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Exhibit 10.10
 
SUBORDINATION AGREEMENT
 
THIS SUBORDINATION AGREEMENT (this “Agreement”), dated as of January 17, 2012,
is made by and among Weintraub Partners, a California general partnership
(“Weintraub”), Greg Vislocky, an individual (“Vislocky”), Baruch Halpern and
Shoshana Halpern, as trustees of the Shoshana Shapiro Halpern Revocable Trust UA
June 13, 2006 (the “Trust”), Brian Rick Delamarter, Harold Guy Delamarter,
Walter John Short and Karen A. Wilson (“Short”), Zanesville Partners Fund, LLC
(“Zanesville”) and The Revocable Trust of Edward L. McMillan Revocable Trust
U/D/T dated February 17, 1999 (the “McMillan Trust”, collectively with
Weintraub, Vislocky, the Trust, Brian Rick Delamarter, Harold Guy Delamarter,
Short, Zanesville, and the McMillan Trust  the “Subordinated Creditors”), and
Hillair Capital Investments, L.P., a Delaware limited partnership (with its
participants, successors and assigns, the “Preferred Lender”, and together with
the Subordinated Creditors, the “Parties”).
 
BACKGROUND
 
A.           Preferred Lender has provided certain capital to NutraCea, a
California corporation (the “Borrower”).  The Subordinated Creditors have made
certain loans to the Borrower, including without limitation, the Subordinated
Notes (as defined below).
 
C.           As a condition to providing capital to the Borrower, the Preferred
Lender has required that the Subordinated Creditors subordinate each of their
security interests granted under the Security Agreement entered into by each of
the Subordinated Creditors and the Borrower dated January 17, 2012. Assisting
the Borrower in obtaining capital from the Preferred Lender and subordinating
its interests pursuant to the terms of this Agreement are in the Subordinated
Creditors’ best interests.
 
D.           In consideration of the capital provided or to be provided by the
Preferred Lender and other financial accommodations that have been made and may
hereafter be made by the Preferred Lender for the benefit of the Borrower, and
for other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the Subordinated Creditors have agreed to the terms
hereof.
 
AGREEMENT
 
1.           Definitions.  As used herein, the following terms have the meanings
set forth below:
 
“Borrower Default” means a Default or Event of Default as defined in the
Purchase Agreement.
 
 “Lien” means any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or
device, including the interest of each lessor under any capitalized lease and
the interest of any bondsman under any payment or performance bond, in, of or on
any assets or properties of a person, whether now owned or hereafter acquired
and whether arising by agreement or operation of law.
 
 
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“Preferred Lender Debt” is used herein in its most comprehensive sense and means
any and all advances, debts, obligations and liabilities of the Borrower to the
Preferred Lender, heretofore, now or hereafter made, incurred or created,
whether voluntary or involuntary and however arising, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
including under any swap, derivative, foreign exchange, hedge, deposit, treasury
management or other similar transaction or arrangement at any time entered into
by the Borrower with the Preferred Lender, and whether the Borrower may be
liable individually or jointly with others, or whether recovery upon such
amounts may be or hereafter become unenforceable.
 
“Purchase Agreement” means that certain OID Senior Secured Convertible
Debentures Purchase Agreement dated as of January 17, 2012, by and between the
Borrower and the Preferred Lender, as the same may hereafter be amended,
supplemented or restated from time to time.
 
“Subordinated Indebtedness” means all obligations arising under the Subordinated
Notes and each and every other debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Subordinated Creditors, whether such debt, liability or obligation now exists or
is hereafter created or incurred, and whether it is or may be direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or joint, several or joint and several.
 
