Document:

xcom-ex101_8.htm

Exhibit 10.1

SECURITY AGREEMENT

this security agreement (this “Agreement”) is made as of September 13, 2016 by and among Xtera Communications, Inc., a Delaware corporation (the “Debtor”) and the investors set forth on Exhibit A attached to this Agreement (the “Secured Parties” and each of the Secured Parties individually, a “Secured Party”).  Capitalized terms not specifically defined herein shall have the meanings ascribed to them in the Notes (as defined below).

A.The Debtor has agreed to sell to the Secured Parties, and the Secured Parties agreed to purchase from the Debtor, notes in the aggregate principal amount of up to $1,500,000 (the “Notes”) and warrants to purchase shares of the Debtor’s common stock.

B.The execution of this Agreement is a condition to the obligations of the Secured Parties under the Notes, and the parties hereto are willing to execute this Agreement and to be bound by the provisions hereof.

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

AGREEMENT

1.    Creation of Security Interest.  Debtor hereby grants to the Secured Parties a security interest in the Collateral described in Section 2 of this Agreement to secure performance and payment of all obligations and indebtedness of Debtor to the Secured Parties under the Notes, including, but not limited to, the obligations and indebtedness of Debtor to the Secured Parties described in Section 3 of this Agreement (collectively, the “Indebtedness”); provided, however, that a portion of such security interest (up to $100,000 of the principal amount of the Notes) shall be subordinated to all indebtedness and monetary obligations to (i) Horizon Technology Finance Corporation pursuant to that certain Subordination Agreement dated on or about the date hereof and (ii) Pacific West Bank pursuant to that certain Subordination Agreement dated on or about the date hereof (collectively, the “Senior Indebtedness”), in each case as described therein.

2.    Collateral.  In order to secure the payment when due of any and all Indebtedness, Debtor hereby pledges, assigns, transfers, hypothecates and sets over to the Secured Parties and hereby grants to the Secured Parties a security interest in all of Debtors’ rights, title and interest in, to and under the following properties (collectively, the “Collateral”):

(a)    All of Debtor’s inventory, both now owned and hereafter acquired, including, without limitation, all goods, merchandise, raw materials, goods in process, finished goods and other tangible personal property both now owned and hereafter acquired by Debtor and held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in Debtor’s business, and all proceeds thereof, as well as all additions and accessions thereto and substitutions and replacements for any thereof;

(b)    All of Debtor’s tangible personal property, both now owned and hereafter acquired, including, without limitation, all equipment, consumer goods, furniture, fixtures, machinery, operating equipment, assembly and production equipment, engineering and electrical equipment, and all proceeds of any thereof, as well as all additions and accessions thereto and substitutions and replacements for any thereof;

(c)    All of Debtor’s intangible personal property, cash on hand and cash in and deposits with banks or other financial institutions, whether now owned or hereafter acquired, including, but not limited to, all accounts, chattel paper, documents, instruments and general intangibles, all contracts, shares of stock, bonds, notes, evidences of indebtedness and other securities, bills, notes and accounts receivable, interests in life insurance policies, trademarks, trade names, patents, patent rights, copyrights, claims, credits, chooses in action, licenses, permits, franchises and grants;

(d)    All rents, income and issues arising from or in connection with, and all proceeds of, any of the foregoing;

(e)    Any and all transferable licenses, sublicenses and franchises, whether now owned or hereafter acquired, granted in any of the Debtor’s intangible personal property, including, without limitation, any present or future right of Debtor to receive royalties or other payments from those to whom licenses, sublicenses or franchises have been or will be granted; and

(f)    All rights, title and interests, now owned or hereafter acquired, to all other property and assets, real, personal or mixed.

3.    Payment Obligations of Debtor. Subject in each case to the rights of the holders of the Senior Indebtedness: 

(a)    Debtor shall pay to the Secured Parties any sum or sums due or which may become due pursuant to any promissory note or notes now or hereafter executed by Debtor to evidence the Indebtedness.

(b)    Debtor shall account fully and faithfully to the Secured Parties for proceeds from disposition of the Collateral in any manner and, following an Event of Default (as defined below) hereunder, shall pay or turn over promptly in cash, negotiable instruments, drafts, assigned accounts or chattel paper all the proceeds from each sale to be applied to Debtor’s Indebtedness to the Secured Parties, subject, if other than cash, to final payment or collection.  Application of such proceeds to Indebtedness of Debtor shall be in the sole discretion of the Secured Parties, provided such application of proceeds is made by the Secured Parties in a reasonable manner.

(c)    Following any Event of Default hereunder or under the Notes, Debtor shall pay to the Secured Parties, on demand, all expenses and expenditures incurred or paid by the Secured Parties in exercising or protecting their interests, rights and remedies under this Agreement.

(d)    Debtor shall pay immediately, without notice, the entire unpaid Indebtedness of Debtor to the Secured Parties under this Agreement, upon any Event of Default.

4.    Representations, Warranties and Agreements of Debtor.

(a)    All information supplied and statements made by Debtor in any financial, credit or accounting statement or application for credit prior to, contemporaneously with or subsequent to the execution of this Agreement are and shall be true, correct, complete, valid and genuine in all material respects.

