Exhibit 10.2


 


SUBORDINATION AGREEMENT


 


This Subordination
Agreement (the “Agreement”) is made as of February 28, 2013, by and between ACT Capital Partners, LP (“Creditor”),
and SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa
Clara, California 95054 (“Bank”).


 


Recitals


 


A.           CROSSROADS
SYSTEMS (TEXAS), INC., a Texas corporation (“Borrower”), has requested and/or obtained certain loans or
other credit accommodations from Bank which are or may be from time to time secured by assets and property of Borrower.


 


B.           Creditor
has extended loans or other credit accommodations to Borrower, and/or may extend loans or other credit accommodations to Borrower
from time to time.


 


C.           To
induce Bank to extend credit to Borrower and, at any time or from time to time, at Bank’s option, to make such further loans,
extensions of credit, or other accommodations to or for the account of Borrower, or to purchase or extend credit upon any instrument
or writing in respect of which Borrower may be liable in any capacity, or to grant such renewals or extension of any such loan,
extension of credit, purchase, or other accommodation as Bank may deem advisable, Creditor is willing to subordinate, subject to
the limitations set forth in this Agreement: (i) all of Borrower’s indebtedness and obligations to Creditor (including, without
limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement
obligations), plus any dividends and/or distributions or other payments pursuant to call, put, or conversion features in connection
with equity securities of Borrower issued to or held by Creditor, whether presently existing or arising in the future (the “Subordinated
Debt”) to all of Borrower’s indebtedness and obligations to Bank; and (ii) all of Creditor’s security interests,
if any, to all of Bank’s security interests in Borrower’s property.


 


NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:


 


1.          Creditor
subordinates to Bank any security interest or lien that Creditor may have in any property of Borrower. Notwithstanding the respective
dates of attachment or perfection of the security interests of Creditor and the security interests of Bank, all now existing and
hereafter arising security interests of Bank in any property of Borrower and all proceeds thereof (the “Collateral”),
including, without limitation, the “Collateral”, as defined in a certain Fourth Amended and Restated Loan and Security
Agreement between Borrower and Bank dated as of December 27, 2012 (as may be amended, modified, restated, replaced or supplemented
from time to time, the “Loan Agreement”), shall at all times be senior to the security interests of Creditor.
Creditor hereby (a) acknowledges and consents to (i) Borrower granting to Bank a security interest in
the Collateral, (ii) Bank filing any and all financing statements and other documents as deemed necessary by Bank in order to perfect
Bank’s security interest in the Collateral, and (iii) the entering into of the Loan Agreement and all documents in connection
therewith by Borrower, (b) acknowledges and agrees that the Senior Debt, the entering into of the Loan Agreement and all documents
in connection therewith by Borrower, and the security interest granted by Borrower to Bank in the Collateral shall be permitted
under the provisions of the Subordinated Debt documents (notwithstanding any provision of the Subordinated Debt documents to the
contrary), (c) acknowledges, agrees and covenants that Creditor shall not contest, challenge or dispute the validity, attachment,
perfection, priority or enforceability of Bank’s security interest in the Collateral, or the validity, priority or enforceability
of the Senior Debt, and (d) acknowledges and agrees that the provisions of this Agreement will
apply fully and unconditionally even in the event that Bank’s security interest in the Collateral (or any portion thereof)
shall be unperfected. Notwithstanding the foregoing sentences or anything to the contrary set forth in this Agreement, the Loan
Agreement or any other documents executed in connection herewith or therewith, Bank acknowledges and agrees that the proceeds from
the loans or other credit accommodations received by the Borrower from Creditor shall not constitute Collateral and shall not be
subject to any security interest or lien in favor of Bank.