“Subordinated Notes” means the (a) Borrower’s Secured Convertible Promissory
Note, dated as of January 17, 2012, payable to the order of Weintraub in the
original principal amount of Two Hundred Fifty Thousand Dollars ($250,000), (b)
Borrower’s Secured Convertible Promissory Note, dated as of January 17, 2012,
payable to the order of Vislocky in the original principal amount of Five
Hundred Thousand Dollars ($500,000), (c) Borrower’s Secured Convertible
Promissory Note, dated as of January 17, 2012, payable to the order of Brian
Rick Delamarter in the original principal amount of Five Hundred Thousand
Dollars ($500,000), (d) Borrower’s Secured Convertible Promissory Note, dated as
of January 17, 2012, payable to the order of Harold Guy Delamarter in the
original principal amount of Two Hundred Fifty Thousand Dollars ($250,000), (e)
Borrower’s Secured Convertible Promissory Note, dated as of January 17, 2012,
payable to the order of Walter John Short and Karen A. Wilson in the original
principal amount of Twenty Five Thousand Dollars ($25,000), (f) Borrower’s
Secured Convertible Promissory Note, dated as of January 17, 2012, payable to
the order of Zanesville Partners Fund, LLC in the original principal amount of
Fifty Thousand Dollars ($50,000),  (g) Borrower’s Secured Convertible Promissory
Note, dated as of January 17, 2012, payable to the order of Baruch Halpern And
Shoshana Halpern, as Trustees of the Shoshana Shapiro Halpern Revocable Trust UA
June 13, 2006 in the original principal amount of Two Million Five Hundred
Thousand Dollars ($2,500,000)and (h) Borrower’s Secured Convertible Promissory
Note, dated as of January 17, 2012, payable to the order of The Revocable Trust
of Edward L. McMillan Revocable Trust U/D/T dated February 17, 1999 in the
original principal amount of Twenty Five Thousand Dollars ($25,000),  together
with all renewals, extensions and modifications thereof and any note or notes
issued in substitution therefor.
 
 
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2.           Subordination.  The payment of all of the Subordinated Indebtedness
is hereby expressly subordinated to the extent and in the manner hereinafter set
forth to the payment in full of the Preferred Lender Debt; and regardless of any
priority otherwise available to the Subordinated Creditors by law or by
agreement, and any Lien claimed therein by the Subordinated Creditors shall be
and remain fully subordinate for all purposes to the rights of the Preferred
Lender therein for all purposes whatsoever. The Subordinated Indebtedness shall
continue to be subordinated to the Preferred Lender Debt even if the Preferred
Lender Debt is deemed subordinated, avoided or disallowed under the United
States Bankruptcy Code or other applicable law.
 
3.           Principal Payments.  Except as set forth in Section 6, until all of
the Preferred Lender Debt has been paid in full, the Subordinated Creditors
shall not, without the Preferred Lender’s prior written consent, demand, receive
or accept any principal payment from the Borrower in respect of the Subordinated
Indebtedness, or exercise any right of or permit any setoff in respect of the
Subordinated Indebtedness.
 
4.           Interest Payments.  A Subordinated Creditor may demand, receive and
accept regularly scheduled payments of interest in respect of the Subordinated
Indebtedness; provided, that without the Preferred Lender’s prior written
consent, neither Subordinated Creditor shall demand, receive or accept any
interest payment from the Borrower in respect of the Subordinated Indebtedness
so long as any Borrower Default exists or if a Borrower Default will occur as a
result of or immediately following such interest payment.
 
5.           Receipt of Prohibited Payments.  Each Subordinated Creditor agrees
that if the Subordinated Creditor receives any payment on the Subordinated
Indebtedness that the Subordinated Creditor is not entitled to receive under the
provisions of this Agreement, the Subordinated Creditor will hold the amount so
received in trust for the Preferred Lender and will forthwith turn over such
payment to the Preferred Lender in the form received (except for the endorsement
of the Subordinated Creditor where necessary) for application to then-existing
Preferred Lender Debt (whether or not due), in such manner of application as the
Preferred Lender may deem appropriate.  If a Subordinated Creditor exercises any
right of setoff that the Subordinated Creditor is not permitted to exercise
under the provisions of this Agreement, the Subordinated Creditor will promptly
pay over to the Preferred Lender, in immediately available funds, an amount
equal to the amount of the claims or obligations offset.  If a Subordinated
Creditor fails to make any endorsement required under this Agreement, the
Preferred Lender, or any of its officers or employees or agents on behalf of the
Preferred Lender, is hereby irrevocably appointed as the attorney-in-fact (which
appointment is coupled with an interest) for such Subordinated Creditor to make
such endorsement in the Subordinated Creditor’s name.
 
