Exhibit 4.1
CONOLOG CORPORATION
SECURITIES PURCHASE AGREEMENT
April 26, 2004
Table of Contents
Page
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1. Agreement to Sell and Purchase........................................1
2. Fees and Warrant......................................................1
3. Closing, Delivery and Payment.........................................2
3.1 Closing....................................................2
3.2 Delivery...................................................2
4. Representations and Warranties of the Company.........................2
4.1 Organization, Good Standing and Qualification..............2
4.2 Subsidiaries...............................................3
4.3 Capitalization; Voting Rights..............................3
4.4 Authorization; Binding Obligations.........................4
4.5 Liabilities................................................4
4.6 Agreements; Action.........................................4
4.7 Obligations to Related Parties.............................5
4.8 Changes....................................................6
4.9 Title to Properties and Assets; Liens, Etc.................7
4.10 Intellectual Property......................................7
4.11 Compliance with Other Instruments..........................8
4.12 Litigation.................................................8
4.13 Tax Returns and Payments...................................8
4.14 Employees..................................................9
4.15 Registration Rights and Voting Rights......................9
4.16 Compliance with Laws; Permits..............................9
4.17 Environmental and Safety Laws.............................10
4.18 Valid Offering............................................10
4.19 Full Disclosure...........................................10
4.20 Insurance.................................................10
4.21 SEC Reports...............................................10
4.22 Listing...................................................10
4.23 No Integrated Offering....................................11
4.24 Stop Transfer.............................................11
4.25 Dilution..................................................11
4.26 Patriot Act...............................................11
5. Representations and Warranties of the Purchaser......................12
5.1 No Shorting...............................................12
5.2 Requisite Power and Authority.............................12
5.3 Investment Representations................................12
5.4 Purchaser Bears Economic Risk.............................13
5.5 Acquisition for Own Account...............................13
5.6 Purchaser Can Protect Its Interest........................13
5.7 Accredited Investor.......................................13
5.8 Legends...................................................13
6. Covenants of the Company.............................................14
6.1 Stop-Orders...............................................14
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6.2 Listing...................................................14
6.3 Market Regulations........................................15
6.4 Reporting Requirements....................................15
6.5 Use of Funds..............................................15
6.6 Access to Facilities......................................15
6.7 Taxes.....................................................15
6.8 Insurance.................................................16
6.9 Intellectual Property.....................................17
6.10 Properties................................................17
6.11 Confidentiality...........................................17
6.12 Required Approvals........................................17
6.13 Reissuance of Securities..................................18
6.14 Opinion...................................................18
6.15 NASDAQ Approval...........................................18
7. Covenants of the Purchaser...........................................19
7.1 Confidentiality...........................................19
7.2 Non-Public Information....................................19
7.3 Termination of Obligations Under the Note.................19
8. Covenants of the Company and Purchaser Regarding Indemnification.....19
8.1 Company Indemnification...................................19
8.2 Purchaser's Indemnification...............................19
8.3 Procedures................................................20
9. Conversion of Convertible Note.......................................20
9.1 Mechanics of Conversion...................................20
9.2 Maximum Conversion........................................21
10. Registration Rights, Indemnification.................................21
10.1 Registration Rights Granted...............................21
10.2 Indemnification...........................................22
10.3 Offering Restrictions.....................................23
11. Miscellaneous........................................................24
11.1 Governing Law.............................................24
11.2 Survival..................................................24
11.3 Successors................................................24
11.4 Entire Agreement..........................................25
11.5 Severability..............................................25
11.6 Amendment and Waiver......................................25
11.7 Delays or Omissions.......................................25
11.8 Notices...................................................25
11.9 Attorneys' Fees...........................................26
11.10 Titles and Subtitles......................................26
11.11 Facsimile Signatures; Counterparts........................27
11.12 Construction..............................................27
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LIST OF EXHIBITS
