EXHIBIT 10.5

 

PLEDGE AND SECURITY AGREEMENT

 

THIS PLEDGE AND SECURITY AGREEMENT (this “Agreement”), made as of this 22nd day
of July, 2013, between Crossroads Systems, Inc., a Delaware corporation with an
address at 11000 North Mo-Pac Expressway, Austin, TX 78759 (“Pledgor”), and
Fortress Credit Co LLC (“Secured Party”), a Delaware limited liability company
having offices located at 1345 Avenue of the Americas, 46th Floor, New York, NY
10105.

 

RECITALS

 

WHEREAS, Pledgor is the owner of ninety-nine percent (99%) of the limited
partnership interests of KIP CR P1 LP, a Delaware limited partnership
(“Issuer”);

 

WHEREAS, Pledgor and Secured Party are parties to that certain Credit Agreement,
of even date herewith (the “Credit Agreement”), pursuant to which Secured Party
has agreed to provide Pledgor with a credit facility in the maximum aggregate
principal amount of $10,000,000.00 (the “Loan”) to be evidenced by one or more
term or promissory notes (collectively, the “Note”) and secured by, among other
things, a security agreement, and subject to the terms and conditions set forth
in the Credit Agreement; and

 

WHEREAS, Lender requires as a condition to the making of the Loan that Pledgor
shall have executed and delivered this Agreement for the benefit of Lender.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained and to secure the Pledgor Obligations (as defined below), it is hereby
agreed as follows:

 

1.            Definitions:

 

(a)          “Agreement” is defined in the Preamble.

 

(b)          “Article 8 Matter” means any action, decision, determination or
election by Issuer or its member(s), shareholders or partners, as applicable,
that its membership interests, partnership interests, stock or other equity
interests, as applicable, be, or cease to be, a “security” as defined in and
governed by Article 8 of the Uniform Commercial Code, and all other matters
related to any such action, decision, determination or election.

 

(c)          “Borrower” has the meaning as set forth in the Credit Agreement (it
being understood that, for the purposes of this Agreement, Pledgor and Borrower
are one in the same entity).

 

(d)          “Certificates” is defined in Section 2.

 

(e)          “Collateral” is defined in Section 2.

 

(f)          “Consent” is defined in Section 7.

 

 

 

 

(g)          “Credit Agreement” is defined in the Recitals.

 

(h)          “Disclosure Schedules” means the Schedule of Exception attached as
Exhibit C.

 

(i)          “Distributions” means all distributions (whether in cash or in
kind) and all interest in respect of, and all proceeds of, any instrument or
interest constituting part of the Collateral, of whatever kind or description,
real or personal, whether in the ordinary course or in partial or total
liquidation or dissolution, or any recapitalization, reclassification of
capital, or reorganization or reduction of capital, or otherwise.

 

(j)          “Equity Interests” means all of the limited partnership interests
or other equity interests of, and all other right, title and interest now owned
or hereafter acquired by, Pledgor in and to Issuer.

 

(k)          “Event of Default” is defined in Section 8.

 

(l)          “Formation Agreement” means that certain Amended and Restated
Limited Partnership Agreement of Issuer dated as of July ___, 2013.

 

(m)          “General Intangibles” has the meaning ascribed thereto in Article 9
of the Uniform Commercial Code.

 

(n)          “Indemnified Parties” is defined in Section 20.

 

(o)          “Issuer” is defined in the Recitals.

 

(p)          “Lien” means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever, including any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of the
foregoing.

 

(q)          “Lender” has the meaning ascribed thereto in the Credit Agreement
(it being understood that, for the purposes of this Agreement, Lender and
Secured Party are one in the same entity).

 

(r)          “Loan” is defined in the Recitals.

 

(s)          “Maturity Date” is defined in Section 6.

 

(t)          “Note” is defined in the Recitals.

 

(u)          “No-Action Letters” means various No-Action Letters issued by the
SEC staff as described in Section 15.

 

-2-

 

 

(v)         “Obligations” has the meaning ascribed thereto in the Credit
Agreement.

 

(w)          “Person” means any individual, corporation, limited liability
company, partnership, joint venture, estate, trust, unincorporated association
or governmental authority and any fiduciary acting in such capacity on behalf of
any of the foregoing.

 

(x)          “Pledgor” is defined in the Preamble (it being understood that, for
the purposes of this Agreement, Pledgor and Borrower are one in the same
entity).

 

(y)          “Pledgor Obligations” is defined in Section 2(a).

 

(z)           “SEC” means the United States Securities and Exchange Commission.

 

(aa)         “Secured Party” is defined in the Preamble (it being understood
that, for the purposes of this Agreement, Lender and Secured Party are one in
the same entity).

 

(bb)         “Securities” has the meaning ascribed thereto in Article 8 of the
Uniform Commercial Code.

 

(cc)         “Securities Act” means the Securities Act of 1933, as it may be
amended from time to time.

 

(dd)         “Securities Laws” means the Securities Act and applicable state
securities laws.

 

(ee)         “UCC” means with respect to any jurisdiction, the Uniform
Commercial Code as from time to time in effect in such jurisdiction.

 

(ff)         “Voting Rights” means all of Pledgor’s rights under the Formation
Agreement to vote and give approvals, consents, decisions and directions and
exercise any other similar right with respect to the Collateral.

 

Capitalized terms not otherwise defined herein have the meanings as set forth in
the Credit Agreement.

 

2.          

 

(a)          As security for the Obligations, including without limitation the
performance and observance of all of Pledgor’s obligations now or hereafter
existing under this Agreement (all such obligations being collectively referred
to as the “Pledgor Obligations”), Pledgor hereby pledges, hypothecates,
mortgages, assigns, transfers and grants to Secured Party a first priority
(subject to Permitted Liens) perfected, continuing security interest in and Lien
in, under and to all of Pledgor’s right, title and interest in and to (i) the
Formation Agreement and the Equity Interests, including, without limitation,
Pledgor’s share of the profits, losses and capital of Issuer, and all Voting
Rights, claims, powers, privileges, benefits, options or rights of any nature
whatsoever which currently exist or may be issued or granted by Issuer to
Pledgor, and all instruments, whether heretofore or hereafter acquired,
evidencing such rights and interests, (ii) all Distributions, (iii) all General
Intangibles and Securities relating to the foregoing, (iv) the proceeds
(including claims against third parties), products and accessions of the
foregoing, (v) all replacements and substitutions of the foregoing, (vi) all
books and records (including computerized records, software and disks) relating
to any of the foregoing, (vii) all other rights appurtenant to the property
described in foregoing clauses (i) through (vi), and (viii) any partnership
certificates, stock certificates, share certificates, limited liability company
certificates or other certificates or instruments evidencing the foregoing
(“Certificates”), all products, replacements, additions, improvements, and
proceeds of all or any part of the foregoing, are hereinafter collectively
referred to as the “Collateral.”

 

-3-

 

 

(b)          Borrower will execute, endorse and deliver all documents which
Secured Party may reasonably require to perfect Secured Party’s security
interest granted under this Agreement, including without limitation, an
assignment separate from certificate representing the Certificates and naming
Secured Party as assignee, in substantially the form attached as Exhibit B.

 

(c)          No filing or other action is or will be necessary to perfect such
security interest of Secured Party in the Equity Interests that are represented
by a Certificate, except for delivery to Secured Party of the Certificates
evidencing the Equity Interests endorsed or accompanied by appropriate powers
duly endorsed in blank. The security interest of Secured Party in any of the
Collateral that is not represented by a Certificate, if any, shall be perfected
by the filing of a financing statement or statements as hereinafter provided.