(b)    Except for the security interests granted in connection with the Senior Indebtedness and in this Agreement, no financing statement covering the Collateral or its proceeds is on file in any public office and there is no lien, security interest or encumbrance in or on the Collateral.

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(c)    The location where Debtor maintains its chief executive offices is 500 W. Bethany Drive, Suite 100, Allen, Texas 75013.

(d)    The Collateral shall remain in Debtor’s possession or control at all times at Debtor’s risk of loss and be kept at the address shown in Section 4(c) above, where the Secured Parties may inspect it at any time, except for its temporary removal in connection with its ordinary use or unless Debtor notifies the Secured Parties in writing and the Secured Parties consent in writing in advance of its removal to another location.

(e)    Until an Event of Default, Debtor may use the Collateral in any lawful manner not inconsistent with this Agreement and may also sell the Collateral in the ordinary course of business.  The Secured Parties’ security interest shall attach to all proceeds of sales and other dispositions of the Collateral.

(f)    Debtor will promptly notify the Secured Parties in writing of any change in the location of its chief executive offices as set forth in Section 4(c) of this Agreement.

(g)    Debtor shall pay prior to delinquency all material taxes, charges, liens and assessments against the Collateral except those Debtor is contesting in good faith and for which adequate accruals have been made.

(h)    Debtor will have and maintain commercially reasonable insurance with respect to the Collateral.

5.    Secured Parties’ Rights and Remedies.

(a)    Rights Exclusive of Default.  Subject to the rights of the holders of the Senior Indebtedness:

(i)This Agreement, the Secured Parties’ rights hereunder or the Indebtedness hereby secured may be assigned by the Secured Parties (or any subsequent assignee) from time to time, and in any such case the assignee shall be entitled to all of the rights, privileges and remedies granted in this Agreement to such Secured Parties; and in such event, Debtor will assert no claims or defenses, other than a defense that it has performed its obligations under the Notes and this Agreement, it may have against such Secured Parties against the assignee, except those granted in this Agreement.

(ii)The Secured Parties may enter Debtor’s premises upon 72 hours prior written notice, without interruption of Debtor’s business and without any breach of the peace to inspect the Collateral and Debtor’s books and records pertaining to the Collateral, and Debtor shall assist the Secured Parties in making any such inspection.

(iii)The Secured Parties may execute, sign, endorse, transfer or deliver in the name of Debtor, notes, checks, drafts or other instruments for the payment of money and receipts, certificates of origin, applications for certificates of title or any other documents, necessary to evidence, perfect or upon an Event of Default realize upon the security interest and obligations created by this Agreement.

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(b)    Rights in Event of Default.  Subject to the rights of the holders of the Senior Indebtedness, upon the occurrence of an Event of Default (as defined below), and at any time thereafter, the Secured Parties may: 

(i)Declare any obligations secured hereby immediately due and payable and shall have, in addition to all other rights and remedies granted to it in this Agreement or the Notes, all rights and remedies of a “Secured Party” under the Texas Uniform Commercial Code, and other applicable laws, including, without limitation, the right to sell, lease or otherwise dispose of any or all of the Collateral and the right to take possession of the Collateral, and for that purpose such Secured Party may enter any premises on which the Collateral or any part thereof may be situated and remove the same therefrom, so long as the same may be accomplished without a breach of the peace.  Such Secured Party may require Debtor to assemble the Collateral and make it available to such Secured Party at a place to be designated by such Secured Party which is reasonably convenient to the parties.  Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, such Secured Party will send Debtor reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or other disposition thereof is to be made.  The requirement of sending reasonable notice shall be met if such notice is given to Debtor at least ten days before the time of the sale or disposition.  Expenses of retaking, holding, preparing for sale, selling or the like shall include such Secured Party’s reasonable fees and expenses, and Debtor agrees to pay such expenses.  Debtor shall remain liable for any deficiency hereunder or under the Notes;

(ii)Notify the account of debtors or obligors of any accounts, chattel paper, negotiable instruments or other evidences of Indebtedness remitted by Debtor to such Secured Parties as proceeds to pay such Secured Parties directly;

(iii)Demand, sue for, collect or make any compromise or settlement with reference to the Collateral as the Secured Parties, in their sole discretion, choose; and/or

(iv)Remedy any default, and may waive any default without waiving or being deemed to have waived any other prior or subsequent default.

(c)    Events of Default. The Company shall be in default under this Note upon the happening of any condition or event set forth below (each, an “Event of Default”):

(i)the Company’s failure to pay any payment of principal or interest as and when due in accordance with the terms of this Note; and

(ii)(A) the Company’s liquidation, dissolution, termination of existence, insolvency or business failure; the appointment of a receiver of all or any part of the property of the Company; (B) the Company commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consents to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it; (C) the commencement of any proceeding under any bankruptcy or insolvency laws against the Company or any guarantor, surety 

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or endorser for the Company that results in the entry of an order for relief or that remains undismissed, undischarged or unbonded within 30 days of commencement; (D) the Company is unable to meet its debts as they become due, or (E) the Company suspends its operations other than in the ordinary course of business.

6.    Miscellaneous.

(a)    Notices.  All notices, requests, consents, and other communications under this Agreement shall be given in accordance with the notice provisions in the Note.  