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Form of Convertible Term Note..................................... Exhibit A
Form of Warrant................................................... Exhibit B
Form of Opinion................................................... Exhibit C
Form of Escrow Agreement.......................................... Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of April 26, 2004, by and between CONOLOG CORPORATION, a Delaware
corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of One Million Two
Hundred Thousand Dollars ($1,200,000.00) (the "Note"), which Note is convertible
into shares of the Company's common stock, $0.01 par value per share (the
"Common Stock") at a fixed conversion price of $1.06 per share of Common Stock
("Fixed Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 270,000 shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms
and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $1,200,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Note and this Agreement. The Note purchased on
the Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
thirty six (36) months from the date of issuance. Collectively, the Note and
Warrant (as defined in Section 2) and Common Stock issuable in payment of the
Note, upon conversion of the Note and upon exercise of the Warrant are referred
to as the "Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 270,000 shares of Common Stock in connection with the
Offering (the "Warrant") pursuant to Section 1 hereof. The Warrant must be
delivered on the Closing
Date. A form of Warrant is annexed hereto as Exhibit B. All the
representations, covenants, warranties, undertakings, and indemnification,
and other rights made or granted to or for the benefit of the Purchaser by
the Company are hereby also made and granted in respect of the Warrant and
shares of the Company's Common Stock issuable upon exercise of the Warrant
(the "Warrant Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall
pay to Laurus Capital Management, LLC, manager of Purchaser a closing
payment in an amount equal to three and one-half percent (3.50%) of the
aggregate principal amount of the Note. The foregoing fee is referred to
herein as the "Closing Payment."
(c) The Company shall reimburse the Purchaser for its reasonable
legal fees for services rendered to the Purchaser in preparation of this
Agreement and the Related Agreements (as hereinafter defined), and
expenses in connection with the Purchaser's due diligence review of the
Company and relevant matters. Amounts required to be paid hereunder will
be paid at the Closing and shall be $29,500 for legal expenses and for
performing due diligence inquiries on the Company.
(d) The Closing Payment, legal fees and due diligence fees (net of
deposits previously paid by the Company shall be paid at closing out of
funds held pursuant to a Funds Escrow Agreement of even date herewith
among the Company, Purchaser, and an Escrow Agent (the "Funds Escrow
Agreement") and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Funds Escrow Agreement in the form
attached hereto as Exhibit C, at the Closing on the Closing Date, the Company
will deliver to the Purchaser, among other things, a Note in the form attached
as Exhibit A representing the principal amount of $1,200,000 and a Warrant in
the form attached as Exhibit B in the Purchaser's name representing 270,000
Warrant Shares and the Purchaser will deliver to the Company, among other
things, the amounts set forth in the Disbursement Letter by certified funds or
wire transfer.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as of the date of this Agreement as set
forth below which disclosures are supplemented by, and subject to the Company's
filings under the Securities Exchange Act of 1934 (collectively, the "Exchange
Act Filings"), copies of which have been provided to the Purchaser.
4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, and the Note and the Warrant to be issued in
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connection with this Agreement, the Security Agreement relating to the Note
dated as of April 26, 2004 between the Company and the Purchaser, the
Registration Rights Agreement relating to the Securities dated as of April 26,
2004 between the Company and the Purchaser and all other agreements referred to
herein (collectively, the "Related Agreements"), to issue and sell the Note and
the shares of Common Stock issuable upon conversion of the Note (the "Note
Shares"), to issue and sell the Warrant and the Warrant Shares, and to carry out
the provisions of this Agreement and the Related Agreements and to carry on its
business as presently conducted. The Company is duly qualified and is authorized
to do business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business.
4.2 Subsidiaries. The Company owns all of the issued and outstanding
capital stock of Nonolog, Inc. The Company does not own or control any equity
security or other interest of any other corporation, limited partnership or
other business entity. Lonogog, Inc. the only other subsidiary of the Company,
will be wound up and dissolved no later than November 1, 2004.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of 20,000,000 shares, of which 2,150,313 are shares of
Common Stock, par value $0.01 per share, 2,150,313 shares of which are
issued and outstanding (such amount including 800,000 shares of Common
Stock to be issued to the Company's officers and directors as set forth on
Schedule 4.3 hereto but excluding 220 shares of Common Stock held in the
Company's treasury), and 212,000 are shares of preferred stock, par value
$0.50 per share, 162,000 shares of which are designated Series A Preferred
Stock with a par value of $0.50 per share of which 155,000 have been
issued and outstanding and 50,000 of which are designated Series B
Preferred Stock with a stated par value of $0.50 of which 1,197 shares are
issued and outstanding.