 

3.           Without limiting the generality of the foregoing, this Agreement
secures the payment of all amounts which constitute part of the Pledgor
Obligations and are or will be owed by Borrower to the Secured Party under the
Loan Documents. The security interest and Lien created hereby shall remain in
full force and effect until payment in full of the Pledgor Obligations. The
documents held by the Secured Party shall be returned to the Pledgor, the
security interest and Lien created hereby shall cease and terminate and this
Agreement shall be deemed terminated without further liability on the part of
any party to the other promptly following payment in full of the Pledgor
Obligations.

 

4.           Pledgor hereby collaterally assigns the Voting Rights to Secured
Party, subject to the terms and provisions of this Agreement, the Credit
Agreement (including, without limitation, Section 10.6 thereof) and the other
Loan Documents.

 

(a)          Except during the continuance of an Event of Default (defined in
Section 8), Pledgor may, in its sole discretion, exercise the Voting Rights,
provided that Pledgor shall not exercise the Voting Rights in a manner which
would be inconsistent with or result in a violation of any provision of this
Agreement, or any other Loan Document. Upon the occurrence and during the
continuance of an Event of Default, all rights of Pledgor to exercise the Voting
Rights shall cease and Secured Party shall have the right to exercise, in person
or by its nominees or proxies, all Voting Rights assigned to it hereunder and
Secured Party shall exercise such Voting Rights in such manner as Secured Party
in its sole discretion shall deem to be in Secured Party’s best interests
(subject to the terms of this Agreement and the other Loan Documents). Upon the
occurrence and during the continuance of an Event of Default, Pledgor shall
effect the directions of Secured Party in connection with any such exercise in
accordance with this Agreement.

 

-4-

 

 

(b)          In connection with Secured Party’s exercise of the Voting Rights,
Pledgor shall cause Issuer to rely on a notice from Secured Party stating that
an Event of Default has occurred and is continuing under any Loan Document, in
which event no further direction from Pledgor shall be required to effect the
assignment of Voting Rights hereunder from Pledgor to Secured Party, and Issuer
shall immediately permit Secured Party to exercise all of the Voting Rights in
respect of the business and affairs of Issuer. If Secured Party provides Pledgor
and Issuer with written notice that the applicable Event of Default has been
cured or has been waived, Pledgor shall regain all of its rights to exercise the
Voting Rights.

 

(c)          Pledgor acknowledges that, except for this Agreement and the other
Loan Documents, it has not entered into, and it is not bound by the terms of,
any agreement or understanding, whether oral or written, with respect to the
purchase, sale, transfer or voting of any Voting Rights.

 

5.           Except as set forth on the Disclosure Schedule, which exceptions
shall be deemed to be part of the representations and warranties made hereunder,
Pledgor makes the following representations, covenants and warranties to Secured
Party (which representations, covenants and warranties shall survive the
execution and delivery of this Agreement), and agrees with Secured Party, as
follows:

 

(a)          Pledgor has all requisite power and authority to execute, deliver
and perform this Agreement and the Formation Agreement and to consummate the
transactions contemplated hereby;

 

(b)          This Agreement is the legal, valid and binding obligation of
Pledgor, and is enforceable as to Pledgor in accordance with its terms, subject,
however, to bankruptcy, insolvency and other rights of creditors generally and
to general principles of equity;

 

(c)          The execution, delivery, observance and performance by Pledgor of
this Agreement and the transactions contemplated hereby will not result in any
violation of the Formation Agreement or, to Pledgor’s knowledge, of any
constitutional provision, law, statute, ordinance, rule or regulation applicable
to it; or of any judgment, decree or order applicable to it and will not
conflict with, or cause a breach of, or default under, any such term or, except
for the Liens created or contemplated hereby, result in the creation of any
mortgage lien, pledge, charge or encumbrance upon any of its properties or
assets pursuant to any such term;

 

(d)          Except for the filing of an appropriate financing statement, it is
not necessary for Pledgor to obtain or make any (i) governmental consent,
approval or authorization, registration or filing from or with any governmental
authorities, or (ii) consent, approval, waiver or notification of partners,
creditors, lessors or other nongovernmental persons, in each case, in connection
with the execution and delivery of this Agreement or the consummation of the
transactions herein presently contemplated which has not been filed or obtained;

 

-5-

 

 

(e)          Pledgor is as of the date hereof (i) the owner of ninety-nine
percent (99%) of the limited partnership interests in Issuer (and acknowledges
that Secured Party is the owner of the remaining one (1%) percent of the limited
partnership interests in Issuer), and Pledgor further represents and agrees that
Secured Party shall not be deemed to be an insider, or in control of, or in any
way subject to any doctrine of equitable subordination, by reason of Secured
Party’s ownership of limited partner interests in Issuer or under any of the
Loan Documents or the ownership by any Affiliate of Secured Party of any general
partnership interest in the Issuer, and (ii) the sole owner of all direct
beneficial interests in the Collateral. Pledgor owns the Collateral, and the
Collateral is and shall remain, free and clear of any lien, mortgage,
encumbrance, charge, pledge, security interest, or claim of any kind (including,
without limitation, any unconditional sale or other title retention agreement)
other than as created by this Agreement or as permitted by the Loan Documents;

 

(f)          The Equity Interests are, and Pledgor covenants and agrees that it
will ensure at all times that such Equity Interests remain, “securities” within
the meaning of the UCC and, in particular, with respect to the Equity Interests
that are represented by a Certificate or Certificates, are “certificated
securities” within the meaning of Section 8-102(a)(4) of the UCC, and Pledgor
has taken all steps necessary to afford Secured Party “control” of such Equity
Interests within the meaning of the UCC;

 

(g)          The Equity Interests have been duly authorized and validly issued
and are fully paid and nonassessable;

 

(h)          The Equity Interests constitute ninety-nine percent (99%) of the
interests in capital, profits, distribution, management and Voting Rights in
Issuer (subject to the terms of the Formation Agreement);

 

(i)          Pledgor shall not, without Secured Party’s prior written consent,
create, incur or assume any other indebtedness other than (A) the Pledgor
Obligations, (B) trade accounts payable, or accrued expenses, that are or would
be incurred in the ordinary course of business of and payable within ninety (90)
days, (C) with respect to Pledgor, indebtedness permitted to be incurred in
accordance with the Credit Agreement, and (D) with respect to Issuer,
indebtedness permitted to be incurred in accordance with the Formation
Agreement;

 

(j)          Upon Secured Party obtaining and maintaining possession of the
Certificates identified on Schedule 1 and the filing of a UCC financing
statement adequately describing the Collateral in the office of the Secretary of
State of the State of Delaware (such state being the state of Pledgor’s
formation), all steps necessary to create and perfect the security interest
created by this Agreement as a valid and continuing first priority Lien on, and
first priority perfected (assuming the Secured Party’s possession of the
Certificates and filing of the financing statements referenced above) security
interest in, the Collateral (except if and to the extent that the perfection of
a security interest in certain types or categories of the Collateral may be
perfected by other means and may have priority under the UCC), in favor of
Secured Party, prior to all other Liens, security interests and other claims of
any sort whatsoever, have been taken. Pledgor has not granted a security
interest in the Collateral to any other party, and the security interest granted
pursuant to this Agreement in the Collateral constitutes a valid, perfected
first priority security interest in the Collateral, enforceable as such against
all creditors of, and purchasers from, Pledgor;