 




    	 



    	 



    

 


2.          Subject
to the limitations set forth in this Agreement, all Subordinated Debt is subordinated in right of payment to all obligations of
Borrower to Bank now existing or hereafter arising, including, without limitation, the Obligations (as defined in the Loan Agreement),
together with all costs of collecting such obligations (including attorneys’ fees), including, without limitation, all obligations
under any agreement in connection with the provision by Bank to Borrower of products and/or credit services
facilities, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant
services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign
exchange services, all interest accruing after the commencement by or against Borrower of any bankruptcy, reorganization
or similar proceeding (such obligations, collectively, the “Senior Debt”). Notwithstanding the foregoing sentences
or anything to the contrary set forth in this Agreement, the Loan Agreement or any other documents executed in connection herewith
or therewith, Bank acknowledges and agrees that Borrower may repay the loans and other credit accommodations of Borrower owed to
Creditor from the net proceeds received by Borrower from any financing transaction consummated subsequent to the date of this Agreement,
so long as such net proceeds received by Borrower are equal to or greater than $3,000,000.


 


3.          Subject
to the limitations set forth in this Agreement, Creditor will not receive from Borrower (and Borrower will not pay to Creditor)
all or any part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise, nor will Creditor exercise
any remedy with respect to any property of Borrower, nor will Creditor accelerate the Subordinated Debt, or commence, or cause
to commence, prosecute or participate in any administrative, legal or equitable action against Borrower, until such time as (a)
the Senior Debt has been fully paid in cash, (b) Bank has no commitment or obligation to lend any further funds to Borrower, and
(c) all financing agreements between Bank and Borrower are terminated. Nothing in the foregoing paragraph shall prohibit Creditor
from converting all or any part of the Subordinated Debt into equity securities of Borrower, provided that, if such securities
have any call, put or other conversion features that would obligate Borrower to declare or pay dividends, make distributions, or
otherwise pay any money or deliver any other securities or consideration to the holder, Creditor hereby agrees that Borrower may
not declare, pay or make such dividends, distributions or other payments to Creditor, and Creditor shall not accept any such dividends,
distributions or other payments.


 


4.          Subject
to the limitations set forth in this Agreement, Creditor shall promptly deliver to Bank in the form received (except for endorsement
or assignment by Creditor where required by Bank) for application to the Senior Debt any payment, distribution, security or proceeds
received by Creditor with respect to the Subordinated Debt other than in accordance with this Agreement.


 


5.          In
the event of Borrower’s insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law or laws
relating to the relief of debtors, including, without limitation, any voluntary or involuntary bankruptcy, insolvency, receivership
or other similar statutory or common law proceeding or arrangement involving Borrower, the readjustment of its liabilities, any
assignment for the benefit of its creditors or any marshalling of its assets or liabilities (each, an “Insolvency Proceeding”),
(a) this Agreement shall remain in full force and effect in accordance with Section 510(a) of the United States Bankruptcy Code,
(b) the Collateral shall include, without limitation, all Collateral arising during or after any such Insolvency Proceeding, and
(c) Bank’s claims against Borrower and the estate of Borrower shall be paid in full before any payment is made to Creditor.


 




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6.          Creditor
shall give Bank prompt written notice of the occurrence of any default or event of default under any document, instrument or agreement
evidencing or relating to the Subordinated Debt, and shall, simultaneously with giving any notice of default to Borrower, provide
Bank with a copy of any notice of default given to Borrower. Creditor acknowledges and agrees that any default or event of default
under the Subordinated Debt documents shall be deemed to be a default and an event of default under the Senior Debt documents.


 


7.          Subject
to the limitations set forth in this Agreement, until the Senior Debt has been fully paid in cash and Bank’s agreements to
lend any funds to Borrower have been terminated, Creditor irrevocably appoints Bank as Creditor’s attorney-in-fact, and grants
to Bank a power of attorney with full power of substitution, in the name of Creditor or in the name of Bank, for the use and benefit
of Bank, without notice to Creditor, to perform at Bank’s option the following acts in any Insolvency Proceeding involving
Borrower:


 


		a)	To file the appropriate claim or claims in respect of the Subordinated Debt on behalf of Creditor if Creditor does not do so
prior to 30 days before the expiration of the time to file claims in such Insolvency Proceeding and if Bank elects, in its sole
discretion, to file such claim or claims; and



 


		b)	To accept or reject any plan of reorganization or arrangement on behalf of Creditor and to otherwise vote Creditor’s
claims in respect of any Subordinated Debt in any manner that Bank deems appropriate for the enforcement of its rights hereunder.