 
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6.           Action on Subordinated Indebtedness.  Each of the Subordinated
Creditors agrees not to commence any action or proceeding against the Borrower
to recover all or any part of the Subordinated Indebtedness, or join with any
creditor (unless the Preferred Lender shall so join) in bringing any proceeding
against the Borrower under any bankruptcy, reorganization, readjustment of debt,
arrangement of debt receivership, liquidation or insolvency law or statute of
the federal or any state government, or take possession of, sell, or dispose of
any Collateral, or exercise or enforce any right or remedy available to a
Subordinated Creditor with respect to any such Collateral, unless and until the
Preferred Lender Debt has been paid in full. Notwithstanding anything to the
contrary set forth in this Section 6, if Borrower’s obligations to Preferred
Lender are not fully paid and satisfied, and Preferred Lender has not initiated
a foreclosure or other action against Borrower, upon five (5) business days’
prior written notice to Preferred Lender after expiration of the Standstill
Period, Subordinated Creditors may exercise any rights or remedies they may have
against Borrower whether by judicial or non-judicial foreclosure or otherwise
provided that the receipt of any payments by Subordinated Creditors shall be
paid over to the Preferred Lender, in immediately available funds, until payment
in full of the obligations to the Preferred Lender. “Standstill Period” means
the period beginning on the occurrence of an event of default under the
agreements between the Subordinated Creditors and Borrower and ending on the
date that is six (6) months following the date after the Subordinated Creditors
shall have given notice to Preferred Lender and Borrower that such event of
default shall have occurred and be continuing and of the intent of the
Subordinated Creditors to exercise their rights and remedies.
 
7.           Action Concerning Collateral.
 
(a)           Notwithstanding any Lien now held or hereafter acquired by the
Subordinated Creditors, the Preferred Lender may take possession of, sell,
dispose of, and otherwise deal with all or any part of any collateral of the
Subordinated Creditor, and may enforce any right or remedy available to it with
respect to the Borrower or such collateral, all without notice to or consent of
the Subordinated Creditors except as specifically required by applicable law.
 
(b)           In addition, and without limiting the generality of the foregoing,
if (i) a Borrower Default has occurred and is continuing, (ii) the Borrower or
the Preferred Lender intends to sell or otherwise dispose of any collateral of
the Secured Creditors to an unrelated third party outside the ordinary course of
business, (iii) Preferred Lender has given written notice thereof to the
Subordinated Creditors, and (iv) the Subordinated Creditors have failed, within
ten (10) days after receipt of such notice, to purchase for cash the Preferred
Lender Debt for the full amount thereof, the Subordinated Creditors shall be
deemed to have consented to such sale or disposition, to have released any Lien
it may have in such collateral and to have authorized the Preferred Lender or
its agents to file partial releases (and any related financing statements such
as “in lieu” financing statements under Part 7 of Article 9 of the Uniform
Commercial Code) with respect to such Collateral.
 
(c)           The Preferred Lender shall have no duty to preserve, protect, care
for, insure, take possession of, collect, dispose of, or otherwise realize upon
any of the assets of Borrower, whether or not they comprise collateral for a
Secured Creditor, and in no event shall the Preferred Lender be deemed a
Subordinated Creditor’s agent with respect to any assets of Borrower.  All
proceeds received by the Preferred Lender with respect to any of Borrower’s
assets may be applied, first, to pay or reimburse the Preferred Lender for all
costs and expenses (including reasonable attorneys’ fees) incurred by the
Preferred Lender in connection with the collection of such proceeds, and,
second, to any Preferred Lender Debt in any order that it may choose.
 