(b) Except as disclosed in Exchange Act Filings or on Schedule 4.3,
other than: (i) the shares reserved for issuance under the Company's stock
option plans; and (ii) shares which may be granted pursuant to this
Agreement and the Related Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of
first refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the Company of
any of its securities. Except as disclosed in Exchange Act Filings or on
Schedule 4.3, neither the offer, issuance or sale of any of the Note or
Warrant, or the issuance of any of the Note Shares or Warrant Shares, nor
the consummation of any transaction contemplated hereby will result in a
change in the price or number of any securities of the Company outstanding
other than as the result of the issuance of Note Shares and/or Warrant
shares, under anti-dilution or other similar provisions contained in or
affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and
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(ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance
with the provisions of this Agreement and the Company's Charter, the
Securities will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers and directors necessary for the authorization
of this Agreement and the Related Agreements, the performance of all obligations
of the Company hereunder at the Closing and, the authorization, sale, issuance
and delivery of the Note and Warrant has been taken or will be taken prior to
the Closing. The Agreement and the Related Agreements, when executed and
delivered and to the extent it is a party thereto, will be valid and binding
obligations of the Company enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. The Company, to the best of its knowledge, has no
material contingent liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company is a party or to its knowledge by which it is bound which may
involve: (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 (other than obligations of, or payments to,
the Company arising from purchase or sale agreements entered into in the
ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf"
or other standard products); or (iii) provisions
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restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect
to infringements of proprietary rights.
(b) Since January 31, 2004, the Company has not: (i) declared or
paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than
ordinary course obligations) individually in excess of $25,000 or, in the
case of indebtedness and/or liabilities individually less than $25,000, in
excess of $50,000 in the aggregate; (iii) made any loans or advances to
any person not in excess, individually or in the aggregate, of $50,000,
other than ordinary advances for travel expenses; or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale
of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company to officers, directors,
stockholders or employees of the Company other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $25,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
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set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since January 31, 2004, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) Any change in the assets, liabilities, financial condition,
prospects or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had
or is reasonably expected to have a material adverse effect on such
assets, liabilities, financial condition, prospects or operations of the
Company;
(b) Any resignation or termination of any officer, key employee or
group of employees of the Company;
(c) Any material change, except in the ordinary course of business,
in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect material loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution
of the assets of the Company;
(i) Any labor organization activity related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
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(l) Any change in any material agreement to which the Company is a
party or by which it is bound which may materially and adversely affect
the business, assets, liabilities, financial condition, operations or
prospects of the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has or may materially and adversely affect
the business, assets, liabilities, financial condition, prospects or
operations of the Company; or
(n) Any arrangement or commitment by the Company to do any of the
acts described in subsection (a) through (m) above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth
on Schedule 4.9, the Company has good and marketable title to its properties and
assets, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and repair
and are reasonably fit and usable for the purposes for which they are being
used. Except as set forth on Schedule 4.9, the Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) The Company owns or possesses sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and to the Company's knowledge
as presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing proprietary rights, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements
arising from the purchase of "off the shelf" or standard products.
(b) The Company has not received any communications alleging that
the Company has violated any of the patents, trademarks, service marks,
trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company aware of any basis
therefor.
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(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company.
