diluted through distributions to the Common
Stockholders and/or any other security holder of Payor. In case the Payor shall
distribute to all holders of its Common Stock evidence of its indebtedness or
assets (excluding cash dividends or distributions paid from retained earnings of
the Payor) or subscription rights or warrants, then in each such case the
conversion price shall be adjusted so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the date of such distribution by a fraction of which the numerator shall be the
current market price per share (as defined in subsection (c) of this Section
2.4) of the Common Stock on the record date as set forth below less the then
fair market value (as determined in good faith by the Board of Directors) of the
portion of the assets or evidences of indebtedness so distributed applicable or
of such rights or warrants to one (1) share of Common Stock, and the denominator
shall be the current market price per share (as defined in subsection (c) below)
of the Common Stock. Such adjustment shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
distribution.
(c) Conversion Price Adjustment. For the purpose of any
computation under this Section 2.4, the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily closing prices
for the thirty consecutive trading days commencing thirty- five trading days
before the day in question. The closing price for each day shall be (i) the last
sale price of the Common Stock on Nasdaq or, if no sale occurred on such date,
the closing bid price of the Common Stock on Nasdaq on such date or (ii) if the
Common Stock shall be listed or admitted for trading on the New York or American
Stock Exchange or any successor exchange, the last sale price, or if no sale
occurred on such date, the closing bid price of the Common Stock on such
exchange, or (iii) if the Common Stock shall not be included on Nasdaq or listed
on any such exchange, the closing bid quotation for Common Stock as reported by
the National Quotation
<PAGE>
Exhibit A
Bureau Incorporated if at least two securities dealers have inserted both bid
and asked quotations for Common Stock on at least five of the ten preceding
days. If none of the conditions set forth above is met, the closing price of
Common Stock on any day or the average of such closing prices for any period
shall be the fair market value of Common Stock as determined by a member firm of
the New York Stock Exchange, Inc. selected by the Board of Directors, provided
such firm shall be reasonably acceptable to Payee.
(d) No Nominal Adjustments. No adjustment in the conversion
price shall be required unless such adjustment would require an increase or
decrease of at least two percent (2%) in such price; provided, however, that any
adjustments which by reason of this subsection (d) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest cent or to the
nearest one-hundredth (1/100th) of a share, as the case may be.
(e) Conversion Price Adjustment Notice. Whenever the
conversion price is adjusted, as herein provided, the Payor shall prepare a
notice of such adjustment of the conversion price setting forth the adjusted
conversion price and the date on which such adjustment becomes effective and
shall mail such notice of such adjustment of the conversion price to the Payee
promptly.
2.5 Effect of Reclassification, Consolidation, Merger or Sale. If any of
the following events occur, namely (i) any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Debenture
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), (ii)
any consolidation or merger to which the Payor is a party other than a
consolidation or merger in which the Payor is the continuing corporation and
which does not result in any reclassification of, or change (other than a change
in par value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination) in, outstanding shares of
Common Stock, or (iii) any sale or conveyance of the properties and assets of
the Payor as, or substantially as, an entirety to any other corporation; then
this Debenture shall be convertible into the kind and amount of shares of stock
and other securities or property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock issuable upon conversion of this Debenture immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance. The
above provisions of this Section shall similarly apply to successive
reclassifications, consolidations, mergers and sales.
2.6 Reservation of Shares; Shares to be Fully Paid. As of the date hereof,
the Payor has reserved, free from preemptive rights, out of its authorized but
unissued shares, or out of shares held in its treasury, sufficient shares to
provide for the conversion of this Debenture. Before taking any action which
would cause an adjustment reducing the conversion price below the then par
value, if any, of the shares of Common Stock issuable upon conversion of this
Debenture, the Payor shall promptly take all corporate action which may be
necessary in order that the Payor may validly and legally issue shares of such
Common Stock at such adjusted conversion price. The Payor covenants that all
shares of Common Stock which may be issued upon conversion of Debentures will
upon issue be fully paid and nonassessable.