 
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8.           Bankruptcy and Insolvency.  In the event of any receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization
or arrangement with creditors, whether or not pursuant to bankruptcy law, the
sale of all or substantially all of the assets of the Borrower, dissolution,
liquidation or any other marshalling of the assets or liabilities of the
Borrower, the Subordinated Creditors will file all claims, proofs of claim or
other instruments of similar character necessary to enforce the obligations of
the Borrower in respect of the Subordinated Indebtedness and will hold in trust
for the Preferred Lender and promptly pay over to the Preferred Lender in the
form received (except for the endorsement of the Subordinated Creditors where
necessary) for application to the then-existing Preferred Lender Debt, any and
all moneys, dividends or other assets received in any such proceedings on
account of the Subordinated Indebtedness, unless and until the Preferred Lender
Debt has been paid in full. If any Subordinated Creditors shall fail to take any
such action, the Preferred Lender, as attorney-in-fact for the Subordinated
Creditors, may take such action on the Subordinated Creditor’s behalf.  The
Subordinated Creditors each hereby irrevocably appoint the Preferred Lender, or
any of its officers or employees on behalf of the Preferred Lender, as the
attorney-in-fact for the Subordinated Creditor (which appointment is coupled
with an interest) with the power but not the duty to demand, sue for, collect
and receive any and all such moneys, dividends or other assets and give
acquittance therefor and to file any claim, proof of claim or other instrument
of similar character, to vote claims comprising Subordinated Indebtedness to
accept or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension and to take such other action in the
Preferred Lender’s own name or in the name of the Subordinated Creditor as the
Preferred Lender may deem necessary or advisable for the enforcement of the
agreements contained herein; and each of the Subordinated Creditors will execute
and deliver to the Preferred Lender such other and further powers-of-attorney or
instruments as the Preferred Lender may request in order to accomplish the
foregoing. If the Preferred Lender desires to permit the use of cash collateral
or to provide post-petition financing to the Borrower, the Subordinated
Creditors shall not object to the same or assert that its interests are not
being adequately protected.
 
9.           Restrictive Legend; Transfer of Subordinated Indebtedness.  The
Subordinated Creditors will cause the Subordinated Notes and all other notes,
bonds, debentures or other instruments evidencing the Subordinated Indebtedness
or any part thereof to contain a specific statement (in the form attached hereto
as Exhibit A) thereon to the effect that the indebtedness thereby evidenced is
subject to the provisions of this Agreement, and the Subordinated Creditors will
mark their books conspicuously to evidence the subordination effected
hereby.  The Subordinated Creditors represent and warrant to the Preferred
Lender that each is the lawful holder of each such Subordinated Creditor’s
Subordinated Note and has not transferred any interest therein to any other
person or entity.  In the event of the transfer in any manner of the
Subordinated Indebtedness by any Subordinated Creditor to any person who is not
a party to this Agreement, the transferring party shall obtain, as a condition
to and upon such transfer, the written consent of the transferee to become a
party to and be bound by the terms of this Agreement and to the placing of the
legend as required by this Section 9 upon the notes, bonds, debentures or other
instruments evidencing the Subordinated Indebtedness.
 
 
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10.           Continuing Effect.  This Agreement shall constitute a continuing
agreement of subordination, and the Preferred Lender may, without notice to or
consent by the Subordinated Creditors, and except as set forth in Section 2,
modify any term of the Preferred Lender Debt in reliance upon this
Agreement.  Without limiting the generality of the foregoing, the Preferred
Lender may, at any time and from time to time, without the consent of or notice
to the Subordinated Creditors and without incurring responsibility to the
Subordinated Creditors or impairing or releasing any of the Preferred Lender’s
rights or any of the Subordinated Creditor’s obligations hereunder:
 
(a)           change the amount of payment or extend the time for payment or
renew or otherwise alter the terms of any Preferred Lender Debt or any
instrument evidencing the same in any manner (except as set forth in Section 2);
 
(b)           if applicable, sell, exchange, release or otherwise deal with any
property at any time securing payment of all or any portion of the Preferred
Lender Debt or any part thereof;
 
(c)           release anyone liable in any manner for the payment or collection
of the Preferred Lender Debt or any part thereof;
 
(d)           exercise or refrain from exercising any right against the Borrower
or any other person (including the Subordinated Creditors); and
 
(e)           apply any sums received by the Preferred Lender, by whomsoever
paid and however realized, to the Preferred Lender Debt in such manner as the
Preferred Lender shall deem appropriate.
 
