Exhibit 10.3

SUBORDINATION AGREEMENT

Wells Fargo Bank, National Association, as Senior Agent

110 East Broward Boulevard, Suite 1100

Ft. Lauderdale, Florida 33301

 

  Re: LIGHTING SCIENCE GROUP CORPORATION, ET AL.

The total indebtedness of LIGHTING SCIENCE GROUP CORPORATION, a Delaware
corporation (“Lighting Science”), to LSGC HOLDINGS II LLC, a Delaware limited
liability company (“Junior Creditor”), existing on the date hereof is itemized
as follows:

 

JUNIOR CREDITOR

 

PRESENT

UNPAID BALANCE

 

COLLATERAL (if

none, state “None”)

LSGC Holdings II LLC

  $6,500,000   None

Lighting Science, the other Borrowers (as defined in the Loan Agreement (as
hereinafter defined)) and Guarantors (as defined below) (Borrowers and
Guarantors hereinafter referred to collectively as “Debtors”) have entered into
a secured revolving credit facility with Wells Fargo Bank, National Association,
in its capacity as agent (in such capacity, “Senior Agent”) pursuant to the Loan
Agreement acting for and on behalf of the Secured Parties (as defined in the
Loan Agreement), and the parties to the Loan Agreement as lenders (individually,
each a “Senior Lender” and collectively, “Senior Lenders”; and together with
Senior Agent and the other Secured Parties, individually, each a “Senior
Creditor” and collectively, “Senior Creditors”), pursuant to which such Senior
Creditors have made, and from time to time may make, loans and provide other
financial accommodations to Borrowers that are guaranteed by Guarantors and
secured by substantially all of the assets of Debtors, as more particularly set
forth in the Loan and Security Agreement, dated November 22, 2010, by and among
Borrowers, Biological Illumination, LLC, a Delaware limited liability company
(“Biological”), LSGC, LLC, a Delaware limited liability company (“LSGC”, and
together with Biological and any other Person that at any time after the date
hereof becomes a Guarantor, each individually a “Guarantor” and collectively,
“Guarantors”), Senior Agent and Senior Lenders (as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the “Loan Agreement”), and the other Financing Agreements (as defined
in the Loan Agreement) (the Loan Agreement and the other Financing Agreements
hereinafter referred to collectively as “Senior Financing Agreements”).

Debtors have requested that Senior Agent and Senior Lenders continue to make
loans and provide other financial accommodations to or for the benefit of
Borrowers, and Senior Agent and Senior Lenders are willing to do so only upon
the execution of this Subordination Agreement (this “Agreement”). Capitalized
terms not otherwise defined herein shall have the respective meanings ascribed
thereto in the Loan Agreement.

IT IS THEREFORE AGREED:

1. Junior Creditor hereby subordinates payment of all Borrowers’ and Guarantors’
present and future Obligations (as defined below) to Junior Creditor (“Junior
Debt”) to the full payment of all of Borrowers’ Obligations to Senior Creditors
(“Senior Debt”), as more particularly set forth in the Senior

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Financing Agreements. “Obligations” shall mean all charges, commissions,
principal, interest, fees, expenses and all other obligations, liabilities and
indebtedness of every kind, nature and description, direct or indirect, absolute
or contingent, matured or unmatured, now existing or hereafter incurred or
created, both before and after the commencement of any case under Title 11 of
the United States Code, as amended (the “Bankruptcy Code”), including the
payment of interest, fees, costs, expenses and other amounts which would accrue
and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case.

2. Debtors and Junior Creditor agree that until all Senior Debt is indefeasibly
paid to Senior Creditors: (a) Debtors shall not, directly or indirectly, make
any payment of any Junior Debt and that no collateral or guarantees or proceeds
thereof will be enforced or applied to any Junior Debt, except in favor of
Senior Creditors as provided herein; (b) that Junior Creditor will not accept
payment of or seek to collect any Junior Debt or join in any petition or
otherwise initiate against Debtors any proceeding described in Section 5 hereof;
(c) that no collateral will now or hereafter be granted for any Junior Debt;
(d) that Debtors shall not directly or indirectly make any loan, gift or
distribution of any assets to Junior Creditor; and (e) that no Junior Debt will
be waived, forgiven, cancelled or converted to or exchanged for capital stock of
any Debtor unless Senior Agent shall have received not less than one
(1) business days prior written notice of the intention of Debtors and Junior
Creditor to agree to any of the foregoing, which notice shall describe in
reasonable detail and specificity the terms and conditions of the proposed
transaction, including, without limitation, the date of the proposed transaction
and the amount of Junior Debt to be waived, forgiven, cancelled or converted to
or exchanged for capital stock.

