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EXHIBIT 10.19
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "SECURITY AGREEMENT") is entered
into as of September 28, 1998 by HI/FN, INC., a Delaware corporation
("BORROWER"), whose principal place of business is ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "PROPERTY"), in favor of STAC, INC., a Delaware
corporation ("LENDER").
Recitals
A. Lender has agreed to make a certain loan (the "LOAN") to
Borrower in the amount of $5,000,000.00. The Loan will be evidenced by and
subject to the terms and conditions of that certain Promissory Note of even date
herewith executed by Borrower in favor of Lender (the "NOTE"). This Security
Agreement, the Note, and all other documents and instruments now or hereafter
executed by Borrower in connection with or to evidence or secure payment of the
Loan will hereinafter be referred to collectively as the "LOAN DOCUMENTS."
B. As a condition precedent to Lender making the Loan
contemplated by the Promissory Note, Lender requires that Borrower shall have
executed this Agreement.
Agreement
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, Borrower agrees as follows:
1. Security Interest. As security for the Obligations (as hereinafter
defined), Borrower hereby grants and assigns to Lender as of the date of this
Agreement a security interest in all of Borrower's right, title and interest in
and to the following (collectively, the "COLLATERAL"): (a) all tangible and
intangible personal property, furnishings, fixtures and equipment now owned by
Borrower or which Borrower may hereafter acquire, including without limitation
any such personal property, furnishings, fixtures and equipment located at the
Property; and (b) all proceeds of any sale or disposition of all or any portion
of such personal property, furnishings, fixtures and equipment, whether in cash
or notes or any other non-cash items, including, without limitation, (i) all
rights of Borrower to receive moneys due and to become due under or pursuant to
the Collateral, (ii) all rights of Borrower to receive the return of any
premiums for, or proceeds of, any insurance, indemnity, warranty or guaranty
with respect to the Collateral or to receive any condemnation proceeds, (iii)
all claims of Borrower for damages arising out of, or for breach of or default
under, any agreements constituting part of the Collateral or any other
Collateral, (iv) all rights of Borrower to terminate, amend, supplement, modify
or waive performance under the any agreements constituting part of the
Collateral, to perform thereunder and to compel performance and otherwise
exercise all remedies thereunder, and (v) to the extent not included in the
foregoing, all proceeds receivable or received when any and all of the
Collateral is sold, collected, exchanged or otherwise disposed of, whether
voluntarily or involuntarily. The Collateral includes, but is not limited to,
all of Borrower's right, title and interest in and to the following:
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(A) all of Borrower's personal property, goods, equipment,
supplies, building and other materials of every nature whatsoever and all other
personal property, including, but not limited to, all computer equipment,
calculators, adding machines and any other electronic equipment of every nature
used by Borrower;
(B) all of Borrower's accounts and accounts receivable,
including, without limitation, all rights to payment for goods sold or leased or
for services rendered which are not evidenced by an instrument or chattel paper,
all other present or future rights for money due or to become due, all of
Borrower's chattel paper, instruments, promissory notes, and general intangibles
for money due or to become due of any kind, in each case whether now existing or
hereafter arising and wherever arising and whether or not earned by performance,
other general intangibles, documents of title, warehouse receipts, leases,
deposit accounts, money, tax refund claims, indemnification and other similar
claims and contract rights permits and licenses, franchises, certificates,
stock, and all rights in, to and under all security agreements, mortgages, deeds
of trust, guarantees, leases and other agreements or contracts securing or
otherwise relating to any of the foregoing;
(C) all of the trademarks and service marks now held or
hereafter acquired by Borrower, which are registered in the United States Patent
and Trademark Office or in any similar office or agency of the United States or
any other country or any state thereof or any political subdivision thereof and
any application for such trademarks and service marks, as well as any
unregistered marks used by Borrower in the United States or any other country
and trade dress including logos, designs, trade names, business names,
fictitious business names and other business identifiers in connection with
which any of these registered or unregistered marks are used in the United
States or any other country ("MARKS"), together with the registration and right
to renewals thereof, and the goodwill of the business of Borrower symbolized by
the Marks and all licenses associated therewith;
(D) all copyrights which Borrower now or hereafter has
registered with the United States Copyright Office or in any similar office or
agency of the United States or any other country or any state thereof or any
political subdivision thereof, as well as any application for a copyright
registration now or hereafter made with the United States Copyright Office or in
any similar office or agency of the United States or any other country or any
state thereof or any political subdivision thereof by Borrower or patent to
which Borrower now or hereafter has title and any divisions or continuations
thereof, as well as any application for a patent now or hereafter made by
Borrower, and all reissues, renewals or extension thereof; and
(E) all computer programs of Borrower and all intellectual
property rights therein and all other proprietary information of Borrower,
including, but not limited to, trade secrets.