11.           No Commitment.  None of the provisions of this Agreement shall be
deemed or construed to constitute or imply any commitment or obligation on the
part of the Preferred Lender to make any future loans or other extensions of
credit or financial accommodations to the Borrower.
 
The Subordinated Creditors hereby waive any and all right to require the
marshalling of assets in connection with the exercise of any of the Preferred
Lender’s remedies permitted by applicable law or agreement.
 
12.           Notice.
 
(i)           Any notice or other communication required or permitted to be
given or made under this Agreement (i) shall be in writing, (ii) may be
delivered by hand delivery, First Class U.S. Mail (regular, certified,
registered or expedited delivery), FedEx, UPS Overnight, Airborne or other
nationally recognized delivery service, fax, or electronic transmission, and
(iii) shall be delivered or transmitted to the appropriate address as set forth
below.
 
(ii)           Each notice or other communication shall be delivered or
addressed to a party at its address set forth below.  A party’s address for
notice may be changed from time to time by notice given to the other party.
 
If to the Subordinated Creditors:
 
Walter John Short and Karen A. Wilson
__________________
__________________
Attention:
Telephone:
Facsimile:
 
Greg Vislocky
7700 NE Parkway Drive, Suite 300
Vancouver, WA  98662
Telephone:  (360) 735-7155 x257
Facsimile:
 

Brian Rick Delamarter
3396 Stoneridge Lane
Los Angeles, CA 90077
Telephone:  (818) 906-2709
Facsimile:
 
Harold Guy Delamarter
24411 NE 128th Street
Brush Prairie, WA 98606
Telephone:  (360) 606-6163
Facsimile:
 
 
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Weintraub Partners
400 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attention:  Chris Chediak
Telephone: (916) 558-6000
Facsimile:  (916) 446-1611
 
The Shoshana Shapiro Halpern Revocable Trust UA June 13, 2006
__________________
__________________
Attention:  Baruch Halpern and Shoshana Halpern, Trustees
Telephone:
Facsimile:
 
Zenesville Partners Fund, LLC
5179 Brolio Way
Naples, FL  34110
Attention:  Jim Lintzenich
Telephone:
Facsimile:
 
The Revocable Trust of Edward L. McMillan Revocable Trust
U/D/T dated February 17, 1999
105 North Third Street, Suite 204
Greenville, IL  62246
Attention:  Ed McMillan
Telephone:
Facsimile:
 
If to the Preferred Lender:
 
Hillair Capital Investments L.P.
___________________
 
__________________
Attention:
Telephone:
Facsimile:
 

 
(iii)           Absent fraud or manifest error, a receipt signed by the
addressee or its authorized representative, a certified or registered mail
receipt, a signed delivery service confirmation or a fax or e-mail confirmation
of transmission shall constitute proof of delivery.  Any notice actually
received by the addressee shall constitute delivery notwithstanding the failure
to comply with any provisions of this subsection.
 
 
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(iv)           A notice delivered by regular First Class U.S. Mail shall be
deemed to have been delivered on the third (3rd) business day after its
post-mark.  Any other notice shall be deemed to have been received on the date
and time of the signed receipt or confirmation of delivery or transmission
thereof, unless that receipt or confirmation date and time is not a business day
or is after 5:00 p.m. local time on a business day, in which case such notice
shall be deemed to have been received on the next succeeding business day.
 
13.           Conflict in Agreements.  If the subordination provisions of any
instrument evidencing Subordinated Indebtedness conflict with the terms of this
Agreement, the terms of this Agreement shall govern the relationship between the
Preferred Lender and the Subordinated Creditors.
 