(b)    Construction.  “Secured Parties” and “Debtor,” as used in this instrument, include the respective successors, representatives, receivers, trustees and assigns of those parties.

(c)    Headings.  The headings appearing in this instrument have been inserted for convenience of reference only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this instrument.  Terms used in this Agreement that are defined in the Texas Uniform Commercial Code are used with the meanings as defined therein.

(d)    Governing Law.  The law governing this secured transaction shall be that of the State of Texas in force at the date of this instrument.

(e)    Further Assurances.  All property acquired by Debtor after the date hereof, which by the terms hereof is required or intended to be subjected to the lien of this Agreement, shall, immediately upon the acquisition thereof and without further mortgage, conveyance or assignment, become subject to the lien of this Agreement as fully as though now owned by Debtor and specifically described herein.  Nevertheless, Debtor will do all such further acts and execute, acknowledge and deliver all such further conveyances, mortgages, financing statements and assurances as the Secured Parties shall reasonably require for accomplishing the purposes of this Agreement.

(f)    Rights Cumulative; No Waiver.  The rights and remedies of the Secured Parties hereunder are cumulative, and the exercise (or waiver) of any one or more of the remedies provided for herein shall not be construed as a waiver of any of the other rights and remedies of the Secured Parties.  No delay on the part of the holder of this Agreement in the exercise of any power or right under this Agreement or under any other instrument executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right.

(g)    Successors and Assigns.  Debtor may not assign this Agreement, whether by merger, operation of law, or otherwise, without the prior written consent of the Secured Parties holding 75% of the aggregate principal amount of the Notes.  Any assignment made in accordance with this Section 6(g) shall be binding upon each Secured Party and the Debtor.  Any assignee of Debtor or the Secured Parties shall agree in writing prior to the effectiveness of such assignment to be bound by the provisions hereof.  All of the stipulations, promises and agreements in this Agreement made by or on behalf of Debtor shall bind the successors and permitted assigns of Debtor, whether so expressed or not, and inure to the benefit of the successors and permitted assigns of Debtor and such Secured Parties.  

(h)    Severability.  In the event any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

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(i)    Amendment.  Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Debtor and the Secured Parties holding 75% of the aggregate principal amount of the Notes.  Any amendment or waiver effected in accordance with this Section 6(i) shall be binding upon each Secured Party and the Debtor; provided, however, that no amendment will be effective to increase a Secured Party’s financial obligation without such Secured Party’s consent.

(j)    Counterpart Signatures.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the undersigned parties have executed this Security Agreement on and as of the Effective Date.

 

DEBTOR:

 

	
 
	
 
	
XTERA COMMUNICATIONS, INC.

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Joseph R. Chinnici

	
 
	
 
	
 
	
Joseph R. Chinnici

	
 
	
 
	
 
	
Chief Financial Officer 

 

 

 

Counterpart Signature Page to Xtera
Security Agreement

 

SECURED PARTIES:

 

 

	
 
	
 
	
By:
	
/s/ Jon Hopper

	
 
	
 
	
 
	
Jon Hopper

 

 

 

 

 

Counterpart Signature Page to Xtera
Security Agreement

 

SECURED PARTIES:

 

 

NEW ENTERPRISE ASSOCIATES 9, LIMITED PARTNERSHIP

	
 
	
 
	
By:
	
NEA Partners 9, Limited Partnership

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Louis S. Citron

	
 
	
 
	
 
	
Name: Louis S. Citron

 

	
 
	
 
	
 
	
Title: Chief Legal Officer/Attorney-in-fact

 

 

 

 

Counterpart Signature Page to Xtera
Security Agreement

 

SECURED PARTIES:

 

 

NEW ENTERPRISE ASSOCIATES 10, LIMITED PARTNERSHIP

	
 
	
 
	
By:
	
NEA Partners 10, Limited Partnership

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Louis S. Citron

	
 
	
 
	
 
	
Name: Louis S. Citron

 

	
 
	
 
	
 
	
Title: Chief Legal Officer/Attorney-in-fact

 

 

 

Counterpart Signature Page to Xtera
Security Agreement

 

SECURED PARTIES:

 

 

ARCH VENTURE FUND VI, L.P.

 

By: ARCH Venture Partners VI, L.P.

Its General Partner

 

By: ARCH Venture Partners VI, LLC

Its General Partner

 

	
 
	
 
	
By:
	
 /s/ Robert T. Nelsen

	
 
	
 
	
 
	
Its Managing Director

	
 
	
 
	
 
	
 

 

 

Counterpart Signature Page to Xtera
Security Agreement

 

EXHIBIT A

 

SCHEDULE OF INVESTORS

 

Jon Hopper

New Enterprise Associates 9, Limited Partnership

New Enterprise Associates 10, Limited Partnership

ARCH Venture Fund VI, L.P.xcom-ex102_6.htm

Exhibit 10.2

 

Subordination Agreement

(Debt and Security Interest)

 

		
	
Borrowers:
	
Xtera Communications, Inc.

	
 
	
Azea Networks, Inc

	
 
	
Neovus, Inc.

