Exhibit 4.5
CONOLOG CORPORATION
SECURITY AGREEMENT
To: Laurus Master Fund, Ltd.
c/o Onshore Corporate Services, Ltd.
X.X. Xxx 0000 G.T
Queensgate House
South Church Street
Grand Cayman, Cayman Islands
Gentlemen:
1. To secure the payment of all Obligations (as hereafter defined), we
hereby grant to you a continuing security interest in all of the following
property now owned or at any time hereafter acquired by us, or in which we now
have or at any time in the future may acquire any right, title or interest (the
"Collateral"): all accounts, inventory, equipment, goods, documents, instruments
(including, without limitation, promissory notes), contract rights, general
intangibles (including, without limitation, payment intangibles and an absolute
right to license on terms no less favorable than those current in effect among
our affiliates, but not own intellectual property), chattel paper, supporting
obligations, investment property, letter-of-credit rights, trademarks and
tradestyles in which we now have or hereafter may acquire any right, title or
interest, all proceeds and products thereof (including, without limitation,
proceeds of insurance) and all additions, accessions and substitutions thereto
or therefore. In the event we wish to finance the acquisition of any hereafter
acquired equipment and have obtained a commitment from a financing source to
finance such equipment from an unrelated third party, you agree to release your
security interest on such hereafter acquired equipment so financed by such third
party financing source.
2. The term "Obligations" as used herein shall mean and include all debts,
liabilities and obligations owing by us to you hereunder and under whether
arising under, out of, or in connection with that certain Securities Purchase
Agreement dated as of the date hereof by and between the undersigned and Laurus
Master Fund, Ltd. ("Laurus") (the "Securities Purchase Agreement"), that certain
Secured Convertible Note dated as of the date hereof made by in favor of Laurus
(the "Term Note") that certain Registration Rights Agreement dated as of the
date hereof by and between the undersigned and Laurus in connection with the
Term Note (the "Term Note Registration Rights Agreement") (the Securities
Purchase Agreement, the Term Note and the Term Note Registration Rights
Agreement as each may be amended, modified, restated or supplemented from time
to time, are collectively referred to herein as the "Documents").
3. We hereby represent, warrant and covenant to you that:
(a) we are a company validly existing, in good standing and formed
under the laws of the State of Delaware and we will provide you thirty
(30) days' prior written notice of any change in our state of formation;
(b) our legal name is Conolog Corporation, as set forth in our
Certificate of Incorporation as amended through the date hereof;
(c) we are the lawful owner of the Collateral and have the sole
right to grant a security interest therein and will defend the Collateral
against all claims and demands of all persons and entities;
(d) we will keep the Collateral free and clear of all attachments,
levies, taxes, liens, security interests and encumbrances of every kind
and nature ("Encumbrances"), other than Permitted Encumbrances (as
hereinafter defined), except to the extent said Encumbrance does not
secure indebtedness in excess of $50,000 and such Encumbrance is removed
or otherwise released within ten (10) days of the creation thereof;
(e) we will at our own cost and expense keep the Collateral in good
state of repair (ordinary wear and tear excepted) and will not waste or
destroy the same or any part thereof other than ordinary course discarding
of items no longer used or useful in our business;
(f) we will not without your prior written consent, sell, exchange,
lease or otherwise dispose of the Collateral, whether by sale, lease or
otherwise, except for the sale of inventory in the ordinary course of
business and for the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out equipment or
equipment no longer necessary for our ongoing needs, having an aggregate
fair market value of not more than $25,000 and only to the extent that:
(i) the proceeds of any such disposition are used to acquire
replacement Collateral which is subject to your first priority
security interest or are used to repay Obligations or to pay general
corporate expenses; or
(ii) following the occurrence of an Event of Default which
continues to exist the proceeds of which are remitted to you to be
held as cash collateral for the Obligations;
(g) we will insure the Collateral jointly in our names against loss
or damage by fire, theft, burglary, pilferage, loss in transit and such
other hazards as you shall specify in amounts and under policies by
insurers acceptable to you and all premiums thereon shall be paid by us
and the policies delivered to you. If we fail to do so, you may procure
such insurance and the cost thereof shall constitute Obligations;
(h) we will at all reasonable times allow you or your
representatives free access to and the right of inspection of the
Collateral;
(i) we hereby indemnify and save you harmless from all loss, costs,
damage, liability and/or expense, including reasonable attorneys' fees,
that you may sustain or incur to enforce payment, performance or
fulfillment of any of the Obligations and/or in the enforcement of this
Agreement or in the prosecution or defense of any action or proceeding
either against you or us concerning any matter growing out of or in
connection with this Agreement, and/or any of the
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Obligations and/or any of the Collateral except to the extent caused by
your own gross negligence or willful misconduct.