 

-6-

 

 

(k)          Neither the Pledgor nor, to Pledgor’s knowledge, the Issuer, has
changed its name, or used, adopted or discontinued the use of any trade name,
fictitious name or other trade name or trade style;

 

(l)          Pledgor will not change its name in any manner which could make any
financing or continuation statement filed hereunder seriously misleading within
the meaning of Section 9-507(c) of the UCC (or any other then-applicable
provision of the UCC) without the prior written consent of Secured Party;

 

(m)          Pledgor shall perform all of its obligations under the Formation
Agreement and shall not amend or suffer the amendment of the Formation Agreement
in contravention of the Loan Documents or in any manner that would reduce or
impede Secured Party’s rights or remedies hereunder;

 

(n)          In no event shall Pledgor, prior to satisfaction in full of the
Pledgor Obligations except as may be otherwise permitted by this Agreement or
the Credit Agreement: (i) sell, transfer or assign or otherwise dispose of its
Equity Interests; (ii) withdraw from Issuer; (iii) cause the dissolution of
Issuer; or (iv) withdraw or cause the dissolution of Pledgor, in case of any of
(i) through (iv), without Secured Party’s express written consent, which Secured
Party may grant, withhold or condition in Secured Party’s sole and absolute
discretion;

 

(o)          Pledgor shall keep and maintain at its current principal place of
business satisfactory and complete records of the Collateral, including without
limitation a record of all payments received, all capital contributions made and
all credits granted with respect to the Collateral and all other dealings with
the Collateral. Secured Party, its agents and representatives, shall be granted
access to, and the right to photocopy, such books and records at all reasonable
times on reasonable notice to Pledgor. Pledgor shall not change its principal
place of business nor remove such books and records without the prior written
consent of Secured Party, except in the event of casualty or other emergency in
which case Pledgor shall give Secured Party notice of such change within ten
(10) days of such occurrence;

 

(p)          Pledgor shall deliver to Secured Party or cause Issuer to deliver
to Secured Party copies of all reports, accounting, and other financial
information that (i) Pledgor is entitled to receive as a limited partner in
Issuer, and (ii) any other financial and reporting information as Secured Party
may reasonably request from time to time. Without limitation, Pledgor shall
deliver to Secured Party or cause Issuer to deliver to Secured Party financial
information relating to Issuer, in form and substance reasonably acceptable to
Secured Party (in each instance certified as true, correct and complete by
Pledgor) to be delivered within thirty (30) days following the end of the
immediately preceding month;

 

(q)          The Collateral is not subject to any adverse claim, Lien, security
interest or encumbrance whatsoever;

 

-7-

 

 

(r)          Pledgor will forever warrant and defend Secured Party’s right,
title, priority, Lien and security interest in and on the Collateral against the
claims and demands of all persons whosoever;

 

(s)          Pledgor has not been known by any other name during the last ten
(10) years;

 

(t)          There is no action or proceeding pending, or to the knowledge of
Pledgor, threatened which in any way might materially and adversely affect (i)
the rights of Secured Party under this Agreement; (ii) Pledgor’s ability to
perform its obligations hereunder, (iii) the title to the Collateral; (iv) the
validity or priority of the security interest and Lien in and on the Collateral
created hereunder; (v) Pledgor; or (vi) Issuer;

 

(u)          Pledgor shall not make (or enter into any agreement to make) or
suffer (i) any sale, transfer, exchange, leasing or assignment of, (ii) any
further pledge, mortgage or encumbrance of; or (iii) any further Lien upon or
security interest in all or any part of the Collateral, except, in each case, as
specifically permitted under this Agreement and the Loan Documents;

 

(v)         Pledgor, without cost or expense to Secured Party, shall execute,
deliver, file and record such further agreements, instruments and documents as
Secured Party may reasonably require, including without limitation financing
statements covering the Collateral and amendments thereto, to impose, perfect
and protect the security interest and Lien created and granted herein, and
hereby irrevocably authorizes Secured Party to execute, in the name of Pledgor,
any such agreements, instruments and documents and to file and record the same;
and Secured Party is authorized to file one (1) or more financing statements
covering the Collateral signed only by Secured Party;

 

(w)          If at any time while any of the Pledgor Obligations remain
outstanding, (i) Pledgor directly or indirectly comes into possession of any
Certificates for any purpose, or (ii) renewals, substitutions, replacements or
amendments of the Certificates are delivered to Pledgor, then in any such event
Pledgor shall, without notice or demand from Secured Party, immediately deliver
the same or cause them to be delivered to Secured Party, and the same shall also
constitute the Certificates, as the case may be, hereunder. Any and all
Certificates or instruments at any time representing or evidencing any
Collateral shall be immediately delivered to and held by or on behalf of Secured
Party pursuant hereto, and shall be in suitable form for transfer by delivery,
or shall be accompanied by instruments of transfer or assignment, duly executed
in blank, all in form and substance reasonably satisfactory to Secured Party.
Subject to the requirements of applicable law (including the UCC) and the
limitations provided in this Agreement, Secured Party shall have the right, at
any time, after the occurrence and during the continuance of an Event of
Default, to transfer to or to register in the name of Secured Party or its
nominee any Collateral, and, to the full extent permitted by law, Debtor waives
all rights under applicable law inconsistent with the rights granted Secured
Party in this sentence. In addition, Secured Party shall have the right at any
time to exchange Certificates or instruments representing or evidencing
Collateral for Certificates or instruments of smaller or larger denominations;

 

-8-

 

 

(x)          Except as provided in the Formation Agreement or with the prior
written consent of Secured Party, Pledgor has not permitted and shall not permit
the issuance of any units of limited partnership interest, membership interest,
stock or partnership interest, as applicable, or other securities in addition to
or in substitution for the Equity Interests;

 

(y)          In case, upon the dissolution or liquidation (in whole or in part)
of Issuer, any sum shall be paid as a liquidating dividend or otherwise upon or
with respect to any of the Collateral, such sum shall be paid over to Secured
Party to be held by Secured Party as additional Collateral hereunder;

 

(z)          Pledgor shall furnish, within ten (10) days’ request by Secured
Party, a statement addressed to Secured Party or its designees, duly sworn, of
the unpaid amount of the Pledgor Obligations, and whether any offsets or
defenses exist against the obligation of Pledgor to pay all or any portion of
the Pledgor Obligations;

 

(aa)         Subject to the requirements of applicable law, Secured Party, in
any action to enforce, foreclose or protect the security interest and Lien
created and granted hereby, shall be entitled, without notice and without regard
to the adequacy of any security held by Secured Party for the Pledgor
Obligations, to the appointment of a receiver, special fiscal agent or other
fiduciary as Secured Party may elect, and, to the full extent permitted by law,
Debtor waives all rights under applicable law inconsistent with the rights
granted Secured Party in this sentence;

 

(bb)         Issuer is a limited partnership duly organized and validly existing
under the laws of the State of Delaware and has the power and authority, and the
legal right, to own and operate its property; and

 

(cc)         Subject to Section 2.2(b)(iii) of the Credit Agreement, Pledgor
shall be liable to Secured Party for (and shall pay within fifteen (15) days of
delivery by Secured Party of any demand or invoice for) any expenditures by
Secured Party in connection with the preparation, execution, delivery,
administration and enforcement of this Agreement and for the maintenance and
preservation of the Collateral, including but not limited to taxes, appraisal
fees, certificate of title charges, recording and filing fees (including Uniform
Commercial Code financing statement fees, taxes (including documentary stamps)
and search fees), the fees and disbursements of Secured Party’s in-house and
outside counsel, levies, insurance and repairs, and for the repossession,
holding, preparation for sale, and the sale of the Collateral (including
attorneys’ and accountants’ fees and expenses), and all such liabilities shall
be included in the definition of Pledgor Obligations, shall be secured by the
security interest granted herein, and shall be payable upon demand.