	
 
	
Xtera Asia Holdings, LLC

 

 

		
	
Creditors:
	
New Enterprise Associates 9, Limited Partnership

	
 
	
New Enterprise Associates 10, Limited Partnership

	
 
	
ARCH Venture Fund VI, L.P.

	
 
	
Jon R. Hopper

 

Date:September 13, 2016

 

This Subordination Agreement is executed, jointly and severally, by the above-named Creditors (collectively referred to herein as “Creditor”) in favor of PACIFIC WESTERN BANK (“Bank”) (successor-in-interest by merger to SQUARE 1 BANK), whose address is 406 Blackwell Street, Suite 240, Durham, North Carolina 27701, with respect to the above-named Borrowers (collectively referred to herein as “Borrower” or “the Borrower”).  Borrower and Bank are parties to a certain Loan and Security Agreement, dated January 16, 2015 (as amended, restated, supplemented, or otherwise modified from time to time, the “Loan Agreement”).  Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Loan Agreement.

In order to induce Bank to extend or continue to extend financing to the Borrower (but without obligation on Bank’s part to do so), Creditor hereby agrees as follows:

 

1.  Subordination of Security Interest.  All security interests now or hereafter acquired by Bank in any or all of the Collateral (as defined below), in which the Borrower now has or hereafter acquires any ownership, leasehold or other interest shall at all times be prior and superior to any lien, ownership interest, security interest or other interest or claim now held or hereafter acquired by Creditor in the Collateral (the “Subordinate Interest”).  Said priority shall be applicable irrespective of the time or order of attachment or perfection of any security interest or the time or order of filing of any financing statements or other documents, or any statutes, rules or law, or court decisions to the contrary. Upon any disposition of any of the Collateral by Bank, or by the Borrower with Bank’s written consent, Creditor hereby authorizes Bank to file UCC terminations with respect to any financing statements in favor of Creditor with respect to Borrower and the Collateral, and Creditor agrees, if requested by Bank, to execute and immediately deliver any and all other releases, terminations and other documents or agreements which Bank deems necessary to accomplish a disposition of the Collateral free of the Subordinate Interest; provided that Creditor shall retain its Subordinate Interest in the proceeds of the Collateral so disposed of. 

2.  “Collateral.”  As used in this Agreement, “Collateral” shall mean all of the following types of property, in which the Borrower now has or hereafter acquires any ownership, leasehold or other interest, wherever located:  all tangible and intangible property of every kind and description, including (but not limited to) all of the following: all Accounts; all Inventory; all Equipment; all Deposit Accounts; all General Intangibles (including without limitation all Intellectual Property); all Investment Property; all Other Property; and any and all claims, rights and interests in any of the above, and all guaranties and security for any of the above, and all substitutions and replacements for, additions, accessions, attachments, accessories, and improvements to, and proceeds  (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties) of, all 

Exhibit 10.2

 

of the above, and all Borrower’s books relating to any of the above.  The terms “Accounts”, “Inventory”, “Equipment”, “Deposit Accounts”, “General Intangibles” and  “Investment Property” have the meanings given such terms by the North Carolina Uniform Commercial Code in effect on the date hereof. “Intellectual Property” means all present and future (a) copyrights, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, (b) trade secret rights, including all rights to unpatented inventions and know‐how, and confidential information; (c) mask work or similar rights available for the protection of semiconductor chips; (d) patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same; (e) trademarks, servicemarks, trade styles, and trade names, whether or not any of the foregoing are registered, and all applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by any such trademarks; (f) computer software and computer software products; (g) designs and design rights; (h) technology; (i) all claims for damages by way of past, present and future infringement of any of the rights included above; (j) all licenses or other rights to use any property or rights of a type described above. “Investment Property” means all present and future investment property, securities, stocks, bonds, debentures, debt securities, partnership interests, limited liability company interests, options, security entitlements, securities accounts, commodity contracts, commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, and all other securities of every kind, whether certificated or uncertificated.  “Other Property” means the following, as defined in the North Carolina Uniform Commercial Code in effect on the date hereof, with such additions to such term as may hereafter be made, and all rights relating thereto: all present and future “commercial tort claims”, “documents”, “instruments”, “promissory notes”, “chattel paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm products” and “money”; and all other goods and personal property of every kind, tangible and intangible, whether or not governed by the North Carolina Uniform Commercial Code.

3.  Disposition of Collateral; Refinancing.  Creditor agrees that, until Bank has received payment in full of all indebtedness, liabilities, guarantees and other obligations of the Borrower to Bank, including without limitation the Obligations, now existing or hereafter arising (including without limitation interest, fees and other charges and reimbursement of costs and reasonable attorneys fees accruing after commencement of any Insolvency Proceeding with respect to the Borrower) (collectively, the “Senior Debt”), Bank may dispose of, and exercise any other rights with respect to, any or all of the Collateral, free of the Subordinate Interest, provided that Creditor retains any rights it may have as a junior secured creditor with respect to the surplus, if any, arising from any such disposition or enforcement.  In addition, if the Borrower is in default under any loan or credit agreement with Bank, including without limitation the Loan Agreement, and the Borrower intends to sell any Collateral to an unrelated third party outside the ordinary course of business, Creditor shall, upon Bank’s request, and without further consideration, execute and deliver to such purchaser such instruments as may reasonably be necessary to terminate and release any security interest or lien the Subordinated Creditor has in the Collateral to be sold.  Creditor agrees that any funds of the Borrower which it obtains through the exercise of any right of setoff or other similar right constitute Collateral, and Creditor shall immediately pay such funds to Bank to be applied to the outstanding Senior Debt. If Borrower wishes to refinance any of the Senior Debt with a new lender, upon Bank’s request of Creditor, Creditor will enter into a new subordination agreement with the new lender on substantially the terms of this Agreement.