3. As security for payment of all Senior Debt and for performance by Junior
Creditor of this Agreement, Junior Creditor hereby assigns to Senior Agent, for
itself and on behalf of Senior Creditors, all Junior Debt, subject to the rights
of Junior Creditor to receive payments in accordance with Section 2 above, and
in furtherance thereof, Junior Creditor is endorsing or assigning and delivering
to Senior Agent, for itself and on behalf of Senior Creditors, with this
Agreement all evidence of now existing Junior Debt. Debtors and Junior Creditor
agree to notify Senior Agent in writing immediately of the creation of any
Junior Debt; and agree to issue and endorse or assign to Senior Agent, for
itself and on behalf of Senior Creditors (in the form required by Senior Agent)
all evidence of Junior Debt, and to give Senior Agent such Financing Statements
under the Uniform Commercial Code as Senior Agent requires. In the event any
endorsement or assignment is omitted, Senior Agent, for itself and on behalf of
Senior Creditors, is hereby irrevocably authorized on behalf of Junior Creditor
to make the same. However, no specific endorsement or assignment shall be
necessary to subject any Junior Debt to the assignment thereof contained in this
Agreement. Debtors and Junior Creditor shall make appropriate notations in their
books to show the subordinate character of all Junior Debt, and will make such
books available for Senior Agent, for itself and on behalf of Senior Creditors,
to examine during regular business hours, and deliver Financial Statements to
Senior Agent, for itself and on behalf of Senior Creditors, upon request.

4. Debtors and Junior Creditor warrant to Senior Creditors that Junior Creditor
is and will be the exclusive legal and beneficial owner of all Junior Debt, and
that none of the Junior Debt is or will be subject to any lien, security
interest, financing statement, subordination, assignment or other claim, except
in favor of Senior Creditors (and Debtors and Junior Creditor agree to notify
Senior Agent immediately in writing of any claims made or adverse occurrence
pertaining to any Junior Debt).

5. At any meeting of creditors of Debtors or in the event of any proceedings,
voluntary or involuntary, for the distribution, division or application of all
or part of the assets of Debtors or the

 

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proceeds thereof, whether such proceedings be for the liquidation, dissolution
or winding up of any Debtor or its business, receivership, insolvency or
bankruptcy proceedings, such as an assignment for the benefit of creditors or
proceedings by or against any Debtor for relief under any bankruptcy,
reorganization or insolvency law or any law relating to the relief of debtors,
reorganization, arrangement, composition or extension or otherwise, if all the
Senior Debt has not been paid in full at the time, Senior Agent, for itself and
on behalf of Senior Creditors, is hereby irrevocably authorized at any such
meeting or in any such proceeding:

(a) To enforce claims comprising any of the Junior Debt either in its own name
or the name of Junior Creditor, by proof of debt, proof of claim, suit or
otherwise;

(b) To collect any assets of Debtors distributed, divided or applied by way of
dividend or payment, or any securities issued, on account of any of the Junior
Debt and apply the same, or the proceeds of any realization upon the same, that
Senior Agent, for itself and on behalf of Senior Creditors, in its discretion
elects to accept, to any Senior Debt;

(c) To vote claims comprising any of the Junior Debt to accept or reject any
plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; and

(d) To take generally any action in connection with any such meeting or
proceeding which Junior Creditor might otherwise take.

6. Should any payment of any Junior Debt which is prohibited by this Agreement
be received by Junior Creditor, such payment shall be held in trust by Junior
Creditor for the benefit of Senior Creditors and shall be delivered forthwith to
Senior Agent, for itself and on behalf of Senior Creditors, for application to
Senior Debt, in the form received with any necessary endorsement or assignment.
Junior Creditor shall not be subrogated to, or be entitled to any assignment or
re-assignment of any Senior Debt or Junior Debt, or of any collateral for or
guarantees or evidences of any Senior Debt or Junior Debt, until all Senior Debt
is indefeasibly paid to Senior Creditors.

7. Junior Creditor and Debtors each waive notice of acceptance hereof by Senior
Creditors, and waive notice of and consent to the creation of any Senior Debt,
extensions granted or other action taken by Senior Creditors in reliance hereon,
the taking or releasing of collateral or any obligors or guarantors for the
payment of Senior Debt, the releasing of any other subordinating creditor; and
Junior Creditor and Debtors each waive demand, presentment, protest, notice of
protest and of default and any and all other notices to which any of them might
otherwise be entitled. No failure or delay by Senior Creditors to exercise any
right granted herein, or in any other agreement or by law shall constitute a
waiver of such right or of any other right. Debtors and Junior Creditor each
agree to execute and deliver to Senior Creditors such additional documents and
to take such further action as Senior Creditors may hereafter require.

8. Any waiver, permit, consent or approval by Senior Creditors of or under any
provision, condition or covenant to this Agreement must be in writing and shall
be effective only to the extent it is set forth in writing and as to the
specific facts or circumstances covered thereby. Any amendment of this Agreement
must be in writing and signed by Senior Creditors.

 

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9. This Agreement shall be binding upon Junior Creditor and Debtors and their
respective successors and assigns and shall inure to the benefit of Senior
Creditors and their successors, participants and assigns.