14.           No Waiver.  No waiver shall be deemed to be made by any Party of
any of its rights hereunder unless the same shall be in writing signed on behalf
of the Party, and each such waiver, if any, shall be a waiver only with respect
to the specific matter or matters to which the waiver relates and shall in no
way impair the rights of the Party or the obligations of the other Parties in
any other respect at any time.
 
15.           Binding Effect; Acceptance.  This Agreement shall be binding upon
the Parties and their respective heirs, legal representatives, successors and
assigns and shall inure to the benefit of the Parties and their respective
participants, successors and assigns irrespective of whether this or any similar
agreement is executed by any other creditor of the Borrower.  Notice of
acceptance of this Agreement or of reliance upon this Agreement is hereby waived
by each of the Parties.
 
16.           Miscellaneous.  The paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.  This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
 
17.           Governing Law; Consent to Jurisdiction and Venue.  This Agreement
shall be governed by and construed in accordance with the substantive laws
(other than conflict laws) of the State of California.  Each party consents to
the personal jurisdiction of the state and federal courts located in the State
of California in connection with any controversy related to this Agreement,
waives any argument that venue in any such forum is not convenient, and agrees
that any litigation initiated by any of them in connection with this Agreement
may be venued in either the state or federal courts located in Sacramento
County, California.
 
18.           Waiver of Jury Trial.  To the extent permissible under law, the
parties hereto, each after consulting or having had the opportunity to consult
with legal counsel, knowingly, voluntarily and intentionally waive any right
they may have to a trial by jury in any litigation.  No party shall seek to
consolidate, by counterclaim or otherwise, any litigation in which a jury trial
has been waived with any other litigation in which a jury trial cannot be or has
not been waived.  This provision shall be deemed to be enforceable to the
fullest extent of the law as it may exist at the time any litigation is
commenced.
 
 [Remainder of Page Intentionally Left Blank; Signature Pages Follow]
 
 
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The Subordinated Creditors have executed this Agreement as of the date and year
first above-written.
 

/s/ Greg Vislocky
(Greg Vislocky)

/s/ Brian Rick Delamarter
(Brian Rick Delamarter)

/s/ Harold Guy Delamarter
(Harold Guy Delamarter)

Walter John Short and Karen A. Wilson

/s/ W. John Short
(Walter John Short)

/s/ Karen A. Wilson
(Karen A. Wilson)

The Shoshana Shapiro Halpern Revocable Trust UA June 13, 2006

 
By:
/s/ Baruch Halpern

 
Name: 
Baruch Halpern

 
Its: 
Trustee

 
By: 
/s/ Shoshana Halpern

 
Name: 
Shoshana Halpern

 
Its: 
Trustee

Weintraub Partners

 
By:
/s/ Chris Chediak

 
Name:
Chris Chediak

 
Title:
Partner

Zanesville Partners Fund, LLC

 
By:
James C. Lintzenich

 
Name:
James C. Lintzenich

 
Title:
Member

The Revocable Trust of Edward L. McMillan Revocable Trust U/D/T dated February
17, 1999

 
By:
/s/ Edward L. McMillan

 
Name:
Edward L. McMillan

 
Its:
Trustee

 
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ACKNOWLEDGMENT BY BORROWER
 
The undersigned, being the Borrower referred to in the foregoing Agreement,
hereby (i) acknowledges receipt of a copy thereof, (ii) agrees to all of the
terms and provisions thereof, (iii) agrees to and with the Preferred Lender that
it shall make no payment on the Subordinated Indebtedness that the Subordinated
Creditors would not be entitled to receive under the provisions of the
Agreement, (iv) agrees that any such payment will constitute a default under the
Preferred Lender Debt, and (v) agrees to mark its books conspicuously to
evidence the subordination of the Subordinated Indebtedness effected hereby.
 

 
NutraCea
         
By    W. John Short
     
Name: W. John Short
     
Title: Chief Executive Officer

 
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EXHIBIT A
 
Legend
 
“THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY
_____________ IN FAVOR OF THE HILLAIR CAPITAL INVESTMENTS, L.P., DATED
______________, 2012.”
 

Exhibit A-1

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