4.  Subordination of Debt.  Creditor hereby subordinates payment by the Borrower of any and all indebtedness, liabilities, guarantees and other obligations of the Borrower to Creditor, now existing or hereafter arising (collectively, the “Subordinated Debt”), to the payment to Bank, in full in cash, of all Senior Debt, and Creditor agrees not to ask for, demand, sue for, take or receive all or any part of the Subordinated Debt, unless and until all of the Senior Debt has been paid and performed in full, in cash and all loan agreements and other agreements providing for Bank to provide loans or other financial accommodations to Borrower have terminated.  Bank agrees that, in the event of a sale or liquidation of Borrower's assets, from the first proceeds received by Bank and to the extent loaned to Borrower by Creditor and used by Borrower as permitted under the terms of the Seventh Amendment to Loan Agreement, dated on or about the date hereof, and within five Business Days of Bank's receipt of such proceeds in good funds, Bank shall pay to Creditor the following amounts of Subordinated Debt:

	
 
	
(a)
	
up to $500,000 for Borrower’s Payroll Expenses and Non-Budgeted Non-Payroll Expenses incurred and paid during the period of September 1 through September 15, 2016 (the “September 1-15 Combined Non-Budgeted Expenses”);
	
 

	
 
	
(b)
	
up to the sum of the following (collectively, the “September 16-30 Combined Non-Budgeted Expenses”): (i) $500,000 for Borrower’s Payroll Expenses incurred and paid during the period of September 16 through September 30, 2016 (the “September 16-30 Payroll Expenses”) and Borrower’s Non-Budgeted Non-Payroll Expenses incurred and paid during the period of September 16 through September 30, 2016, plus 
	
 

Pacific Western BankSubordination Agreement

 

	
 
		
(ii) the difference between $500,000 and the amount of September 1-15 Combined Non-Budgeted Expenses actually incurred and paid; and 
	
 

	
 
	
(c)
	
up to $500,000 for Budgeted Non-Payroll Expenses paid during the period of September 16 through September 30, 2016.
	
 

Notwithstanding the foregoing, upon the Bank transmitting to Creditor and copying to Borrower, by e-mail which shall be deemed received by Creditor and Borrower when transmitted by Bank, a written notice of Bank's termination of its payment obligations hereunder, which Bank may send in its sole and absolute discretion, Bank shall only be obligated to pay (i) New Lender Indebtedness properly incurred pursuant hereto prior to Creditor's receipt of such notice, and (ii) any September 16-30 Payroll Expenses incurred during the three Business Days following the giving of such notice.

Creditor represents and warrants that the amount of Subordinated Debt that may be issued is the amount set forth below each Creditor’s signature hereon, and that Creditor has not executed any other subordination agreements with respect to such debt or the Collateral or the Borrower, other than that certain subordination agreement being entered into with Horizon Technology Finance Corporation on the date hereof. 

Should Creditor directly or indirectly receive any payment or distribution, or any Collateral or proceeds thereof (including, without limitation, any funds obtained through the exercise of any right of setoff or similar right), not permitted by the provisions of this Agreement, Creditor will deliver the same Bank in the form received (except for the endorsement or assignment of Creditor where necessary), for application to the Senior Debt in such order and manner as Bank may elect.  Until so delivered, Creditor shall hold the same, in trust, for Bank as property of Bank, and shall not commingle such property of Bank with any other property held by Creditor.  Creditor shall endorse all notes and other written evidence of the Subordinated Debt with a statement that they are subordinated to the Senior Debt pursuant to the terms of this agreement, in such form as Bank shall require, and Creditor will exhibit the originals of such notes and other written evidence of the Subordinated Debt to Bank so that Bank can confirm that such endorsement has been made, but this Subordination Agreement shall be fully effective, even if no such endorsement is made. Until Bank has received payment in full of all Senior Debt and all loan agreements and other agreements providing for Bank to provide loans or other financial accommodations to Borrower have terminated, Creditor agrees not to modify any of the material terms of the Subordinated Debt (including without limitation payment terms, interest rate, maturity date, fees, and financial covenants), without Bank’s prior written consent.