 

6.           Pledgor hereby agrees that, without notice or further assent,
before, at or after the date on which the unpaid principal balance of the Note
matures or is due and payable (the “Maturity Date”), expressed or declared, (a)
the liability of the Pledgor or any other party under the Note, may, from time
to time, in whole or in part, be renewed, extended, modified, prematured,
compromised or released by Secured Party, whether in bankruptcy proceedings or
otherwise, as Secured Party may deem advisable; and (b) Secured Party may, from
time to time, in its sole and exclusive discretion, exchange, modify, release or
surrender, in whole or in part, with or to Pledgor and its representatives, or
any other appropriate party, as the case may be (i) any and all Collateral and
any and all substitutes or additions thereto; or (ii) the surplus net proceeds
derived from the sale or sales or disposition of the Collateral by Secured Party
pursuant to the terms of this Agreement.

 

-9-

 

 

7.           Except during the continuance of an Event of Default, Pledgor shall
have the right to receive Distributions in respect of the Collateral. Pledgor
hereby irrevocably authorizes and directs Issuer, upon the occurrence and during
the continuance of an Event of Default, to distribute, transfer, pay and deliver
directly to Secured Party, and not to Pledgor, in accordance with that certain
Consent of Issuer attached as Exhibit A and made a part hereof (the “Consent”),
any and all Distributions at such time and in such manner as such Distributions
would otherwise be distributed, transferred, paid and delivered to Pledgor, for
application in accordance with this Agreement. If, during the continuance of an
Event of Default, Pledgor receives any Distributions, Pledgor shall accept the
same as Secured Party’s agent and hold the same in trust on behalf of and for
the benefit of Secured Party and shall promptly deliver the same forthwith to
Secured Party for application in accordance herewith, together with appropriate
forms of assignment, UCC financing statements, and other appropriate
instruments, if necessary, indicating the security interests of Secured Party in
and to such Distribution. Pledgor authorizes and directs Secured Party to apply
any Distributions received by Secured Party in the manner herein described.

 

8.           The occurrence of an “Event of Default”, as such term is defined in
the Credit Agreement, shall constitute an “Event of Default” under this
Agreement.

 

Upon the occurrence and during the occurrence of an Event of Default, following
applicable notice and grace period, Secured Party shall have the right to
declare the Note immediately due and payable by giving written notice thereof to
Borrower, and upon giving such notice, the Pledgor Obligations shall be
immediately due and payable by Borrower to Secured Party.

 

-10-

 

 

9.           In the event that Secured Party elects to accelerate the Pledgor
Obligations as provided above and on the date specified in such notice Borrower
fails to pay the Pledgor Obligations, or, in any event, if Borrower shall fail
to pay the Pledgor Obligations upon the Maturity Date, then in any such events
Secured Party shall have the right, in its sole discretion, in addition to any
and all other rights it may have under the Note, this Agreement, any other Loan
Document, the Uniform Commercial Code, and otherwise at law or in equity, (a) to
apply any cash which it received and retained as additional Collateral pursuant
to the provisions of this Agreement, to the payment of the Pledgor Obligations;
(b) credit bid and purchase (as determined by Secured Party in its sole
discretion but in all cases subject to applicable law) all or any portion of the
Collateral; and (c) to sell, assign and deliver at one or more times, all or any
part of the Collateral at public or private sale, for cash, on credit or for
future delivery, with or without advertisement of the time, place or terms of
sale and in connection therewith to grant options and to use the services of a
broker, all of the foregoing as Secured Party may elect in its sole discretion
but in all cases subject to applicable law, except that, if the sale be a
private sale, ten (10) days’ written notice shall be given to Pledgor of the
date, time and place of any sale and the terms of the sale, which notice Pledgor
agrees is reasonable, all other demands, advertisements and notices being hereby
waived. Any sale shall be free of any and all equity or right of redemption,
which Pledgor hereby waives and releases. At any sale Secured Party, or its
designee, may purchase the Collateral being sold, including, without limitation,
pursuant to a credit bid and purchase or similar offset of any amounts due and
owing to Secured Party by Borrower, in each case if and to the extent so
permitted by applicable law. Secured Party shall not be obligated to make any
sale of all or any part of the Collateral if it shall determine not to do so,
regardless of the fact that notice of sale may have been given. Secured Party
may sell all or a portion of the Collateral. Secured Party may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time, and Secured Party may adjourn such sale (private or
public) by announcement at the time and place fixed for such sale, and such sale
may, without further notice, be made at the time and place to which the same was
so adjourned. If any of the Collateral is sold by Secured Party upon credit or
for future delivery, Secured Party shall not be liable for the failure of the
purchaser to purchase or pay for the same and, in the event of such failure,
Secured Party may resell such Collateral. In no event shall Pledgor be credited
with any part of the proceeds of sale of any Collateral until cash payment
thereof has actually been received by Secured Party. In case of any sale,
Secured Party may first deduct all costs and expenses of collection, sale and
delivery of the Collateral sold and any costs and expenses incidental thereto,
including, but not limited to, reasonable attorneys’ fees and disbursements,
brokerage commissions and transfer fees and taxes, and shall apply any residue
first to the payment of any accrued charges (other than interest) due under the
Note, this Agreement or any other Loan Document, then to the payment of the
accrued interest payable under the Note and then to the unpaid principal balance
of the Note. The balance, if any, remaining after full satisfaction of the
Pledgor Obligations shall be paid first as provided in the Loan Documents and
the Formation Agreement and thereafter to Pledgor, to the extent permitted by
law, and provided there are not other claimants. Any sale conducted upon the
foregoing terms or by any other method of sale (if conducted in conformity with
practices of any lenders disposing of similar security or otherwise in
accordance with the Uniform Commercial Code) shall be deemed commercially
reasonable. Pledgor agrees that Secured Party shall have the right to continue
to retain the Collateral until such time as Secured Party, in its reasonable
judgment, believes that an advantageous price can be obtained for the Collateral
and Secured Party shall not be liable to Borrower for any loss in the value of
the Collateral by reason of any such retention of the Collateral by Secured
Party. Secured Party shall have all the rights and remedies of a secured party
under the Uniform Commercial Code, as if such rights and remedies were fully set
forth herein, and any rights and remedies of a secured party under any version
of the Uniform Commercial Code in effect in any applicable jurisdiction in which
such rights or remedies are sought to be enforced. To the full extent permitted
by law, Debtor waives all rights under applicable law inconsistent with the
rights granted Secured Party in this Section 9.