2. Obligations Secured. This Agreement secures the payment and
performance of all present and future obligations of Borrower to Lender under
the Loan, the Loan Documents, and under any document which recites that it is
secured hereby (the "OBLIGATIONS").
3. Representations and Warranties. Borrower represents and warrants
that
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(a) Borrower has, or will have, good title to the Collateral, (b) Borrower has
not previously assigned or encumbered the Collateral, and no financing statement
covering any of the Collateral has been delivered to any other person or entity,
(c) Borrower's principal place of business is located as the address specified
above, (d) Borrower shall not relocate its principal place of business or change
its name without thirty (30) days' prior written notice to Lender, (e) Borrower
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and is duly qualified and authorized to do
business and is in good standing in the State of California and in each other
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary, (f) Borrower has all requisite
corporate power and authority to own its properties and assets and to transact
the business in which it presently is, or proposes to be, engaged, and to
execute, deliver and perform each of the Loan Documents, (g) Borrower has duly
authorized, executed and delivered each Loan Document and each Loan Document is
the legal, valid and binding obligation of Borrower, enforceable in accordance
with its terms, and (h) the execution, delivery and performance of each Loan
Document by Borrower are not in contravention of (i) the articles of
incorporation, bylaws or other organizational documents of Borrower or (ii) any
applicable law, rule, regulation, order or similar form of decision of any
arbitrator, court or governmental authority (or political subdivision thereof),
or any easement, right of way, permit, license, action, approval, consent or
other similar authorization, right or approval binding on Borrower or any of its
property, or (iii) any material agreement, instrument, lease or other commitment
to which Borrower is a party or by which it or any of its properties are bound;
and will not, except as contemplated herein, result in the imposition of any
lien, charge, encumbrance, or other preferential arrangement having
substantially the same economic effect, upon any of its properties.
4. Covenants. Borrower covenants and agrees that until the repayment in
full in cash of the Loan, and unless otherwise waived in writing by Lender:
(a) Minimum Debt Service Coverage Ratio. Borrower shall not as
of the end of any fiscal quarter suffer or permit its Debt Service Coverage
Ratio for the previous four fiscal quarters to be less than 1.5 to 1.0.
(b) Adjusted Quick Ratio. Borrower shall not as of the end of
any fiscal quarter suffer or permit its ratio (determined in respect of Borrower
and its Subsidiaries on a consolidated basis) of (i) cash plus the value (valued
in accordance with GAAP) of all Cash Equivalents plus net current accounts
receivable (valued in accordance with GAAP) to (ii) Consolidated Current
Liabilities to be less than 1.25 to 1.00.
(c) Profitability. Borrower shall not as of the end of any
fiscal quarter suffer or permit its Consolidated EBITDA for each of the prior
four fiscal quarters to be less than zero; provided, however, that its
Consolidated EBITDA for one fiscal quarter during the prior four fiscal quarters
may be less than zero so long as the absolute value of the Consolidated EBITDA
of such fiscal quarter (where the Consolidated EBITDA is less than zero) is not
greater than $200,000.
(d) Annual Financial Statements. As soon as available, but in
any event, within ninety (90) days after the end of each fiscal year, Borrower
shall deliver to Lender the following,
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all in a form satisfactory to Lender: (i) audited statements of financial
condition of Borrower, as of the end of such fiscal year with the related
statements of income and retained earnings and statements of changes in
financial position for such fiscal year, in each case setting forth comparative
figures for the preceding fiscal year, and (ii) an unqualified opinion of a
nationally recognized firm of an independent accountants acceptable to Lender.