4.11 Compliance with Other Instruments. Except as set forth in
Exchange Act Filings or on Schedule 4.11, the Company is not in violation or
default of any term of its Charter or Bylaws, or of any material provision of
any mortgage, indenture, contract, agreement, instrument or contract to which it
is party or by which it is bound or of any judgment, decree, order or writ. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Note by the Company and the other Securities by the Company each pursuant
hereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
4.12 Litigation. Except as set forth in Exchange Act Filings or on
Schedule 4.12 hereto, there is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
that prevents the Company to enter into this Agreement or the Related
Agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for any of the
foregoing. The Company is not, to its reasonable knowledge, a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
4.13 Tax Returns and Payments. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 4.13, the Company has not been
advised:
(a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
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4.14 Employees. Except as set forth on Schedule 4.14, the Company
has no collective bargaining agreements with any of its employees. There is no
labor union organizing activity pending or, to the Company's knowledge,
threatened with respect to the Company. Except as disclosed in the Exchange Act
Filings or on Schedule 4.14, the Company is not a party to or bound by any
currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to the Company. The Company has not received any notice alleging
that any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company, no employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. Except as set
forth on Schedule 4.14, the Company is not aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, the Company is
presently not under any obligation, and has not granted any rights, to register
any of the Company's presently outstanding securities or any of its securities
that may hereafter be issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of
the Company has entered into any agreement with respect to the voting of equity
securities of the Company.
4.16 Compliance with Laws; Permits. Except as set forth on Schedule
4.16, to its knowledge, the Company is not in violation in any material respect
of any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of any of the Securities, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The Company has all material
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which would
materially and adversely affect the business, properties, prospects or financial
condition of the Company.
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4.17 Environmental and Safety Laws. The Company is not in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as set forth on Schedule 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or, to the Company's knowledge, by any other person or entity on any property
owned, leased or used by the Company. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous"
or "toxic" under any applicable local, state, federal and/or foreign laws
and regulations that govern the existence and/or remedy of contamination
on property, the protection of the environment from contamination, the
control of hazardous wastes, or other activities involving hazardous
substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. The Company has provided the Purchaser with
all information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the Company believes is
reasonably necessary to make such investment decision. Neither this Agreement,
the exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Company to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company were
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future events which the Company, at the date of the issuance of
such projections or estimates, believed to be reasonable.
4.20 Insurance. The Company has general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company in the
same or similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Exchange Act. The Company has furnished the Purchaser with
copies of: (i) its Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002; and (ii) its Quarterly Reports on Form 10-QSB for the fiscal
quarters ended June 30, 2003 and September 30, 2003, and the Form 8-K filings
which it has made during 2003 to date (collectively, the "SEC Reports"). Except
as
10
set forth on Schedule 4.21, each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a 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.
4.22 Listing. The Common Stock is listed for trading on the Nasdaq
SmallCap Market and, as of the date hereof, satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
Common Stock will be delisted from the Nasdaq SmallCap Market (except for prior
notices as to which the Company, as of the date hereof, has previously satisfied
all demands of the Nasdaq Smallcap, ) or that the Common Stock does not
currently meet all requirements for the continuation of such listing.
4.23 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.24 Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of any of the Securities at such
time as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
4.26 Patriot Act. If the Company is a corporation, trust,
partnership, limited liability Purchaser or other organization, the Company
certifies that, to the best of Company's knowledge, the Company has not been
designated, and is not owned or controlled, by a "suspected terrorist" as
defined in Executive Order 13224. The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that the
Company will pay or will contribute to the Purchaser has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Company to the Purchaser,
to the extent that they are within the Company's control shall cause the
Purchaser to be in violation of the United States Bank Secrecy Act, the United
States International Money Laundering Control Act of 1986 or the United States
International Money Laundering
11
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Purchaser if any of these representations ceases to be true and
accurate regarding the Company. The Company agrees to provide the Purchaser any
additional information regarding the Company that the Purchaser deems necessary
or convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. The Company understands and agrees that if at
any time it is discovered that any of the foregoing representations are
incorrect, or if otherwise required by applicable law or regulation related to
money laundering similar activities, the Purchaser may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Company's investment in the
Purchaser. The Company further understands that the Purchaser may release
confidential information about the Company and, if applicable, any underlying
beneficial owners, to proper authorities if the Purchaser, in its sole
discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in subsection
(ii) above.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement)
5.1 No Shorting. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or entity,
directly or indirectly, to engage in "short sales" of the Company's Common Stock
or any other hedging strategies as long as the Note shall be outstanding.
5.2 Requisite Power and Authority. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be
12
purchased by it under this Agreement and the Note Shares and the Warrant Shares
acquired by it upon the conversion of the Note and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's
business, management and financial affairs and the terms and conditions of the
Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
5.4 Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.5 Acquisition for Own Account. Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for Purchaser's own account
for investment only, and not as a nominee or agent and not with a view towards
or for resale in connection with their distribution.