 

-11-

 

 

10.          In addition to the remedies set forth herein, upon the occurrence
and during the continuance of an Event of Default, Secured Party may, by
delivering written notice to Issuer and Pledgor, after having acquired the
right, title and interest of Pledgor’s Equity Interests, succeed, or designate
one or more nominees(s) to succeed, to all right, title and interest of Pledgor
(including, without limitation, any Voting Rights with respect to the Equity
Interests) as a member, shareholder or partner of Issuer, as applicable,
relating to the Equity Interests acquired. Pledgor hereby irrevocably authorizes
and directs Issuer on receipt of any such notice (a) to deem and treat Secured
Party or its nominee in all respects as a member, shareholder or partner, as
applicable (and not merely an assignee of a member, shareholder or partner, as
applicable), of Issuer entitled to exercise all the rights, powers and
privileges (including the right to vote on or take any action with respect to
any and all membership, shareholder or partnership matters, as applicable,
pursuant to the Formation Agreement) to receive all Distributions, to be
credited with the capital account and to have all other rights, powers and
privileges appertaining to such membership, shareholder or partnership
interests, as applicable, to which Pledgor would have been entitled had
Pledgor’s membership, shareholder or partnership interests, as applicable, not
been transferred to Secured Party or such nominee; (b) to execute amendments to
the Formation Agreement admitting Secured Party or such nominee as a member,
shareholder or partner, as applicable, in place of Pledgor; and (c) to issue the
membership, shareholder or partnership certificate(s), as applicable, in the
name of Secured Party or its nominee, with respect to each of the Equity
Interests represented by a Certificate or Certificates.

 

11.          Pledgor agrees that Secured Party and its officers, agents and
attorneys shall incur no liability to Pledgor or Issuer in the event that
Secured Party (a) transfers the Collateral in accordance with the provisions of
this Agreement; or (b) refuses to effect any transfer of the Collateral
attempted to be made by Pledgor without any consent or approval of Secured Party
required by the terms hereof, and Pledgor hereby agrees to indemnify Secured
Party against, and to hold Secured Party harmless from, any and all expenses,
liabilities and damages incurred or sustained by reason of its acts or
omissions, as aforesaid, in each case except if and to the extent that Secured
Party’s acts or omissions constitute gross negligence or willful misconduct.

 

12.          Effective upon the occurrence and during the continuance of an
Event of Default, Pledgor hereby appoints Secured Party as Pledgor’s
attorney-in-fact coupled with an interest for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instrument
which Secured Party may deem necessary or advisable to accomplish the purposes
hereof.

 

13.          The remedies provided herein in favor of Secured Party shall not be
deemed exclusive, but shall be cumulative, and shall be in addition to all other
remedies in favor of Secured Party existing at law or in equity.

 

14.          In exercising its remedies hereunder, Secured Party may be unable
to sell Equity Interests publicly without registering them under the Securities
Laws, which would likely be an expensive and time-consuming undertaking and, in
fact, one which might be impossible to accomplish even if Secured Party were
willing to invest the necessary time and money. Even though Secured Party may be
able to register Equity Interests under the Securities Laws, it may nonetheless
regard such registration as too expensive or too time-consuming (such
determination to be made in Secured Party’s sole discretion). If Secured Party
sells Equity Interests without registration, Secured Party may be required to
sell them only in private sales to a restricted group of offerees and purchasers
who fulfill certain suitability standards and who will be obliged to agree,
among other things, to acquire the Equity Interests for their own account for
investment and not with a view to distributing or reselling them. Pledgor
acknowledges that such a private sale may result in less favorable prices and
other terms than a public sale. Pledgor agrees that a private sale, even under
these restrictive conditions, will not be considered commercially unreasonable
solely by virtue of the fact that Secured Party has not registered or sought to
register the Equity Interests under the Securities Laws, even if Pledgor or
Issuer agrees to pay all costs of the registration process.

 

-12-

 

 

15.          Pledgor is aware that Section 9-610 of the UCC states that Secured
Party is able to purchase the Equity Interests only if they are sold at a public
sale. Pledgor is also aware that SEC staff personnel have, over a period of
years, issued various No-Action Letters that describe procedures which, in the
view of the SEC staff, permit a foreclosure sale of securities to occur in a
manner that is public for purposes of Part 6 of Article 9 of the UCC, yet not
public for purposes of Section 4(2) of the Securities Act. Pledgor is also aware
that Secured Party may wish to purchase the Equity Interests that are sold at a
foreclosure sale, and Pledgor believes that such purchases would be appropriate
in circumstances in which the Equity Interests are sold in conformity with the
principles set forth in the No-Action Letters. Pledgor specifically agrees that
a foreclosure sale conducted in conformity with the principles set forth in the
No-Action Letters (a) shall be considered to be a “public” sale for purposes of
Section 9-610 of the UCC; (b) will not be considered commercially unreasonable
solely by virtue of the fact that Secured Party has not registered or sought to
register the Equity Interests under the Securities Laws, even if Pledgor agrees
or Issuer agrees to pay all costs of the registration process; and (c) will not
be considered commercially unreasonable solely by virtue that Secured Party
purchases Equity Interests at such a sale.

 

16.          Pledgor agrees that Secured Party shall have no general duty or
obligation to make any effort to obtain or pay any particular price for any
Equity Interests sold by Secured Party pursuant to this Agreement (including
sales made to Secured Party). Secured Party may, in its discretion, among other
things, accept the first offer received, or decide to approach or not to
approach any potential purchasers.

 

17.          Pledgor shall use all reasonable efforts to do or cause to be done
all such other acts and things (except that Pledgor shall not be obligated to
register any Equity Interests under the Securities Laws) as may be reasonably
necessary to make any sale or sales of Equity Interests valid and binding and in
compliance with applicable laws, regulations, orders, writs, injunctions,
decrees or awards of any and all courts, arbitrators or governmental
instrumentalities, domestic or foreign, having jurisdiction over any such sale
or sales, all at Pledgor’s expense.

 

18.          Secured Party may, at its option, make any payments for Pledgor’s
or Issuer’s account, or perform any of Pledgor’s or Issuer’s obligations under
this Agreement or do any acts required to be done in order to prevent a default
under or breach of this Agreement, but Secured Party under no circumstances
shall be obligated to do so. If Secured Party makes any of said payments or does
any of said acts, then said payments and the costs of said acts (including,
without limitation, reasonable attorneys’ fees and disbursements), together with
interest thereon at the default rate set forth in the Credit Agreement, shall be
added to the Pledgor Obligations secured hereby, and shall be payable to Secured
Party by Pledgor on demand, whether or not any action or proceeding is commenced
by or against Secured Party. If any action or proceeding is commenced by Secured
Party, or if any action or proceeding is commenced by Pledgor or anyone else and
Secured Party is made a party thereto, in which action or the proceeding it
becomes necessary or desirable to foreclose, uphold or defend the security
interest and Lien created by this Agreement or to enforce, uphold or defend any
of the rights granted to Secured Party by this Agreement, then all reasonable
sums paid by Secured Party for the expense of any such litigation and all
reasonable costs and expenses (including, without limitation, reasonable
attorneys’ fees and disbursements), so incurred together with interest thereon
at the Default Rate (assuming one is defined under the Loan Documents; if not,
then at the interest rate applicable under the Note upon the occurrence and
during the continuance of an Event of Default) shall be added to the Pledgor
Obligations hereby secured and shall be payable to Secured Party by Pledgor on
demand.

 

-13-

 

 

19.          Pledgor agrees that a breach of any of the covenants contained in
this Agreement shall cause irreparable injury to Secured Party, and that Secured
Party will have no adequate remedy at law in respect of such breach. As a
consequence, Pledgor agrees that each and every covenant contained in this
Agreement shall be specifically enforceable against Pledgor, without the
necessity of posting a bond or other security.