<PAGE>
Exhibit A
2.7 Notice to Payee Prior to Certain Actions. In case:
(a) the Payor shall declare a dividend (or any other distribution) on its
Common Stock (other than in cash out of retained earnings); or
(b) the Payor shall authorize the granting to the holders of its Common
Stock of rights or warrants to subscribe for or purchase any share of any class
or any other rights or warrants; or
(c) of any reclassification of the Common Stock of the Payor (other than a
subdivision or combination of its outstanding Common Stock, or a change in par
value, or from par value to no par value, or from no par value to par value) or,
of any consolidation or merger to which the Payor is a party and for which
approval of any shareholders of the Payor is required, or of the sale or
transfer of all or substantially all of the assets of the Payor; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up
of the Payor;
the Payor shall give notice to the Payee in accordance with this Debenture, as
promptly as possible but in any event at least thirty days prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
3. Preferred Stock Registration Rights.
3.1 Piggyback Registration Rights. During the period commencing on the
issuance of any shares of Preferred Stock to the Payee and ending on the second
anniversary thereof (the "Registration Period"), the Payor shall advise the
Payee by written notice at least 30 days prior to the filing of any new
registration statement or post-effective amendment thereto under the Securities
Act of 1933, as amended (the "Act") covering any securities of the Payor, for
its own account or for the account of others (other than a registration
statement on Form S-4 or S-8 or any successor forms thereto), and will include
in any such post-effective amendment or registration statement, such information
as may be required to permit a public offering of the shares of Preferred Stock
and all or any of the common stock then issuable under the terms of the then
outstanding shares of Preferred Stock (the "Registrable Securities"). The Payor
shall supply prospectuses and such other documents as the Payee may request in
order to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as the Payee designates provided that the
Payor shall not be required to qualify as a foreign corporation or a dealer in
securities or execute a general consent to service of process in any
<PAGE>
Exhibit A
jurisdiction in any action and do any and all other acts and things which may be
reasonably necessary or desirable to enable the Payee to consummate the public
sale or other disposition of the Registrable Securities. The Payor shall use its
best efforts to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the Registrable Securities requested to be
included in the registration to include such securities in such underwritten
offering on the same terms and conditions as any similar securities of the Payor
included therein. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering advises the Payee that the total amount of
securities which it intends to include in such offering is such as to materially
and adversely affect the success of such offering, then the amount of securities
to be offered for the account of the Payee shall be eliminated, reduced, or
limited to the extent necessary to reduce the total amount of securities to be
included in such offering to the amount, if any, recommended by such managing
underwriter or underwriters. The Payee will pay its own legal fees and expenses
and any underwriting discounts and commissions on the securities sold by the
Payee but shall not be responsible for any other expenses of such registration.
3.2 Demand Registration Rights. If the Payee shall give notice to the Payor
at any time during the Registration Period to the effect that the Payee desires
to register under the Act its shares of Preferred Stock or any of the common
stock then issuable under the terms of the then outstanding shares of Preferred
Stock under such circumstances that a public distribution (within the meaning of
the Act) of any such securities will be involved, then the Payor will promptly,
but no later than 60 days after receipt of such notice, file a post-effective
amendment to a then current Registration Statement or a new registration
statement pursuant to the Act, to the end that such shares of Preferred Stock
and such shares of common stock may be publicly sold under the Act as promptly
as practicable thereafter and the Payor will use its best efforts to cause such
registration to become and remain effective for a period of 120 days (including
the taking of such steps as are reasonably necessary to obtain the removal of
any stop order); provided that the Payee shall furnish the Payor with
appropriate information in connection therewith as the Company may reasonably
request in writing. The Payee may, at its option, request the filing of a
post-effective amendment to a then current Registration Statement or a new
registration statement under the Act with respect to the Registrable Securities
on only two occasions during the Registration Period. All costs and expenses of
such post-effective amendment or new registration statement shall be borne by
the Payor, except that the Payee shall bear the fees of its own counsel and any
underwriting discounts or commissions applicable to any of the securities sold
by it.
The Payor shall be entitled to postpone the filing of any registration
statement pursuant to this subsection (b) otherwise required to be prepared and
filed by it if (i) the Payor is engaged in a material acquisition,
reorganization, or divestiture, (ii) the Payor is currently engaged in a
selftender or exchange offer and the filing of a registration statement would
cause a violation of Regulation M or any other Rule under the Securities
Exchange Act of 1934, (iii) the Payor is engaged in an underwritten offering and
the managing underwriter has advised the Payor in writing that such a
registration statement would have a material adverse effect on the consummation
of such offering or (iv) the Payor is subject to an underwriter's lockup as a
result of an underwritten public offering and such underwriter has refused in
writing, the Payor's request to waive such lock-up. In the event of such
postponement, the Payor shall be required to file the registration statement
pursuant to this subsection (b), within 60 days of the consummation of the event
requiring such postponement.