5.6 Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement, and the Related
Agreements. Further, Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.7 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY
13
SATISFACTORY TO CONOLOG CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE,
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE
STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CONOLOG CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CONOLOG CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the NASDAQ SC (the "Principal Market") upon which
shares of Common Stock are listed
14
(subject to official notice of issuance) and shall use its reasonable best
efforts to maintain such listing so long as any other shares of Common Stock
shall be so listed. The Company will maintain the listing of its Common Stock on
the Principal Market, and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 Reporting Requirements. For the period beginning on the date
hereof and ending on the fourth anniversary of the date hereof or as otherwise
required by applicable law, the Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds
of the sale of the Note and Warrant for general corporate and working capital
purposes only.
6.6 Access to Facilities. The Company will permit any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon reasonable notice and during normal business hours, at such person's
expense and accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company;
(b) examine the corporate and financial records of the Company
(unless such examination is not permitted by federal, state or local law
or by contract) and make copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company with
the directors, officers and independent accountants of the Company.
Notwithstanding the foregoing, the Company will not provide any material,
non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
6.7 Taxes. The Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the
15
commencement of proceedings to foreclose any lien which may have attached as
security therefor.
6.8 Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in similar business similarly situated as the Company; and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner which the Company reasonably believes is customary for companies
in similar business similarly situated as the Company and to the extent
available on commercially reasonable terms. The Company and each of its
subsidiaries set forth in Section 4.2 hereof (the "Subsidiaries") will jointly
and severally bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to the Purchaser as security for its
obligations hereunder and under the Related Agreements. At the Company's own
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of the Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii))
maintain customary public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker's compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which the Company or the Subsidiary is
engaged in business; and (v) furnish Purchaser with (x) copies of all policies
and evidence of the maintenance of such policies at least thirty (30) days
before any expiration date, (y) excepting the Company's workers' compensation
policy, endorsements to such policies naming Purchaser as "co-insured" or
"additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Purchaser, naming Purchaser as loss payee and deliver
such certificates of insurance evidencing the appropriate loss payee
endorsements to the Purchaser within five (5) business days after the Closing
Date, and (z) evidence that as to Purchaser the insurance coverage shall not be
impaired or invalidated by any act or neglect of the Company or any Subsidiary
and the insurer will provide Purchaser with at least thirty (30) days notice
prior to cancellation. The Company and each Subsidiary shall instruct the
insurance carriers that in the event of any loss thereunder, the carriers shall
make payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the Company
shall be permitted to direct the application of such loss recovery proceeds
toward investment in property, plant and equipment that would comprise
"Collateral" secured by Purchaser's security interest pursuant to its security
agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required
16
by law. Any deficiency thereon shall be paid by the Company or the Subsidiary,
as applicable, to Purchaser, on demand.
6.9 Intellectual Property. The Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.10 Properties. The Company will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company will at all times comply
with each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could reasonably be expected
to have a material adverse effect.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. The Company may disclose Purchaser's identity and the terms of this
Agreement to its current and prospective debt and equity financing sources.
6.12 Required Approvals. For so long as twenty-five percent (25%) of
the principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:
(a) directly or indirectly declare or pay any dividends, other than
dividends with respect to its preferred stock;
(b) liquidate, dissolve or effect a material reorganization;
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's right to
perform the provisions of this Agreement or any of the agreements
contemplated thereby;
(d) materially alter or change the scope of the business of the
Company;
(e) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of five percent (5%) per annum of the Company's
assets) whether secured or unsecured or any refinancings or replacements
thereof or any debt incurred in connection with the purchase of assets or
in connection with operating lines of credit as necessary to operate such
assets, or any refinancings or replacements thereof; (ii) cancel any debt
owing to it in excess of $25,000 in the aggregate during any 12 month
period; (iii) assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by a Company for
deposit or collection or similar transactions in the ordinary course of
17
business or guarantees provided to any of the lenders set forth in
subparagraph (i) immediately above.