4. We shall be in default under this Agreement upon the happening of any
of the following events or conditions, each such event or condition an "Event of
Default:"
(a) we shall fail to pay when due or punctually perform any of the
Obligations and such failure shall continue for a period of three (3) days
following any failure to make payment, or for a period of thirty (30) days
following default for any other such failure;
(b) any covenant, warranty, representation or statement made or
furnished to you by us or on our behalf was false in any material respect
when made or furnished;
(c) the loss, theft, substantial damage, destruction, sale or
encumbrance to or of any of the Collateral or the making of any levy,
seizure or attachment thereof or thereon except to the extent:
(i) such loss is covered by insurance proceeds which are used
to replace the item or repay us; or
(ii) said levy, seizure or attachment does not secure
indebtedness in excess of $50,000 and such levy, seizure or
attachment has not been removed or otherwise released within ten
(10) days of the creation or the assertion thereof;
(d) we shall become insolvent, cease operations, dissolve, terminate
our business existence, make an assignment for the benefit of creditors,
suffer the appointment of a receiver, trustee, liquidator or custodian of
all or any part of our property;
(e) any proceedings under any bankruptcy or insolvency law shall be
commenced by or against us and if commenced against us shall not be
dismissed within thirty (30) days;
(f) we shall repudiate, purport to revoke or fail to perform any of
our obligations under the Note (after passage of applicable cure period,
if any); or
(g) an Event of Default shall have occurred under and as defined in
the Note.
5. Upon the occurrence of any Event of Default and at any time thereafter,
you may declare all Obligations immediately due and payable and you shall have
the remedies of a secured party provided in the Uniform Commercial Code as in
effect in the State of New York, this Agreement and other applicable law. Upon
the occurrence of any Event of Default and at any time thereafter, you will have
the right to take possession of the Collateral and to maintain such possession
on our premises or to remove the Collateral or any part thereof to such other
premises as you may desire. Upon your request, we shall assemble the Collateral
and make it available to you at a place designated by you. If any notification
of intended disposition of any Collateral is required by law, such notification,
if mailed, shall be deemed properly and
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reasonably given if mailed at least ten (10) days before such disposition,
postage prepaid, addressed to us either at our address shown herein or at any
address appearing on your records for us. Any proceeds of any disposition of any
of the Collateral shall be applied by you to the payment of all expenses in
connection with the sale of the Collateral, including reasonable attorneys' fees
and other legal expenses and disbursements and the reasonable expense of
retaking, holding, preparing for sale, selling, and the like, and any balance of
such proceeds may be applied by you toward the payment of the Obligations in
such order of application as you may elect, and we shall be liable for any
deficiency.
6. If we default in the performance or fulfillment of any of the terms,
conditions, promises, covenants, provisions or warranties on our part to be
performed or fulfilled under or pursuant to this Agreement, you may, at your
option without waiving your right to enforce this Agreement according to its
terms, immediately or at any time thereafter and without notice to us, perform
or fulfill the same or cause the performance or fulfillment of the same for our
account and at our sole cost and expense, and the cost and expense thereof
(including reasonable attorneys' fees) shall be added to the Obligations and
shall be payable on demand with interest thereon at the highest rate permitted
by law or, at your option, debited by you from the Pledged Account.
7. We appoint you, any of your officers, employees or any other person or
entity whom you may designate as our attorney, with power to execute such
documents in our behalf and to supply any omitted information and correct patent
errors in any documents executed by us or on our behalf; to file financing
statements against us covering the Collateral; to sign our name on public
records; and to do all other things you deem necessary to carry out this
Agreement. We hereby ratify and approve all acts of the attorney and neither you
nor the attorney will be liable for any acts of commission or omission, nor for
any error of judgment or mistake of fact or law other than gross negligence or
willful misconduct. This power being coupled with an interest, is irrevocable so
long as any Obligations remains unpaid.
8. No delay or failure on your part in exercising any right, privilege or
option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by you and then only to the extent therein set forth, and no
waiver by you of any default shall operate as a waiver of any other default or
of the same default on a future occasion. Your books and records containing
entries with respect to the Obligations shall be admissible in evidence in any
action or proceeding, shall be binding upon us for the purpose of establishing
the items therein set forth and shall constitute prima facie proof thereof. You
shall have the right to enforce any one or more of the remedies available to
you, successively, alternately or concurrently. We agree to join with you in
executing financing statements or other instruments to the extent required by
the Uniform Commercial Code in form satisfactory to you and in executing such
other documents or instruments as may be required or deemed necessary by you for
purposes of affecting or continuing your security interest in the Collateral.
9. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York and cannot be terminated orally. All of the
rights, remedies, options, privileges and elections given to you hereunder shall
inure to the benefit of your successors and assigns. The term "you" as herein
used shall include your company, any parent of your
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company, any of your subsidiaries and any co-subsidiaries of your parent,
whether now existing or hereafter created or acquired, and all of the terms,
conditions, promises, covenants, provisions and warranties of this Agreement
shall inure to the benefit of and shall bind the representatives, successors and
assigns of each of us and them. You and we hereby (a) waive any and all right to
trial by jury in litigation relating to this Agreement and the transactions
contemplated hereby and we agree not to assert any counterclaim in such
litigation, (b) submit to the nonexclusive jurisdiction of any New York State
court sitting in the borough of Manhattan, the city of New York and (c) waive
any objection you or we may have as to the bringing or maintaining of such
action with any such court.
10. All notices from you to us shall be sufficiently given if mailed or
delivered to us at our address set forth below.
Very truly yours,
CONOLOG CORPORATION
By: ____________________________
Name: ____________________________
ACKNOWLEDGED: Title: ____________________________
LAURUS MASTER FUND, LTD. Address:
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
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