<PAGE>
Exhibit A
The Payor will use its best efforts to maintain such registration statement
or post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three months if requested by the Payee) from
the effective date thereof. The Payor shall supply prospectuses, and such other
documents as the Payee may reasonably request in order to facilitate the public
sale or other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such holder designates, provided that the Payor shall not be required to
qualify as a foreign corporation or a dealer in securities or execute a general
consent to service of process in any jurisdiction in any action.
4. Acceleration. In the event that (i) the Payor shall default in the due
and punctual payment of any installment of interest on this Debenture when and
as the same shall become due and payable or (ii) the Payor shall commence a
voluntary case concerning itself under any title of the United States Code
entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto
(the "Bankruptcy Code"); or (iii) in the event of the appointment of a custodian
(as defined in the Bankruptcy Code) for all or substantially all of the property
of the Payor; or (iv) in the event the Payor shall commence any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction,
whether now or hereafter in effect, relating to the Payor or in the event of the
commencement against the Payor of any such proceeding which remains undismissed
for a period of 30 days; or (v) if the Payor is adjudicated insolvent or
bankrupt; or (vi) if any order of relief or other order approving any such case
or proceeding is entered; or (vii) if the Payor shall allow any appointment of
any custodian or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of 30 days; or (viii) if the
Payor shall make a general assignment for the benefit of creditors; or (ix) if
the Payor shall take action for the purpose of effecting any of the foregoing;
(x) there shall be a breach of any representation, warranty or covenant under
the Option Agreement dated as of November 29, 2000, between the Payor and the
Payee (the "Option Agreement"); or (xi) the registration statement covering the
Conversion Shares (as defined in and contemplated by the Option Agreement shall
not have been declared effective by the SEC by March 10, 2001 (the foregoing
being hereinafter collectively referred to as "Events of Default") then, in any
such Event of Default and at any time thereafter while such Event of Default is
continuing, the Payee may, in addition to any other rights and remedies the
Payee may have hereunder or otherwise, declare this Debenture to be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived.
5. Waivers.
5.1 In General. No forbearance, indulgence, delay or failure to exercise
any right or remedy with respect to this Debenture shall operate as a waiver nor
as an acquiescence in any default. No single or partial exercise of any right or
remedy shall preclude any other or further exercise thereof or any exercise of
any other right or remedy.
5.2 Presentment, Etc.; Jury Trial Waived. The Payor hereby waives
presentment, demand, notice of dishonor, protest and notice of protest. The
Payor hereby waives all rights to a trial by jury in any litigation arising out
of or in connection with this Debenture.
<PAGE>
Exhibit A
5.3 Modifications. This Debenture may not be modified or discharged orally,
but only in writing duly executed by the Payee and the Payor.
6. Successors and Assigns. All the covenants, stipulations, promises and
agreements in this Debenture made by the Payor shall bind its successors and
assigns, whether so expressed or not.
7. Miscellaneous.
7.1 Headings. The headings of the various paragraphs of this Debenture are
for convenience of reference only and shall in no way modify any of the terms or
provisions of this Debenture.
7.2 Governing Law. This Debenture and the obligations of the Payor and the
rights of the Payee shall be governed by and construed in accordance with the
laws of the State of New York applicable to instruments made and to be performed
entirely within such State.
7.3 Collection Costs. The Payor shall pay all costs and expenses incurred
by the Payee to enforce its rights under this Debenture, including reasonable
counsel fees and other reasonable out-of-pocket expenses.
IN WITNESS WHEREOF, CONOLOG CORPORATION has caused this Debenture to be
signed in its corporate name by a duly authorized officer and to be dated as of
the day and year written below.
Dated:
CONOLOG CORPORATION
By:
-----------------------------------------
Robert S. Benou, President
<PAGE>
Exhibit A
FORM OF CONVERSION NOTICE
TO: CONOLOG CORPORATION
The undersigned owner of this Convertible Debenture hereby irrevocably
exercises the option to convert this Debenture, or portion hereof (which is at
least $25,000) below designated, into shares of Common Stock of Conolog
Corporation in accordance with the terms of this Debenture and directs that the
shares issuable and deliverable upon the conversion, together with any check in
payment for fractional shares and any Debentures representing any unconverted
principal amount hereof, be issued and delivered to the registered holder hereof
or its designee as indicated below.
Dated: ________________
CLOG II LLC
By:_________________________________
Warren Schreiber, Managing Member
Address: 64 Shelter Lane
Roslyn, New York 11577
Taxpayer Identification
No.:
--------------------------------------------------
Amount to be Converted: $
---------------------------
<PAGE>