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's legal
counsel. The Company will provide, at the Company's expense, such other legal
opinions in the future as are reasonably necessary for the conversion of the
Note and exercise of the Warrant.
6.15 NASDAQ Approval. (a) The Company will at all times maintain, an
authorized, reserved and sufficient number of shares of Common Stock for the
full conversion of the Note and exercise of the Warrant (as defined in the
Warrant). Notwithstanding anything contained herein to the contrary, the number
of shares of Common Stock issuable by the Company and acquirable by the
Purchaser at a price below $1.06 [market price of the stock at closing] per
share pursuant to the terms of the Secured Convertible Term Note and/or Warrants
issued by the Company to the Purchaser pursuant to this Agreement (the "April
Transaction Documents"), shall not exceed an aggregate of 459,770 shares of the
Company's Common Stock, (subject to appropriate adjustment for stock splits,
stock dividends, or other similar recapitalizations affecting the Common
Stock)(the "Maximum Common Stock Issuance"), unless the issuance of shares
hereunder in excess of the Maximum Common Stock Issuance shall first be approved
by the Company's shareholders. If at any point in time and from time to time the
number of shares of Common Stock to be issued pursuant to the terms of the April
Transaction Documents would exceed the Maximum Common Stock Issuance but for
this Section 6.15, the Company shall promptly, but no later than July 31, 2004
(the "Approval Date"), call a shareholders meeting to solicit shareholder
approval for the issuance of the shares of Common Stock hereunder in excess of
the Maximum Common Stock Issuance. (the Additional Shares").
(b) The Company and Laurus agree that, until the Company either
obtains shareholder approval of the issuance of the Additional Shares, or an
exemption from NASDAQ's corporate governance rules as they may apply to the
Additional Shares, and an opinion of counsel reasonably acceptable to the
Company that NASDAQ's corporate governance rules do not conflict with nor may
result in a delisting of the Company's Common Stock from the NASDAQ SmallCap
Market (the "Approval") upon the conversion of the Note or the exercise of
18
the Warrant, Laurus may not receive, whether upon conversion of the Note or upon
exercise of the Warrant, more than an aggregate of 459,770 shares of the
Company's Common Stock (the number of common shares that would increase the
Purchaser's total holdings of the Company's common stock to greater than 19.9%
of the shares of Company's Common Stock outstanding on the Closing Date). The
Company hereby agrees and covenants to attempt to obtain the Approval required
pursuant to NASDAQ's corporate governance rules to allow conversion of the Note,
interest thereon and the Warrant, in no event later than August 15, 2004. (the
"Trigger Date"). The Company further covenants to file the preliminary proxy
statement relating to the Approval with the Commission on or before thirty days
after the Closing Date ("Proxy Filing Date"). If the Company shall fail to
obtain the Approval by the Trigger Date, then the Company hereby agrees, within
five (5) business days after the Trigger Date, to amend and restate the Note to,
among other things, reduce the principal amount thereof from $1,200,000 to
$479,500.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
7.3 Termination of Obligations under the Note. Upon irrevocable
payment (or conversion) in full of all of the Company's outstanding obligations
under the Note, the Purchaser hereby agrees that all of the Company's
obligations to the Purchaser under the Note shall have been fully satisfied and
the Company shall have no other obligations to the Purchaser with respect
thereto.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
19
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.3 Procedures. The procedures and limitations set forth in Section
10.2(c) and (d) shall apply to the indemnifications set forth in Sections 8.1
and 8.2 above.