 


In addition to and without
limiting the foregoing: (x) until the Senior Debt has been fully paid in cash and Bank’s agreements to lend any funds to
Borrower have been terminated, Creditor shall not commence or join in any involuntary bankruptcy petition
or similar judicial proceeding against Borrower, and (y) if an Insolvency Proceeding occurs: (i) Creditor shall not assert,
without the prior written consent of Bank, any claim, motion, objection or argument in respect of the Collateral in connection
with any Insolvency Proceeding which could otherwise be asserted or raised in connection with such Insolvency Proceeding, including,
without limitation, any claim, motion, objection or argument seeking adequate protection or relief from the automatic stay in respect
of the Collateral, (ii) Bank may consent to the use of cash collateral on such terms and conditions and in such amounts as it shall
in good faith determine without seeking or obtaining the consent of Creditor as (if applicable) holder of an interest in the Collateral,
(iii) if use of cash collateral by Borrower is consented to by Bank, Creditor shall not oppose such use of cash collateral on the
basis that Creditor’s interest in the Collateral (if any) is impaired by such use or inadequately protected by such use,
or on any other ground, and (iv) Creditor shall not object to, or oppose, any sale or other disposition of any assets comprising
all or part of the Collateral, free and clear of security interests, liens and claims of any party, including Creditor, under Section
363 of the United States Bankruptcy Code or otherwise, on the basis that the interest of Creditor in the Collateral (if any) is
impaired by such sale or inadequately protected as a result of such sale, or on any other ground (and, if requested by Bank, Creditor
shall affirmatively and promptly consent to such sale or disposition of such assets), if Bank has consented to, or supports, such
sale or disposition of such assets.


 


8.          Creditor
represents and warrants that Creditor has provided Bank with true and correct copies of all of the documents evidencing or relating
to the Subordinated Debt. Creditor shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating
that the instruments are subject to the terms of this Agreement. By the execution of this Agreement, Creditor hereby authorizes
Bank to amend any financing statements filed by Creditor against Borrower as follows: “In accordance with a certain Subordination
Agreement by and among the Secured Party, the Debtor and Silicon Valley Bank, the Secured Party has subordinated any security interest
or lien that Secured Party may have in any property of the Debtor to the security interest of Silicon Valley Bank in all assets
of the Debtor, notwithstanding the respective dates of attachment or perfection of the security interest of the Secured Party and
Silicon Valley Bank.”


 




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9.          No
amendment of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of
this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt or the subordination of
the security interest or lien that Creditor may have in any property of Borrower. By way of example, such instruments shall not
be amended to (a) increase the rate of interest with respect to the Subordinated Debt, or (b) accelerate the payment of the principal
or interest or any other portion of the Subordinated Debt. Bank shall have the sole and exclusive right to restrict or permit,
or approve or disapprove, the sale, transfer or other disposition of property of Borrower except in accordance with the terms of
the Senior Debt. Upon written notice from Bank to Creditor of Bank's agreement to release its lien on all or any portion of the
Collateral in connection with the sale, transfer or other disposition thereof by Bank (or by Borrower with consent of Bank), Creditor
shall be deemed to have also, automatically and simultaneously, released its lien on the Collateral, and Creditor shall upon written
request by Bank, immediately take such action as shall be necessary or appropriate to evidence and confirm such release. All proceeds
resulting from any such sale, transfer or other disposition shall be applied first to the Senior Debt until payment in full thereof,
with the balance, if any, to the Subordinated Debt, or to any other entitled party. If Creditor fails to release its lien as required
hereunder, Creditor hereby appoints Bank as attorney in fact for Creditor with full power of substitution to release Creditor's
liens as provided hereunder. Such power of attorney being coupled with an interest shall be irrevocable.