 

20.          Pledgor shall indemnify, reimburse, defend and hold harmless
Secured Party and its officers, directors, members, employees and agents
(collectively, the “Indemnified Parties”) for, from and against any and all
liabilities, obligations, losses, damages, penalties, assessments, actions, or
causes of action, judgments, suits, claims, demands, actual third party costs,
expenses (including reasonable attorneys’ fees and legal expenses whether or not
suit is brought and settlement costs) and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the
Indemnified Parties, in any way relating to or arising out of the making,
holding or enforcement of this Agreement by Secured Party to the extent
resulting, directly or indirectly, from any claim made (whether or not in
connection with any legal action, suit, or proceeding) by or on behalf of any
Person other than Secured Party; provided, however, that no Indemnified Party
shall have the right to be indemnified hereunder for its own gross negligence or
willful misconduct. The provisions of, and undertakings and indemnification set
forth in, this Section shall survive the satisfaction and payment in full of the
Pledgor Obligations and termination of this Agreement. Any amounts which may
become payable by Pledgor pursuant to the foregoing indemnity shall be added to
Pledgor’s obligations hereunder and to the Pledgor Obligations.

 

21.          Pledgor hereby covenants and agrees to reimburse Secured Party
promptly upon receipt of written notice from Secured Party for all reasonable
costs and expenses payable to third parties incurred by Secured Party in
connection with (a) enforcing or preserving any rights, in response to third
party claims or the prosecuting or defending of any action or proceeding or
other litigation, in each case against, under or affecting Pledgor or this
Agreement (except to the extent resulting from Secured Party’s gross negligence,
bad faith or willful misconduct, as determined by a final nonappealable judgment
of a court of competent jurisdiction); and (b) enforcing any obligations of or
collecting any payments due from Pledgor under this Agreement.

 

-14-

 

 

22.          In no event shall Secured Party be liable to Pledgor for any matter
or thing in connection with this Agreement other than to account for monies
actually received by Secured Party in accordance with the terms hereof and any
state of facts determined by a final nonappealable judgment of a court of
competent jurisdiction to be caused by Secured Party’s gross negligence, bad
faith or willful misconduct in connection therewith. Secured Party shall not be
liable for failure to collect or realize upon the Pledgor Obligations or any
collateral security or guarantee therefor, or any part thereof, or for any delay
in so doing nor be under any obligation to take any action whatsoever with
regard thereto. Any part or all of the Collateral held by Secured Party may,
without notice, but only during an Event of Default, be transferred into the
name of Secured Party or its nominee and Secured Party or its nominee may
thereafter without notice, exercise all Voting Rights and other rights in
respect of the Collateral, including the exercise of any and all rights of
conversion, exchange, subscription or any other rights, privileges or options in
respect of the Collateral, as if it were the absolute owner thereof, all without
liability except to account for property actually received by Secured Party or
its nominee; provided, however, that Secured Party or its nominee shall have no
duty to exercise any of the foregoing actions, or any liability for failure to
do so or delay in so doing. Secured Party shall not be liable for the
consequence of any Voting Rights cast or given by Secured Party in accordance
with this Agreement, except for any such liability resulting solely from Secured
Party’s gross negligence, bad faith or willful misconduct (as determined by a
final nonappealable judgment of a court of competent jurisdiction). Except as
otherwise expressly set forth in this Agreement, and except to the extent caused
by Secured Party’s gross negligence, bad faith or willful misconduct (as
determined by a final nonappealable judgment of a court of competent
jurisdiction), Secured Party shall have no liability to Pledgor with respect to
the receipt and application by Secured Party of Distributions, the holding by
Secured Party of any Collateral pursuant to and in accordance with this
Agreement and the other Loan Documents, or Secured Party’s taking, or failure to
take, any action (including the obtaining of insurance) with respect to any
Collateral.

 

23.          Secured Party shall have no duty as to the collection or protection
of the Collateral or any income thereon or as to the preservation of any rights
pertaining thereto, beyond the safe custody of any Collateral actually in its
possession. Except as may be prohibited by law or as may result from Secured
Party’s gross negligence, bad faith or willful misconduct, Pledgor releases
Secured Party from any claims, causes of action and demands at any time arising
out of or with respect to this Agreement, the Collateral or any actions taken or
omitted to be taken by Secured Party with respect thereto, and Pledgor hereby
agrees to hold Secured Party harmless from and with respect to any and all such
claims, causes of action and demands so released.

 

24.          No delay on the part of Secured Party in exercising any of its
options, powers or rights, or partial or single exercise thereof, shall
constitute a waiver thereof.

 

25.          Except as prohibited by statute, the respective parties hereto
shall, and hereby do, waive trial by jury in any action, proceeding or
counterclaim brought by any of the parties hereto against the other on any
matter whatsoever arising out of or in any way connected with this Agreement,
the Collateral or the relationship created hereby and with respect to any matter
for which a jury trial cannot be waived, Pledgor agrees not to assert any such
claim as a counterclaim in, nor move to consolidate same with, any action or
proceeding.

 

26.          All notices, consents, requests, approvals, demands or other
communication by any party to this Agreement or any other Loan Document must be
in writing and shall be deemed to have been validly served, given or delivered:
(a) upon the earlier of actual receipt and three (3) Business Days after deposit
in the U.S. mail, first class, registered or certified mail return receipt
requested, with proper postage prepaid; (b) upon transmission, when sent by
electronic mail or facsimile transmission; (c) one (1) Business Day after
deposit with a reputable overnight courier with all charges prepaid; or (d) when
delivered, if hand-delivered by messenger, all of which shall be addressed to
the party to be notified and sent to the address, facsimile number, or email
address indicated below. Pledgor or Secured Party may change its mailing or
electronic mail address or facsimile number by giving the other party written
notice thereof addressed as follows:

 

-15-

 

 

If to Pledgor:

 

Crossroads Systems, Inc.

11000 North Mopac Expressway
Austin, TX 78759
Attn: President

Phone: (512) 349-0300
Fax: (512) 349-0304
Email: rcoleman@crossroads.com

 

With a copy to:

 

Hunton & Williams LLP
1445 Ross Avenue, Suite 3700
Dallas, TX 75202
Attn: Ronald D. Rosener
Phone: (214) 468-3372
Fax: (214) 740-7164
Email: rrosener@hunton.com

 

And to:

 

Hunton & Williams LLP
1445 Ross Avenue, Suite 3700
Dallas, TX 75202
Attn: W. Alan Kailer
Phone: (214) 468-3342
Fax: (214) 740-7136
Email: akailer@hunton.com

 

If to Secured Party:

 

Fortress Credit Co LLC
1345 Avenue of the Americas, 46th Floor
New York, NY 10105
Attn: James K. Noble III, General Counsel
Fax: 646-224-8716
Email: rnoble@fortress.com

 

With a copy to:

 

Perkins Coie LLP
30 Rockefeller Plaza, 22nd Floor
New York, New York 10112-0015

 

-16-

 

 

Attn: Richard T. Ross, Esq.
Phone: (212) 262-6903
Fax: (212) 977-1633
Email: RRoss@perkinscoie.com

 

And to:

 

Perkins Coie LLP
4 Embarcadero Center, Suite 2400

San Francisco, California 94111

Attn: Teresa Tate, Esq.
Phone: (415) 344-7015
Fax: (415) 344-7215
Email: TTate@perkinscoie.com

 

27.          Intentionally omitted.

 

28.          If the Secured Party has agreed in this Agreement or in any other
Loan Document that the Secured Party shall not unreasonably withhold or delay
its consent, and in fact the Secured Party acts unreasonably, the sole remedy
against the Secured Party shall be an action for a declaratory judgment that the
Secured Party has been deemed to have granted its consent, and the Secured Party
shall not be liable for any money damages.