9. Conversion of Convertible Note.
9.1 Mechanics of Conversion.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are
included in an effective registration statement or are otherwise exempt
from registration when sold: (i) Upon the conversion of the Note or part
thereof, the Company shall, at its own cost and expense, take all
necessary action (including the issuance of an opinion of counsel) to
assure that the Company's transfer agent shall issue shares of the
Company's Common Stock in the name of the Purchaser (or its nominee) or
such other persons as designated by the Purchaser in accordance with
Section 9.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and
(ii) The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the
Company's Common Stock and that after the Effectiveness Date (as defined
in the Registration Rights Agreement) the Note Shares issued will be
freely transferable subject to the prospectus delivery requirements of the
Securities Act and the provisions of this Agreement, and will not contain
a legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its right
to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted
to the Company (the "Notice of Conversion"). The Purchaser will not be
required to surrender the Note until the Purchaser receives a credit to
the account of the Purchaser's prime broker through the DWAC system (as
defined below), representing the Note Shares or until the Note has been
fully satisfied. Each date on which a Notice of Conversion is telecopied
or delivered to the Company in accordance with the provisions hereof shall
be deemed a "Conversion Date." Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer agent
accompanied by an opinion of counsel within three (3) business days of the
date of the delivery to Company of the Notice of Conversion and shall
cause the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the
Purchaser's prime broker with the Depository Trust Company ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Company of the Notice of Conversion
(the "Delivery Date").
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result
20
in economic loss to the Purchaser. In the event that the Company fails to
direct its transfer agent to deliver the Note Shares to the Purchaser via
the DWAC system within the time frame set forth in Section 9.1(b) above
and the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company agrees
to pay late payments to the Purchaser for late issuance of the Note Shares
in the form required pursuant to Section 9 hereof upon conversion of the
Note in the amount equal to $500 per business day after the Delivery Date.
Notwithstanding the foregoing, the Company will not owe the Purchaser any
late payments if the delay in the delivery of the Note Shares beyond the
Delivery Date is solely out of the control of the Company and the Company
is actively trying to cure the cause of the delay. The Company shall pay
any payments incurred under this Section in immediately available funds
upon demand.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
9.2 Maximum Conversion. Subject to Section 6.15 hereof, the
Purchaser shall not be entitled to convert on a Conversion Date, that amount of
a Note in connection with that number of shares of Common Stock which would be
(a) in excess of the sum of: (i) the number of shares of Common Stock
beneficially owned by the Purchaser on a Conversion Date; and (ii) the number of
shares of Common Stock issuable upon the conversion of the Note with respect to
which the determination of this proviso is being made on a Conversion Date,
which would result in beneficial ownership by the Purchaser of more than 4.99%
of the outstanding shares of Common Stock of the Company on such Conversion Date
and (b) (ii) exceed twenty five percent (25%) of the aggregate dollar trading
volume of the Common Stock for the ten (10) day trading period immediately
preceding delivery of a Notice of Conversion to the Company. For the purposes of
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. Upon an Event of Default under the Note, the conversion limitation
in this Section 9.2 shall become null and void.
10. Registration Rights, Indemnification.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
21
10.2 Indemnification. (a) In the event of a registration of any
Registrable Securities under the Securities Act pursuant to the Registration
Rights Agreement, the Company will indemnify and hold harmless the Purchaser,
and its officers, directors and each other person, if any, who controls the
Purchaser within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which the Purchaser, or such
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act pursuant to the
Registration Rights Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Purchaser, and each such person for any
reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by or on
behalf of the Purchaser or any such person in writing specifically for use in
any such document.
(b) In the event of a registration of the Registrable Securities
under the Securities Act pursuant to the Registration Rights Agreement, the
Purchaser will indemnify and hold harmless the Company, and its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to the Registration Rights
Agreement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such person for any reasonable legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that the
Purchaser will be liable in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished in writing to the Company by or on behalf
of the Purchaser specifically for use in any such document.
22
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.2(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.2(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.2(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the Securities Act in any case in which either:
(i) the Purchaser, or any controlling person of the Purchaser, makes a claim for
indemnification pursuant to this Section 10.2 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.2 provides for indemnification in such case; or (ii)
contribution under the Securities Act may be required on the part of the
Purchaser or controlling person of the Purchaser in circumstances for which
indemnification is provided under this Section 10.2; then, and in each such
case, the Company and the Purchaser will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Purchaser is responsible only for
the portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10 of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
10.3 Offering Restrictions. Except as previously disclosed in the
SEC Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the
23
Company; or shares of preferred stock issued to pay dividends in respect of the
Company's preferred stock; or equity or debt issued in connection with an
acquisition of a business or assets by the Company; or the issuance by the
Company of stock in connection with the establishment of a joint venture
partnership or licensing arrangement (these exceptions hereinafter referred to
as the "Excepted Issuances"), the Company will not issue any securities with a
continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Note (the "Exclusion Period").