 


10.         All
necessary action on the part of Creditor, its officers, directors, partners, members and shareholders, as applicable, necessary
for the authorization of this Agreement and the performance of all obligations of Creditor hereunder has been taken. This Agreement
constitutes the legal, valid and binding obligation of Creditor, enforceable against Creditor in accordance with its terms. The
execution, delivery and performance of and compliance with this Agreement by Creditor will not (a) result in any material violation
or default of any term of any of Creditor’s charter, formation or other organizational documents (such as Articles or Certificate
of Incorporation, bylaws, partnership agreement, operating agreement, etc.) or (b) violate any material applicable law, rule or
regulation.


 


11.         If,
at any time after payment in full of the Senior Debt any payments of the Senior Debt must be disgorged by Bank for any reason (including,
without limitation, any Insolvency Proceeding), this Agreement and the relative rights and priorities set forth herein shall be
reinstated as to all such disgorged payments as though such payments had not been made and Creditor shall immediately pay over
to Bank all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Creditor, Bank may take such actions with respect to the Senior
Debt as Bank, in its sole discretion, may deem appropriate, including, without limitation, terminating advances to Borrower, increasing
the principal amount, extending the time of payment, increasing applicable interest rates, renewing, compromising or otherwise
amending the terms of any documents affecting the Senior Debt and any collateral securing the Senior Debt, and enforcing or failing
to enforce any rights against Borrower or any other person. No such action or inaction shall impair or otherwise affect Bank’s
rights hereunder. Creditor waives the benefits, if any, of any statutory or common law rule that may permit a subordinating creditor
to assert any defenses of a surety or guarantor, or that may give the subordinating creditor the right to require a senior creditor
to marshal assets, and Creditor agrees that it shall not assert any such defenses or rights.


 




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12.         This
Agreement shall bind any successors or assignees of Creditor and shall benefit any successors or assigns of Bank, provided, however,
Creditor agrees that, prior and as conditions precedent to Creditor assigning all or any portion of the Subordinated Debt: (a)
Creditor shall give Bank prior written notice of such assignment, and (b) such successor or assignee, as applicable, shall execute
a written agreement whereby such successor or assignee expressly agrees to assume and be bound by all terms and conditions of this
Agreement with respect to Creditor. This Agreement shall remain effective until terminated in writing by Bank. This Agreement is
solely for the benefit of Creditor and Bank and not for the benefit of Borrower or any other party. Creditor further agrees that
if Borrower is in the process of refinancing any portion of the Senior Debt with a new lender, and if Bank makes a request of Creditor,
Creditor shall agree to enter into a new subordination agreement with the new lender on substantially the terms and conditions
of this Agreement.


 


13.         Creditor
hereby agrees to execute such documents and/or take such further action as Bank may at any time or times reasonably request in
order to carry out the provisions and intent of this Agreement, including, without limitation, ratifications and confirmations
of this Agreement from time to time hereafter, as and when requested by Bank.


 


14.         This
Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall
constitute one instrument.


 


15.         This
Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to conflicts
of laws principles. Creditor and Bank submit to the exclusive jurisdiction of the state and federal courts located in Travis County,
Texas in any action, suit, or proceeding of any kind, against it which arises out of or by reason of this Agreement. CREDITOR AND
BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.


 


16.         This
Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements
and commitments. Creditor is not relying on any representations by Bank or Borrower in entering into this Agreement, and Creditor
has kept and will continue to keep itself fully apprised of the financial and other condition of Borrower. This Agreement may be
amended only by written instrument signed by Creditor and Bank.


 


[Signature page follows.]


 




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IN WITNESS WHEREOF,
the undersigned have executed this Agreement as of the date first above written.


 


	“Creditor”	 	“Bank”
	 	 	 
	ACT Capital Partners, L.P.	 	SILICON VALLEY BANK
	a	 	 	 	 
	 	 	 	 	 
	By: 	/s/ Amir L. Ecker	 	By: 	/s/ Scott Power
	Name: 	Amir L. Ecker	 	Name: 	Scott Power
	Title: 	General Partner	 	Title:	Vice President


 


The undersigned approves of the terms of
this Agreement.


 


	“Borrower”	 
	 	 
	CROSSROADS SYSTEMS (TEXAS), INC.,	 
	a Texas corporation	 
	 	 	 
	By: 	/s/ Brian Bianchi	 
	Name: 	Brian Bianchi	 
	Title: 	COO	 


 








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