(e) Quarterly Financial Statements. As soon as available but,
in any event within forty-five (45) days after the end of each of the first
three fiscal quarters, Borrower shall deliver to Lender complete unaudited
statements of financial condition of Borrower as of the end of such fiscal
quarter with related statements of income and retained earnings and statements
of changes in financial position for such fiscal quarter and for the elapsed
portion of the fiscal year ended with the last day of such fiscal quarter, in
each case setting forth comparative figures for the related periods in the prior
fiscal year, all of which shall be in a form satisfactory to Lender, and
certified as to fairness of presentation, GAAP and consistency by the financial
officer of Borrower, subject to normal year-end audit adjustments.
(f) Compliance Certificate. Within forty-five (45) days after
the end of each fiscal quarter, Borrower shall deliver to Lender a certificate
from the financial officer of Borrower in a form acceptable to Lender stating
that: (i) such officer has reviewed or caused to be made a review of the
transactions and financial condition of Borrower during such fiscal quarter;
(ii) Borrower is in compliance with the financial covenants set forth in
Sections 4(a), (b) and (c); and (iii) such review has not, to the best of such
officer's knowledge, disclosed the existence of any event or condition which
constitutes an Event of Default under any Loan Document, or if any such event or
condition exists, the nature thereof and the corrective actions that such
officer has taken or proposes to take with respect thereto.
(g) Certain definitions. As used in this Section 4, the
following capitalized terms shall have the following meanings:
(i) "CASH EQUIVALENTS" shall mean:
(A) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof having maturities
of not more than 12 months from the date of acquisition;
(B) certificates of deposit, time deposits,
Eurodollar time deposits, repurchase agreements, reverse repurchase agreements,
or bankers' acceptances, having in each case a tenor of not more than 12 months,
issued by (i) any U.S. commercial bank or any commercial bank organized under
the laws of any other country which is a member of the Organization for Economic
Cooperation and Development (but including, in any event, Singapore), or a
political subdivision of any such country, in each case having combined capital
and surplus of not less than $100,000,000 and whose short-term securities are
rated at least A-1 by Standard & Poor's Corporation ("S&P") or at least P-1 by
▇▇▇▇▇'▇ Investor Service, Inc. ("MOODY'S");
(C) taxable and tax-exempt commercial paper of an
issuer rated at
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least A-1 by S&P or at least P-1 by Moody's and in either case having a tenor of
not more than 270 days;
(D) medium term notes of an issuer rated at least
AA by S&P or at least Aa2 by Moody's and having a remaining term of not more
than 12 months after the date of acquisition by Borrower or its Subsidiaries;
(E) municipal notes and bonds which are rated at
least SP-2 or AA by S&P or at least MIG-2 or Aa by Moody's with tenors of not
more than 12 months;
(F) investments in taxable or tax-exempt money
market funds with assets greater than $500,000,000 and whose assets have average
maturities less than or equal to 180 days and are rated at least A-1 by S&P or
at least P-1 by Moody's;
(G) money market preferred instruments of an
issuer rated at least A-1 by S&P or at least P-1 by Moody's with tenors of not
more than 12 months;
(H) for similar investments, subject to Lender's
prior written approval.
(ii) "CONSOLIDATED CURRENT LIABILITIES" shall mean,
at any time of determination, all amounts which would, in accordance with GAAP,
be included under current liabilities on a consolidated balance sheet of
Borrower and its Subsidiaries, but in any event including the outstanding Loan.
(iii) "CONSOLIDATED EBITDA" shall mean, with respect
to Borrower and its Subsidiaries on a consolidated basis for any period, net
income (or loss) for such period (A) plus, to the extent deducted in computing
such net income (or loss), the sum of (a) total depreciation and amortization
expenses for any period, plus (b) total interest expense during such period,
plus (c) if applicable, provisions for taxes based on income during such period,
plus (d) losses attributable to sales of assets during such period, plus (e)
other non-cash items reducing net income, and (B) minus, to the extent included
in computing such net income (or loss), the sum of (x) gains attributable to
sales of assets during such period, plus (y) other non-cash items increasing net
income; all of the foregoing as determined on a consolidated basis for Borrower
and its Subsidiaries in conformity with GAAP.
(iv) "DEBT SERVICE COVERAGE RATIO" shall mean, for
any period, the ratio of (i) Consolidated EBITDA during such period to (ii) the
aggregate amount of debt service becoming due or payable by Borrower or any of
its Subsidiaries during such period, as calculated by Borrower but subject to
the approval of Lender.
(v) "GAAP" shall mean generally accepted accounting
principles in effect from time to time in the United States.