11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST
THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE
BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN
THE STATE OF NEW YORK. BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT
AND OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY
PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT DELIVERED IN CONNECTION
HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF
LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY
CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR
RULE OF LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER
ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION
OF ANY AGREEMENT.
11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
24
11.4 Entire Agreement. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
11.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the Company.
11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
11.8 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent as follows:
25
If to the Purchaser, to: Conolog Corporation
▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, CEO
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Lerach LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, to: Laurus Master Fund, Ltd.
c/o Ironshore Corporate Services ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.
Queensgate House, South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
26
11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
[the remainder of this page is intentionally left blank
27
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
CONOLOG CORPORATION LAURUS MASTER FUND, LTD.
By: By:
-------------------------- ------------------------------
Name: Name:
-------------------------- ------------------------------
Title: Title:
-------------------------- ------------------------------
28
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
2. The Company has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Agreement and Related Agreements.
All corporate action on the part of the Company and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and Related Agreements and the performance of all obligations of the
Company thereunder at the Closing; and (ii) the authorization, sale, issuance
and delivery of the Securities pursuant to the Agreement and the Related
Agreements. The Note Shares and the Warrant Shares, when issued pursuant to and
in accordance with the terms of the Agreement and the Related Documents and upon
delivery shall be validly issued and outstanding, fully paid and non assessable.
3. The execution, delivery and performance of the Agreement, the Note or
the Related Agreements by the Company and the consummation of the transactions
on its part contemplated by any thereof, will not, with or without the giving of
notice or the passage of time or both:
(a) Violate the provisions of the Charter or bylaws of the Company;
or
(b) To the best of such counsel's knowledge, violate any judgment,
decree, order or award of any court binding upon the Company.
4. The Agreement and Related Agreements will constitute, valid and legally
binding obligations of the Company, and are enforceable against the Company in
accordance with their respective terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any preemptive rights or,
to such counsel's knowledge, rights of first refusal that have not been properly
waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's
C-1
knowledge, neither the Company, nor any of its affiliates, nor any person acting
on its or their behalf, has directly or indirectly made any offers or sales of
any security or solicited any offers to buy and security under circumstances
that would cause the offering of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company that prevents
the right of the Company to enter into this Agreement or any of the Related
Agreements, or to consummate the transactions contemplated thereby. To such
counsel's knowledge, the Company is not a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality; nor is there any action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
8. The UCC-1 Financing Statement naming the Company as debtor and Laurus
as secured party is in proper form for filing and assuming that such UCC-1
Financing Statement has been filed with the Secretary of State of Delaware, the
security interest created under the Security Agreement will constitute a
perfected security interest under the Uniform Commercial Code in favor of
Laurus.
C-2
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-1
Securities Purchase Agreement
Schedule 4.3 (b)
The Company is in the process of issuing 800,000 shares of its common
stock to certain of its officers and directors, provided, however, that the
Company shall not issue more than 100,000 of such shares in any month, nor more
than an aggregate of 300,000 shares in any fiscal quarter.
The Company has entered into an Agreement with ▇▇▇ ▇▇▇▇▇▇ pursuant to
which the company is obligated to issue him 100,000 shares of its common stock
in increments. The Company is in the process of issuing 25,000 shares of its
common stock to ▇▇. ▇▇▇▇▇▇. The Company will issue the balance of the shares
over the course of the agreement with ▇▇. ▇▇▇▇▇▇.
The Company has entered into an Agreement with ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ pursuant to
which the company is obligated to issue him 100,000 shares of its common stock
in increments. The Company is in the process of issuing 25,000 shares of its
common stock to ▇▇. ▇▇▇▇▇▇▇▇▇. The Company will issue the balance of the shares
over the course of the agreement with ▇▇. ▇▇▇▇▇▇▇▇▇.
Securities Purchase Agreement
Schedule 4.7
The Company is in the process of issuing 800,000 shares of its common
stock to certain of its officers and directors.