5.  Modifications; Waivers.  Until Bank has received payment in full of all Senior Debt and all loan agreements and other agreements providing for Bank to provide loans or other financial accommodations to Borrower have terminated, Creditor agrees that, in addition to any other rights that Bank may have at law or in equity, Bank may at any time, and from time to time, without Creditor’s consent and without notice to Creditor, renew, extend or increase any of the Senior Debt or that of any other person at any time directly or indirectly liable for the payment of any Senior Debt, accept partial payments of the Senior Debt, settle, release (by operation of law or otherwise), compound, compromise, collect or liquidate any of the Senior Debt, make loans or advances to the Borrower secured in whole or in part by the Collateral or refrain from making any loans or advances to the Borrower, increase or decrease the amount of the Senior Debt, change, waive, alter or vary the interest charge on, or any other terms or provisions of the Senior Debt or any present or future instrument, document or agreement between Bank and the Borrower or any other person relating to Borrower, release, exchange, fail to perfect, delay the perfection of, fail to resort to, or realize upon any Collateral, and take any other action or omit to take any other action with respect to the Senior Debt or the Collateral as Bank deem necessary or advisable in Bank’s sole discretion.  Creditor waives any right to require Bank to marshal any assets in favor of Creditor or against or in payment of any or all of the Senior Debt.  Creditor further waives any defense arising by reason of any claim or defense based upon an election of remedies by Bank which in any manner impairs, affects, reduces, releases, destroys and/or extinguishes Creditor’s subrogation rights, rights to proceed against the Borrower for reimbursement, and/or any other rights of Creditor. In addition to the waivers set forth in this Agreement, Creditor expressly waives, to the extent permitted by North Carolina law, all of Creditor’s rights under North Carolina General Statute Section 26-7 through 26-9, inclusive, and any similar or subsequent laws.

6.Insolvency Proceedings.  

(a)  This Agreement shall remain in full force and effect and shall be enforceable pursuant to its terms in any voluntary or involuntary bankruptcy, insolvency, receivership or other statutory or common law proceeding or arrangement involving the Borrower or the readjustment of its liabilities or any assignment for the benefit of its creditors or any marshalling of its assets or liabilities (collectively, an “Insolvency Proceeding”).  In the event of any Insolvency Proceeding, Creditor agrees that the 

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Pacific Western BankSubordination Agreement

 

term “Senior Debt” shall include without limitation all indebtedness, liabilities and obligations incurred in any such proceeding, and the term “Collateral” shall include without limitation all types of property referred to in this Agreement as Collateral and other assets of Borrower acquired after the commencement of any such proceeding, and the Subordinate Interest shall continue to remain subordinate to Bank’s continuing security interest in all Collateral.  Creditor agrees to take such actions and execute such documents in any Insolvency Proceeding, as may be required in order to continue such subordination, and Creditor agrees not to oppose or interfere with any financing of the Borrower by Bank in any such proceeding.

(b)Creditor agrees that in any Insolvency Proceeding, Bank shall be entitled to receive payment in full in cash of all of the Senior Debt prior to the payment of all or any part of the Subordinated Debt, except as set forth in Section 4 of this Agreement, and in order to enable Bank to enforce its rights hereunder in any such action or proceeding, Bank is hereby irrevocably authorized and empowered in its discretion (but without any obligation on its part) to make and present for and on behalf of Creditor such proofs of claim in any Insolvency Proceeding on account of the Subordinated Debt as Bank may deem expedient or proper and to vote such proofs of claim in any such proceeding and to receive and collect any and all dividends or other payments or disbursements made thereon in whatever form the same may be paid or issued and to apply same on account of the Senior Debt.  Creditor further agrees to execute and deliver to Bank such assignments or other instruments as may be required by Bank in order to enable Bank to enforce any and all such claims and to collect any and all dividends or other payments or disbursements which may be made at any time on account of all and any of the Subordinated Debt.

(c)  Until the Senior Debt has been paid and performed in full and all loan agreements and other agreements providing for Bank to provide loans or other financial accommodations to Borrower have terminated, Creditor will not assert, without the written consent of Bank, any claim, motion or objection in respect of the Collateral in connection with any Insolvency Proceeding (other than a claim or assertion that Bank has acted in bad faith or in violation of law) which could otherwise be asserted or raised in connection with such Insolvency Proceeding by Creditor, including without limitation any claim, motion or objection seeking or opposing adequate protection or relief from the automatic stay in respect of the Collateral.

(d)  Without limiting the generality of the foregoing, Creditor agrees that, if an Insolvency Proceeding occurs: (i) 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 holder of an interest in the Collateral; (ii) Bank may provide postpetition financing for the Borrower pursuant to Section 364 of the Bankruptcy Code or other applicable law and 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 holder of an interest in the Collateral, and Creditor shall not oppose any such financing; (iii) if use of cash collateral by the 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 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 and liens of any party, including the interest of the  Creditor, under Section 363 of the Bankruptcy Code, on the basis that the interest of Creditor in the Collateral is impaired by such sale or inadequately protected as a result of such sale, or on any other ground, if Bank has consented to, or supports such sale or disposition of such assets.

(e)  Creditor agrees that it will not initiate or prosecute any claim, action or other proceeding (i) challenging the validity or enforceability of any present or future documents, instruments or agreements between Bank and Borrower or relating to the Senior Debt, (ii) challenging the validity, enforceability or unavoidability of any claim of Bank with respect to the Collateral, (iii) challenging the perfection, enforceability or unavoidability of any liens or security interests of Bank in the Collateral or (iv) asserting any such claims which the Borrower may hold with respect to Bank or the Senior Debt.

(f)  Notwithstanding any other provision of this Section 6, Creditor shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any person objecting to, or otherwise seeking the disallowance of, the claims of Creditor, including without limitation any claims secured by the Collateral, or challenging the perfection, enforceability or unavoidability of the security interest of Creditor. 