 

29.          All rights of Secured Party and the security interests granted
hereunder, and all obligations of Pledgor hereunder, shall be absolute and
unconditional irrespective of:

 

(a)          any lack of validity or enforceability of the Note or any of the
other Loan Documents;

 

(b)          any change in the time, manner or place of payment of, or in any
other term of, all or any of the Pledgor Obligations, or any other amendment or
waiver of or any consent to any departure from the Note or any of the other Loan
Documents, including, without limitation, any increase in the Pledgor
Obligations resulting from the extension of additional credit to Pledgor or
otherwise;

 

(c)          any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Pledgor Obligations;

 

(d)          any manner of application of Collateral, or proceeds thereof, to
all or any of the Pledgor Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Pledgor Obligations or any
other assets of Pledgor; or

 

(e)          any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Pledgor.

 

-17-

 

 

30.          Solely with respect to Article 8 Matters, Pledgor hereby
irrevocably grants and appoints Secured Party, from the date of this Agreement
until the termination of this Agreement in accordance with its terms, as
Pledgor’s true and lawful proxy, for and in Pledgor’s name, place and stead to
vote the Equity Interests, whether directly or indirectly, beneficially or of
record, now owned or hereafter acquired, with respect to such Article 8 Matters.
The proxy granted and appointed in this Section shall include the right to sign
Pledgor’s name (as a member, shareholder or partner of Issuer, as applicable) to
any consent, certificate or other document relating to an Article 8 Matter and
the Equity Interests that applicable law may permit or require, to cause the
Equity Interest to be voted in accordance with the preceding sentence. Pledgor
hereby represents and warrants that there are no other proxies and powers of
attorney with respect to an Article 8 Matter and the Equity Interests that
Pledgor may have granted or appointed. Pledgor will not give a subsequent proxy
or power of attorney or enter into any other voting agreement with respect to
the Equity Interests with respect to any Article 8 Matter and any attempt to do
so with respect to an Article 8 Matter shall be void and of no effect. The
proxies and powers granted by the Pledgor pursuant to this Agreement are coupled
with an interest and are given to secure the performance of the Pledgor’s
obligations.

 

31.          This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Pledgor Obligations and all other amounts payable under this
Agreement and any other Loan Document, (b) be binding upon and inure to the
benefit of Pledgor and Pledgor’s successors and assigns, and (c) inure to the
benefit of, and be enforceable by, and be binding upon Secured Party and Secured
Party’s heirs, executors, legal representatives, and successors and assigns.
Without limiting the generality of the foregoing clause (c), Secured Party may
assign or otherwise transfer all or any portion of Secured Party’s rights under
the Loan Documents to any other Person or entity if and to the extent so
permitted by the Credit Agreement, and such other Person or entity which is such
a permitted assignee or transferee shall thereupon become vested with all the
benefits in respect thereof granted to Secured Party herein or otherwise and
charged with the obligations and responsibilities of Pledgor thereunder.

 

32.          Secured Party shall have the absolute right to assign the Loan and
any of the Loan Documents or to grant participation interests in the Loan if and
to the extent so permitted by the Credit Agreement. In connection with any such
assignment by Secured Party of all of its Loans and all of its rights under the
Loan Documents, Secured Party shall have the right to assign this Agreement and
the Collateral held hereunder and all of its rights, title and interest
hereunder and in the Collateral without Pledgor’s consent if and to the extent
so permitted by the Credit Agreement. Upon any such assignment and the
assignee’s assumption of all of Secured Party’s duties and obligations under the
Loan Documents, Secured Party shall have no further liability or obligation to
the Pledgor. In the event Secured Party shall assign any of its rights under
this Agreement, Secured Party shall provide written notice of said assignment to
Pledgor. Notwithstanding the foregoing sentence, Secured Party shall not be
subject to any liability whatsoever for its failure to give said notice and
Secured Party’s failure to give said notice shall not limit or reduce any of
Pledgor’s obligations and liabilities under this Agreement.

 

-18-

 

 

33.          Nothing herein shall be deemed (a) to be a waiver of any right
which Secured Party may have under the Bankruptcy Code or the bankruptcy laws of
any state to file a claim for the then outstanding amount of the Loan or to
require that all of the Collateral shall continue to secure all of the Pledgor
Obligations; (b) to impair the validity of the Loan, the Note, the other Loan
Documents or any other document or instrument delivered to Secured Party in
connection therewith; or (c) to impair the right of Secured Party to commence an
action to foreclose any Lien or security interest in connection with the
exercise of its remedies hereunder. Nothing herein shall be deemed (i) to be a
waiver of any right which Secured Party may have under Section 506(a), 506(b),
1111(b) or any other provisions of the Bankruptcy Code to file a claim for the
full amount of the indebtedness of the Loan and other amounts due under this
Agreement, the Note or the other Loan Documents or to require that all of the
Collateral shall continue to secure the Pledgor Obligations or (ii) to impair
Secured Party’s rights to credit bid, under Section 363(k) of the Bankruptcy
Code or otherwise, which rights are fully preserved.

 

34.          Pledgor shall from time to time, at its expense, promptly execute
and deliver (or cause to be executed and delivered) all further instruments and
agreements, and take all further actions, that may be reasonably necessary or
appropriate, or that Secured Party may reasonably request, in order to perfect
or protect any assignment, pledge or security interest granted or purported to
be granted hereby or to enable Secured Party to exercise or enforce its rights
and remedies hereunder.

 

35.          The term “Secured Party” as used in this Agreement shall mean the
holder from time to time of the Note. This Agreement shall inure to the benefit
of and be binding upon, Secured Party named herein, its successors, assigns and
legal representatives. Without intending to permit an assignment by Pledgor,
this Agreement shall also bind Pledgor named herein, its successors, assigns and
legal representatives.

 

36.          All pronouns and any variation thereof shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require. The term “Pledgor” shall mean “Pledgors” if more
than one person is Pledgor, and in such event, the obligations of Pledgor shall
be joint and several.

 

37.          Notwithstanding anything in this Agreement or any of the other Loan
Documents to the contrary, except as contemplated in the Limited Partnership
Agreement as such term is defined in the Credit Agreement, upon payment and
performance in full of Pledgor’s Obligations, all of Secured Party’s security
interests in and rights to the Collateral shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination, Secured Party
shall, at Pledgor’s expense, authenticate and deliver to Pledgor such documents
as Pledgor may reasonably request to evidence such termination. Subject to the
preceding sentence, this Agreement may not be terminated nor may any of its
provisions be changed or waived, except by a writing signed by the party against
whom such termination, change or waiver is sought to be applied.

 

38.          In case any one or more of the provisions contained in this
Agreement or any application thereof shall be deemed invalid, illegal or
unenforceable in any respect, such affected provisions shall be construed and
deemed rewritten so as to be enforceable to the maximum extent permitted by law,
thereby implementing to the maximum extent possible, the intent of the parties
hereto, and the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.

 

39.          If any amounts due under this Agreement, the Note or any other Loan
Document are due upon demand or notice by Secured Party and if the Secured Party
does not demand or notice the same, or, if noticed, the period under the notice
extends beyond the Maturity Date, then such amounts shall in any event be due
and payable upon the later to occur of the Maturity Date or the date upon which
Pledgor is or becomes aware of such amounts being due.