(vi) "SUBSIDIARY" of Borrower, shall mean any
corporation, association, partnership, limited liability company, joint venture
or other business entity of which more than 50% of the voting stock, membership
interests or other equity interests is owned or
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controlled directly or indirectly by Borrower, or one or more Subsidiaries of
Borrower, or a combination thereof.
5. Rights of Lender. In addition to Lender's rights as a "secured
party" under the California Commercial Code, as amended or recodified from time
to time (the "CODE"), Lender may, at any time and at the expense of Borrower,
but shall not be obligated to, (a) give notice to any person of Lender's rights
hereunder and enforce such rights, (b) insure, protect, defend and preserve the
Collateral and any rights or interests of Lender therein, (c) inspect the
Collateral, and (d) endorse, collect and receive any payment of money owing to
Borrower under or from the Collateral. Lender shall have no duty or obligation
to make or give any presentments, demands for performance, notices of
nonperformance, notices of protest or notices of dishonor in connection with any
of the Collateral.
6. Collateral Designation Statement. Borrower shall, from time to time
within ten (10) days after request by Lender, deliver to Lender a written
statement indicating the description and location of all Collateral then subject
to this Agreement.
7. Other Undertakings. In addition to Borrower's obligations under the
other Loan Documents, Borrower, at its sole cost, agrees (a) to pay and
discharge all taxes, assessments and other charges or levies against the
Collateral prior to delinquency thereof, (b) to have and maintain insurance at
all times with respect to all Collateral against such risks, with such carrier
and in such amounts as Lender may require, (c) to supply evidence of such
insurance to Lender upon request, (d) not to sell, encumber or otherwise
voluntarily or involuntarily transfer or dispose of the Collateral or any
portion thereof or create, permit or suffer any encumbrance thereon, and (e) to
pay, upon demand by Lender, all costs and expenses, including without limitation
all attorneys' fees, incurred by Lender in connection with the creation,
perfection, preservation or enforcement of any of the security interests granted
under this Security Agreement.
8. Default. For purposes of this Security Agreement, an "EVENT OF
DEFAULT" shall mean any one of the following events:
(a) The existence of a default or Event of Default as defined
under any of the other Loan Documents; or
(b) Any failure by Borrower to perform any obligation
hereunder, or the failure of any representation or warranty of Borrower herein
to be true, and the continuance of such failure for ten (10) days after written
notice thereof by Lender; or
(c) an Insolvency Event shall have occurred with respect to
Borrower or any of its Subsidiaries. As used in this Section, "INSOLVENCY EVENT"
shall mean, with respect to Borrower or any of its Subsidiaries, the occurrence
of any of the following: (i) such entity shall be adjudicated insolvent or
bankrupt, or shall generally fail to pay or admit in writing its inability to
pay its debts as they become due, (ii) such entity shall seek dissolution or
reorganization or the appointment of a receiver, trustee, custodian or
liquidator for it or a substantial portion of its property, assets or business
or to effect a plan or other arrangement with its creditors, (iii) such
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entity shall make a general assignment for the benefit of its creditors, or
consent to or acquiesce in the appointment of a receiver, trustee, custodian or
liquidator for a substantial portion of its property, assets or business, (iv)
such entity shall file a voluntary petition under any bankruptcy, insolvency or
similar law, or (v) such entity, or a substantial portion of its property,
assets or business shall become the subject of an involuntary proceeding or
petition for its dissolution, reorganization, or the appointment of a receiver,
trustee, custodian or liquidator or shall become subject to any writ, judgment,
warrant of attachment, execution or similar process involving $500,000, or more,
and any such proceeding, petition, writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully bonded
within 60 days after commencement, filing or levy, as the case may be, or any
order for relief shall be entered in any such proceeding.