7.  Default.  Creditor shall promptly give Bank written notice of any default or event of default under any document, instrument or agreement evidencing, securing or relating to any of the Subordinated Debt, and, until the Senior Debt has been paid and performed in full, Creditor shall not accelerate the maturity of the Subordinated Debt, commence or join in any action or proceeding to recover any amounts due on the Subordinated Debt, commence or join in any involuntary bankruptcy petition or similar judicial proceeding against the Borrower, or collect, take possession of, foreclose upon, or exercise any other rights or remedies with respect to, the Collateral, judicially or non-judicially, or attempt to do any of the foregoing.

8.  No Commitment.  It is understood and agreed that this Agreement shall in no way be construed as a commitment or agreement by Bank to continue financing arrangements with the Borrower, and that Bank may terminate such arrangements at any time, in accordance with Bank’s agreements with the Borrower.  

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9.  No Contest.  Creditor agrees not to contest the validity, perfection, priority or enforceability of Bank’ security interest in the Collateral or the Senior Debt.

10.  Financial Condition of Borrower.  Creditor is presently informed of the financial condition of the Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of non-payment of the Senior Debt and the Subordinated Debt.  Creditor covenants that it will continue to keep itself informed as to the Borrower’s financial condition and all other circumstances which bear upon the risk of non-payment of the Senior Debt and the Subordinated Debt.  Creditor waives any right to require Bank to disclose to it any information which Bank may now or hereafter acquire concerning the Borrower.  

11.  Revivor.  If, after payment of the Senior Debt, the Borrower thereafter becomes liable to Bank on account of the Senior Debt, or any payment made on the Senior Debt shall for any reason be returned by Bank (whether because of any claim of a preference or any other claim or circumstance), this Agreement shall thereupon in all respects become effective with respect to such subsequent or reinstated Senior Debt, without the necessity of any further act or agreement between Bank and Creditor.  

12.  Notices.  All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, or by fax (and if by fax, sent concurrently by one of the other methods provided herein), addressed to the parties at the addresses shown in the heading or after the signatures (as applicable) to this Agreement, or at any other address designated in writing by one party to the other party.  All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid or on the first Business Day of receipt during business hours in the case of notices sent by fax.

13.  General.  Creditor agrees, upon Bank’s request, to execute all such documents and instruments and take all such actions as Bank shall deem reasonably necessary or advisable in order to carry out the purposes of this Agreement, including, without limitation appropriate amendments to financing statements executed by the Borrower in favor of Creditor in order to refer to this Agreement (but this Agreement shall remain fully effective notwithstanding any failure to execute any additional documents or instruments).  The word “indebtedness” is used in this agreement in its most comprehensive sense and includes without limitation any and all present and future loans, advances, credit, debts, obligations, liabilities, representations, warranties, and guarantees, of any kind and nature, absolute or contingent, liquidated or unliquidated, and individual or joint.  Creditor represents and warrants that it has not heretofore transferred or assigned the Subordinated Debt, the Subordinate Interest or any financing statement naming Borrower as debtor and Creditor as secured party, and that it will not do so without prior written notice to Bank and without making such transfer or assignment expressly subject to this Agreement.  This Agreement is solely for the benefit of Bank and Bank’s successors and assigns, and neither the Borrower nor any other person shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement.  All of Bank’s rights and remedies hereunder and under applicable law are cumulative and not exclusive.  This Agreement sets forth in full the terms of agreement between the parties with respect to the subject matter hereof, and may not be modified or amended, nor may any rights hereunder be waived, except in a writing signed by Bank and Creditor.  This Agreement may be executed in multiple counterparts, by different parties signing separate counterparts (which may be by pdf or other electronic means), and all of the same taken together shall constitute one and the same agreement.  Creditor agrees to reimburse Bank, upon demand, for all costs and expenses (including reasonable attorneys’ fees) incurred by Bank in enforcing this Agreement against Creditor, whether or not suit be brought.   In the event of any litigation between the parties based upon or arising out of this Agreement, the prevailing party shall be entitled to recover all of its costs and expenses (including without limitation attorneys fees) from the non-prevailing party. This Agreement shall be binding upon Creditor and its successors and assigns and shall inure to the benefit of Bank and Bank’s successors and assigns.

 14.  Governing Law; Jurisdiction; Venue; Arbitration.  This Agreement and all acts, transactions, disputes and controversies arising hereunder or relating hereto, and all rights and obligations of the parties shall be governed by, and construed in accordance with, the internal laws (and not the conflict of laws rules) of the State of North Carolina.  All disputes, controversies, claims, actions and other proceedings involving, directly or indirectly, any matter in any way arising out of, related to, or connected with, this Agreement or the relationship between Creditor and Bank, and any and all other claims of Creditor against Bank of any kind, shall be brought only in the General Court of Justice of North Carolina sitting in Durham County, North Carolina or the United States District Court for the Middle District of North Carolina, and each consents to the jurisdiction of any such court, and waives any and all rights the party may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding, including, without limitation, any objection to venue or request for change in venue based on the doctrine of forum non conveniens; provided that, notwithstanding the foregoing, nothing herein shall limit the right of Bank to bring proceedings against Creditor in the courts of any other jurisdiction. Creditor 

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consents to service of process in any action or proceeding brought against it by Bank, by personal delivery, or by mail addressed as set forth in this Agreement or by any other method permitted by law.  If the jury waiver set forth in Section 15 below is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Agreement, or any of the transactions contemplated therein shall be settled by final and binding arbitration held in Durham County, North Carolina in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules.  The arbitrator shall apply North Carolina law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof.  Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section.  The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator.  Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.