 

-19-

 

 

40.          This Agreement shall be interpreted without the benefit of any
presumption against the party causing this Agreement to be drafted.

 

41.          This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to its rules of conflict
of law, except Section 5-1401 of the New York General Obligations Law. Pledgor
(and the Secured Party by its acceptance hereof) hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State or Federal court sitting in the County of New
York over any suit, action or proceeding arising out of or relating to this
Agreement or any other Loan Document, or for recognition or enforcement of any
judgment, and Pledgor (and the Secured Party by its acceptance hereof) hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such Federal court. Pledgor hereby
agrees and consents that, in addition to any methods of service of process
provided for under applicable law, all service of process in any such suit,
action or proceeding in any New York State or Federal court sitting in the
County of New York, may be made certified or registered mail, return receipt
requested, or overnight mail with a reputable national carrier, directed to
Pledgor at its address specified in Section 26, and service shall be complete
five (5) days after the same shall have been so mailed (one day in the case of
an overnight mail service). Pledgor agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
any party may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document in the courts of any other jurisdiction.

 

42.          EACH OF PLEDGOR AND SECURED PARTY HEREBY AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
GIVEN KNOWINGLY AND VOLUNTARILY BY PLEDGOR AND SECURED PARTY, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. PLEDGOR AND SECURED PARTY ARE EACH HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER.

 

43.          Intentionally Omitted.

 

-20-

 

 

44.          Oral agreements or commitments to loan money, extend credit or
forbear from enforcing repayment of a debt including promises to extend or renew
such debt are not enforceable. To protect you (borrower(s)) and us (creditor)
from misunderstanding or disappointment, any agreements we reach covering such
matters are contained in this writing, which is the complete and exclusive
statement of the agreement between us, except as we may later agree in writing
to modify it.

 

45.          Notwithstanding anything to the contrary contained in this
Agreement, Secured Party’s rights and remedies hereunder are limited by and
subject to the terms and provisions of Section 10.6 of the Credit Agreement.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

-21-

 

 

IN WITNESS WHEREOF, Pledgor has executed this Agreement on the day and year
first above written.

 

  PLEDGOR:       CROSSROADS SYSTEMS, INC.       By: /s/ Richard K. Coleman, Jr.
      Name:  Richard K. Coleman, Jr.       Title: Interim President and CEO

 

[Signature Page to Pledge and Security Agreement]

 

 

 

 

Schedule 1

 

LIST OF EQUITY INTERESTS

 

Issuer  
Certificate No.   Percentage of
Limited Partner
Interests           KIP CR P1 LP   C-3   99%

 

[Schedule 1 to Pledge and Security Agreement]

 

 

 

 

EXHIBIT A

CONSENT OF ISSUER

 

CONSENT (“Consent”), dated as of July [●], 2013 made by KIP CR P1 LP, a Delaware
limited partnership (“Issuer”).

 

Reference is made to that certain Pledge and Security Agreement (the “Pledge
Agreement”), of even date herewith, between Crossroads Systems, Inc., a Delaware
corporation (“Pledgor”), with a principal place of business at 11000 North
Mo-Pac Expressway, Austin, TX 78759, and Fortress Credit Co LLC, a Delaware
limited liability company (“Secured Party”) having an office located at 1345
Avenue of the Americas, 46th Floor, New York NY 10105. Issuer hereby
acknowledges the receipt of a copy of the Pledge Agreement and acknowledges that
Pledgor is bound thereby. For the purposes of this Consent, all capitalized
terms not herein defined shall have the respective meanings ascribed thereto in
the Pledge Agreement.

 

Issuer hereby consents to the Pledge Agreement and agrees to comply with the
terms and provisions thereof applicable to it. Without limiting the foregoing,
during the existence of an Event of Default, Issuer agrees to pay any and all
Distributions directly to Secured Party in accordance with, and to the extent
provided in, the terms and provisions of the Pledge Agreement. Until the Pledgor
Obligations are paid in full and after the occurrence and during the continuance
of an Event of Default, Issuer agrees to (i) comply with the instructions of
Secured Party in connection with the exercise of Secured Party’s rights and
remedies as set forth in the Pledge Agreement, without any further consent from
Pledgor or any other Person in respect of the Collateral and (ii) to disregard
any request made by Pledgor or any other person which contravenes such
instructions of Secured Party in respect of the Collateral.

 

Issuer represents and warrants to Secured Party that, as of the date hereof,
(i) Pledgor is the registered owner of 99% of the limited partnership interests
of, and possesses 99% of the economic, management and voting rights in, Issuer;
(ii) Issuer has no knowledge of any Lien or other security interest in the
Collateral (other than Secured Party’s Lien or security interest); and (iii) the
registered pledgee of the Collateral on the books of Issuer is Secured Party
together with its successors and assigns, as secured party with respect to the
Loan, and there is no other pledge currently registered on the books and records
of Issuer with respect to the Collateral.

 

In the event that Secured Party forecloses on or exercises rights with respect
to the Collateral (as defined in the Pledge Agreement), Issuer hereby consents
to the following: (i) the admission of Secured Party or the purchaser of the
Collateral at a sale under the Uniform Commercial Code, as the case may be (in
either case, the “Purchaser”) as a limited partner of Issuer in substitution of
Pledgor and (ii) Purchaser being granted all of the rights and benefits of
Pledgor under the Formation Agreement, including, without limitation, all rights
to vote, consent rights and receive distributions.

 

This Consent shall be governed by the laws of the State of Delaware. All notices
required to be given hereunder shall be delivered as set forth in the Pledge
Agreement.

 

This Consent may be executed in any number of counterparts, each of which shall
be deemed an original, and all of which taken together shall constitute one and
the same instrument.

 

[Exhibit A to Pledge and Security Agreement]

 

 

 

 

IN WITNESS WHEREOF, Issuer has executed this Consent as of the date first set
forth above.

 

  ISSUER:       KIP CR P1 LP   a Delaware limited partnership       By:  KIP CR
P1 GP LLC, its General Partner       By:           Name:           Title:  

 

[Exhibit A to Pledge and Security Agreement]

 

 

 

 

EXHIBIT B

ASSIGNMENT SEPARATE FROM CERTIFICATE

 

See attached.

 

[Exhibit B to Pledge and Security Agreement]

 

 

 

 

LIMITED PARTNERSHIP INTEREST ASSIGNMENT SEPARATE FROM CERTIFICATE

 

KIP CR P1 LP

 

Limited Partner Interests

 

FOR VALUE RECEIVED and pursuant to that certain Pledge and Security Agreement
dated as of July __, 2013, Crossroads Systems, Inc. hereby assigns and transfers
to _____________________ ninety-nine percent (99%) or Nine Thousand Nine Hundred
(9,900) Limited Partnership Interests of KIP CR P1 LP, a Delaware limited
partnership (the “Company”), represented by Certificate No. C-3 standing in the
name of Crossroads Systems, Inc. dated July __, 2013, in the corporate records
of the Company. Crossroads Systems, Inc. does hereby irrevocably constitute and
appoint the General Partner of the Company as its attorney-in-fact to transfer
such units on the books of the Company.

 

Dated:     Crossroads Systems, Inc.               By:           Name:          
      Its:  

 

Instructions: Do not date this document or fill in any blanks other than the
signature line. The purpose of this Assignment is to enable the assignee to hold
a security interest in the shares without requiring additional signatures on the
part of the registered unitholder in the event of default.

 

 

 

 

EXHIBIT C

DISCLOSURE SCHEDULE

 

See attached.