Exhibit 10.3

SUBORDINATION AGREEMENT

This Subordination Agreement (the “Agreement”) is made as of October 3, 2012, by
and between NORTHEAST ENERGY PARTNERS, LLC, a Connecticut limited liability
company (the “Creditor”), and SILICON VALLEY BANK, a California-chartered bank,
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 and with a loan production office located at 275 Grove Street,
Suite 2-200, Newton, Massachusetts 02466 (“Bank”).

Recitals

A. WORLD ENERGY SOLUTIONS, INC., a Delaware corporation (“World Energy”), with
offices located at 446 Main Street, Worcester, Massachusetts 01608, and WORLD
ENERGY SECURITIES CORP., a Massachusetts securities corporation with offices
located at 446 Main Street, Worcester, Massachusetts 01608 (together with World
Energy, individually and collectively, jointly and severally, the “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 World Energy,
and/or may extend loans or other credit accommodations to Borrower from time to
time.

C. To induce Bank to continue 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: (i) all of Borrower’s
indebtedness 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 the 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 Loan
and Security Agreement dated as of September 8, 2008, between Borrower and Bank,
as amended by a certain First Loan Modification Agreement, dated as of
September 30, 2009, as further amended by a certain Second Loan Modification
Agreement, dated as of March 8, 2011, as further amended by a certain Third Loan
Modification and Waiver Agreement, dated as of March 2, 2012 and as further
amended by a certain Fourth Loan Modification Agreement, dated as of the date
hereof (as may be further amended, modified, restated, replaced or supplemented
from time to time, the “Loan Agreement”), shall at all times be senior to the
security interest of Creditor.

2. All Subordinated Debt is subordinated in right of payment to all obligations
of Borrower to Bank now existing or hereafter arising, together with all costs
of collecting such obligations (including attorneys’ fees), including, without
limitation, all interest accruing after the commencement by or against Borrower
of any bankruptcy, reorganization or similar proceeding, and all obligations
under the Loan Agreement and/or any other agreement in connection with the
provision by Bank to Borrower of certain products and/or credit services
facilities, including, without limitation, any letters of credit, guidance
facilities, 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 (such
obligations, collectively, the “Senior Debt”).

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3. Creditor will not demand or 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 the Collateral, 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
(i) the Senior Debt is fully paid in cash, and (ii) Bank has no commitment or
obligation to lend any further funds to Borrower, and (iii) all financing
agreements between Bank and Borrower are terminated. The foregoing
notwithstanding, provided that an Event of Default, as defined in the Loan
Agreement, has not occurred and is not continuing and would not exist
immediately after such payment, Creditor shall be entitled to receive (i) each
regularly scheduled, non-accelerated payment of non-default interest or
principal as and when due and payable in accordance with the terms of the
Promissory Note made by World Energy, in the original principal amount equal to
Two Million Dollars ($2,000,000), dated as of the date hereof and attached as
Exhibit A hereto, as in effect on the date hereof or as modified with the
written consent of the Bank; and (ii) each regularly scheduled Earnout Payment
as and when due and payable in accordance with the terms of Section 1.7 of that
certain Asset Purchase Agreement by and among World Energy and Creditor, entered
into as of October 3, 2012, an executed copy of which is attached as Exhibit B
hereto. 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 except as may be permitted in the Loan Agreement.

4. 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.

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. 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 thirty (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

 

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  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.”

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.

 

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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.

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 Commonwealth of Massachusetts, without giving effect to conflicts of
laws principles. Creditor and Bank submit to the exclusive jurisdiction of the
state and federal courts located in Boston, Massachusetts 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 a sealed
instrument under the laws of the Commonwealth of Massachusetts, as of the date
first above written.

 

“Creditor”           “Bank”   NORTHEAST ENERGY PARTNERS, LLC     SILICON VALLEY
BANK By:  

/s/ John Hardy

      Name:  

John Hardy

   

By:

 

/s/ Darren Gastrock

Title:  

A Member

   

Name:

 

Darren Gastrock

      Title:  

Relationship Manager

The undersigned acknowledge and approve the terms of this Agreement.

 

“Borrower”   WORLD ENERGY SOLUTIONS, INC.

By  

/s/ James Parslow

Name:  

James Parslow

Title:  

CFO

WORLD ENERGY SECURITIES CORP.

By  

/s/ James Parslow

Name:  

James Parslow

Title:  

Treasurer

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Exhibit A

(See attached Subordinated Debt documents.)

 

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Exhibit B

(See attached Asset Purchase Agreement.)

 

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