15.  Mutual Waiver of Jury Trial.  BANK AND CREDITOR EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED.  EACH OF THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTION OR INACTION OF ANY OF THEM.  THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR CREDITOR, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.  IF FOR ANY REASON THE PROVISIONS OF THIS SECTION ARE VOID, INVALID OR UNENFORCEABLE, THE SAME SHALL NOT AFFECT ANY OTHER TERM OR PROVISION OF THIS AGREEMENT, AND ALL OTHER TERMS AND PROVISIONS OF THIS AGREEMENT SHALL BE UNAFFECTED BY THE SAME AND CONTINUE IN FULL FORCE AND EFFECT.

 [Signatures on Next Page]

 

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Creditor:

	
 
	
 
	
New Enterprise Associates 9, Limited Partnership

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
NEA Partners 9, Limited Partnership

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Louis S. Citron

	
 
	
 
	
 Title
	
Chief Legal Officer/Attorney-in-fact

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
Amount of Subordinated Debt: $366,209.37

	
 
	
 
	
Address:
	
c/o New Enterprise Associates

	
 
	
 
	
 
	
1954 Greenspring Dr., Suite 600

	
 
	
 
	
 
	
Timonium, MD 21093

 

Creditor:

	
 
	
 
	
New Enterprise Associates 10, Limited Partnership

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
NEA Partners 10, Limited Partnership

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Louis S. Citron

	
 
	
 
	
 Title
	
Chief Legal Officer/Attorney-in-fact

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
Amount of Subordinated Debt: $133,790.63

	
 
	
 
	
Address:
	
c/o New Enterprise Associates

	
 
	
 
	
 
	
1954 Greenspring Dr., Suite 600

	
 
	
 
	
 
	
Timonium, MD 21093

 

Creditor:

	
 
	
 
	
ARCH Venture Fund VI, L.P.

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
ARCH Venture Partners VI, L.P.

	
 
	
 
	
 
	
Its General Partner

	
 
	
 
	
By:
	
ARCH Venture Partners VI, LLC

	
 
	
 
	
 
	
 Its General Partner

	
 
	
 
	
By:
	
/s/  Robert T. Nelsen

	
 
	
 
	
 
	
Managing Director

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
Amount of Subordinated Debt: $500,000.00

	
 
	
 
	
Address:
	
c/o ARCH Venture Partners

	
 
	
 
	
 
	
5001 Plaza on the Lake Blvd., Suite 103

	
 
	
 
	
 
	
Austin, TX 78746

 

Creditor:

	
 
	
 
	
 

	
 
	
 
	
 
	
/s/ Jon Hopper

	
 
	
 
	
 
	
Jon Hopper, an individual

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
Amount of Subordinated Debt: $500,000.00

	
 
	
 
	
Address:
	
500 W. Bethany Dr., Suite 100

	
 
	
 
	
 
	
Allen, TX 75013

 

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CONSENT AND AGREEMENT OF BORROWER

The undersigned Borrower hereby approves of, agrees to and consents to all of the terms and provisions of the foregoing Subordination Agreement and agrees to be bound thereby, and further agrees that any default or event of default by the Borrower under any present or future instrument or agreement between the Borrower and Creditor shall constitute an immediate default and event of default under all present and future instruments and agreements between the Borrower and Bank.  The Borrower further agrees that, at any time and from time to time, the foregoing Agreement may be altered, modified or amended by Bank and Creditor without notice to or the consent of the Borrower.

Borrower:

	
 
	
 
	
XTERA COMMUNICATIONS, INC.

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Joseph R. Chinnici

	
 
	
 
	
 
	
Joseph R. Chinnici

	
 
	
 
	
 
	
Chief Financial Officer 

Borrower:

	
 
	
 
	
AZEA NETWORKS, INC.

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Joseph R. Chinnici

	
 
	
 
	
 
	
Joseph R. Chinnici

	
 
	
 
	
 
	
Chief Financial Officer 

 

Borrower:

	
 
	
 
	
NEOVUS, INC.

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Joseph R. Chinnici

	
 
	
 
	
 
	
Joseph R. Chinnici

	
 
	
 
	
 
	
Chief Financial Officer 

 

Borrower:

	
 
	
 
	
XTERA ASIA HOLDINGS, LLC

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Joseph R. Chinnici

	
 
	
 
	
 
	
Joseph R. Chinnici

	
 
	
 
	
 
	
Chief Financial Officer 

 

 

Accepted:

Bank:

	
 
	
 
	
Pacific Western Bank

	
 
	
 
	
 
	
 

	
 
	
 
	
By:
	
/s/ Victor DeMarco

	
 
	
 
	
 
	
Victor DeMarco

	
 
	
 
	
 
	
SVP 

 

 

 

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