9. Remedies. Upon the occurrence of an Event of Default, then in
addition to all of Lender's rights as a "secured party" under the Code or
otherwise by law or equity:
(a) Lender may (i) upon written notice, require Borrower to
assemble any or all of the Collateral and make it available to Lender at a place
designated by Lender, (ii) without prior notice, enter upon the place where any
of the Collateral may be located and take possession of, collect, sell, and
dispose of any or all of the Collateral, and store the same at locations
acceptable to Lender at Borrower's expense, and (iii) sell, assign and deliver
at any place or in any lawful manner all or any part of the Collateral and bid
and become purchaser at any such sales;
(b) Lender may, for the account of Borrower and at Borrower's
expense, (i) operate, use, consume, sell or dispose of the Collateral as Lender
deems appropriate for the purpose of performing any or all of the obligations
secured by this Agreement, (ii) enter into any agreement, compromise or
settlement, including the settlement of insurance claims, which Lender may deem
desirable or proper with respect to any or all of the Collateral, (iii) endorse,
deliver evidences of title for, receive, enforce and collect by legal action or
otherwise, any or all indebtedness and obligations now or hereafter owed to
Borrower in connection with or on account of any or all of the Collateral, and
(iv) perform any of the obligations secured by this Security Agreement;
provided, however, notwithstanding any other provision herein to the contrary,
Lender shall not be deemed to have accepted any property other than cash in
satisfaction of any obligation of Borrower to lender unless Lender shall have
made an express written election of said remedy under Code Section 9505 or other
applicable law; and
(c) if an Event of Default specified in Section 8 (c) above
shall have occurred, the entire amount of the Loan (including any interest,
charges, fees or other amounts due under the Loan Documents) shall be
automatically declared due and payable without any declaration, presentment,
demand, protest or notice or other act of any kind by Lender whatsoever.
10. Power of Attorney. Borrower hereby irrevocably appoints Lender as
Borrower's attorney-in-fact, such agency being coupled with an interest, and as
such attorney-in-fact Lender may, without any obligation to do so, in Lender's
name or in the name of Borrower, prepare, execute and file or record financing
statements, continuation statements, applications for registration and like
papers necessary to create, perfect or preserve any of Lender's security
interests and rights in or to any of the Collateral, and upon an Event of
Default hereunder take
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any other action specified in Section 9(b) hereof, provided that Lender as such
attorney-in-fact (a) shall provide Borrower with at least ten (10) days' prior
written notice of its intention to act as its attorney-in-fact and the nature of
the intended action, and (b) shall be accountable only for such funds as are
actually received by Lender.
11. Possession and Use of Collateral. Except as otherwise provided in
this Security Agreement or the other Loan Documents, so long as no Event of
Default exists under this Security Agreement, Borrower may possess, use, move,
transfer and dispose of any of the Collateral in the ordinary course of
Borrower's business and in accordance with the Loan Agreement.
12. Attorneys' Fees. If Lender refers this Security Agreement or any of
the other Loan Documents to an attorney to enforce, construe or defend any
provision thereof, or as a consequence of any default or Event of Default
thereunder, with or without the filing of any legal action or proceeding,
Borrower shall pay to Lender upon demand the amount of all attorneys' fees,
costs and other expenses incurred by Lender in connection therewith, together
with interest thereon from the date of demand at the rate applicable to the
principal balance of the Note, or, if the Note has been fully repaid, at the
rate that would be applicable if the Note had not been fully repaid. The
reference to "attorneys' fees" in this Section and in all other places in this
Security Agreement and the other Loan Documents shall include without limitation
such amounts as may then be charged by Lender for legal services furnished by
attorneys in the employ of Lender, at rates not exceeding those that would be
charged by outside attorneys for comparable services.
13. Integration. This Security Agreement and the other Loan Documents
contain the entire agreement of the parties and supersede any and all prior
negotiations. This Agreement is supplemented by the provisions of the Loan
Documents, and said provisions are incorporated herein by this reference.
14. Miscellaneous Provisions. No provision of this Agreement may be
amended, modified, supplemented, changed, waived, discharged or terminated
unless Lender consents thereto in writing. In case any one or more of the
provisions contained in this Agreement should be held to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. This Agreement shall be binding upon and inure to the benefit
of Borrower, Lender and their respective successors and assigns. Time is of the
essence of this Agreement and the performance of each of the covenants and
agreements contained herein. This Agreement shall be governed by and construed
in accordance with the laws of the State of California. If Borrower consists of
more than one person or entity, the obligations of Borrower shall be the joint
and several obligations of all such persons or entities, and any married person
who executes this Agreement agrees that recourse may be had against his or her
separate property for satisfaction of his or her obligations hereunder.
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IN WITNESS WHEREOF, Borrower has executed this Security
Agreement as of the date first above written.
BORROWER:
HI/FN, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Title: Chief Executive Officer
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By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title: Vice President of Finance and
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Chief Financial Officer
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