10. This Agreement shall be applicable both before and after the filing of any
petition by or against Debtors under the Bankruptcy Code and all converted or
succeeding cases in respect thereof, and all references herein to Debtors shall
be deemed to apply to the trustee for Debtors and Debtors as
debtors-in-possession. The relative rights of Senior Creditors in or to any
distributions from or in respect of any collateral or proceeds of collateral,
shall continue after the filing thereof on the same basis as prior to the date
of the petition, subject to any court order approving the financing of, or use
of cash collateral by, Debtors as debtors-in-possession.

11. If any Debtors shall become subject to a case under the Bankruptcy Code and
if as a debtor-in-possession, any Debtors moves for approval of financing to be
provided in good faith by Senior Creditors (individually and collectively, the
“DIP Lender”) under Section 364 of the Bankruptcy Code or the use of cash
collateral with the consent of the DIP Lender under Section 363 of the
Bankruptcy Code or any similar provisions under applicable law, Junior Creditor
agrees that no objection will be raised by Junior Creditor to any such
financing. If any Debtors shall become subject to a case under the Bankruptcy
Code, Junior Creditor agrees that Junior Creditor will not provide to Debtors,
as debtors-in-possession, any financing under Section 364(d) of the Bankruptcy
Code to the extent that Junior Creditor would, in connection with such
financing, be granted a priming or pari passu lien on the pre-petition
collateral of Debtors. For purposes of this Section 11, notice of a proposed
financing or use of cash collateral shall be deemed given when given, in the
manner prescribed by Section 12 hereof.

12. All notices, requests and demands to or upon the respective parties hereto
shall be in writing and shall be deemed duly given, made or received: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next Business Day, one (1) Business Day after sending; and if
mailed by certified mail, return receipt requested, five (5) days after mailing
to the parties at their addresses set forth below (or to such other addresses as
the parties may designate in accordance with the provisions of this Section):

 

To Senior Agent:    Wells Fargo Bank, National Association    110 East Broward
Boulevard, Suite 1100    Ft. Lauderdale, Florida 33301    Attention: Portfolio
Administrator - Lighting Science    Telephone No.: 954-847-3630    Telecopy No.:
877-489-4711 To Junior Creditor:    LSGC Holdings II LLC    99 River Road    Cos
Cob, Connecticut 06807    Attention: Daniel Stencel    Telephone No.:
203-869-4400    Telecopy No.: 203-869-6940

 

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To Debtors:    Lighting Science Group Corporation    1227 South Patrick Drive,
Building 2A    Satellite Beach, Florida 32937    Attention: Greg Kaiser, CFO   
Telephone No.: 321-779-5537    Telecopy No.: 321-779-5521

Each of the above parties may change the address(es) to which all notices,
requests and other communications are to be sent by giving written notice of
such address change to the other party in conformity with this Section 12, but
such change shall not be effective until notice of such change has been received
by the other Creditor.

13. Any instrument at any time evidencing the Junior Debt, or any portion
thereof, shall be permanently marked on its face with a legend conspicuously
indicating that payment thereof is subordinate in right of payment to the Senior
Debt and subject to the terms and conditions of this Agreement, and the original
of any such instrument shall be delivered to Senior Agent, for itself and on
behalf of Senior Creditors, upon Senior Agent’s request, at any time on or after
the occurrence of an event of default under the Loan Agreement. In the event any
legend or endorsement is omitted, Senior Agent, for itself and on behalf of
Senior Creditors, or any of its officers or employees, is hereby irrevocably
authorized on behalf of Junior Creditor to make the same. No specific legend,
further assignment or endorsement or delivery of notes, guarantees or
instruments shall be necessary to subject any Junior Debt to the subordination
thereof contained in this Agreement.

14. This Agreement may be signed in counterparts, each of which shall be an
original and all of which taken together constitute one agreement. In making
proof of this Agreement, it shall not be necessary to produce or account for
more than one counterpart signed by the party to be charged. Delivery of an
executed counterpart of this Agreement by telefacsimile shall have the same
force and effect as the delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile shall also deliver an original executed counterpart, but the
failure to do so shall not affect the validity, enforceability or binding effect
of this Agreement.

15. The validity, construction and effect of this Agreement shall be governed by
the internal laws of the State of New York, but excluding any principles of
conflicts of law or other rule of law that would cause the application of the
law of any jurisdiction other than the laws of the State of New York.

16. EACH PARTY HERETO HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT SITUATED IN THE STATE OF NEW YORK FOR THE PURPOSES OF ALL
LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER
THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR

 

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INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT,
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY
OR OTHERWISE.

17. This written Agreement is intended by the parties as a final expression of
their agreement and is intended as a complete statement of the terms and
conditions of their agreement with respect to the subject matter hereof.

18. This Agreement is solely for the benefit of the Creditors and their
respective successors, participants and assigns, and no other person shall have
any right, benefit, priority or interest under, or because of the existence of,
this Agreement.

19. Each Creditor has the means to, and shall in the future remain, fully
informed as to the financial condition and other affairs of Debtors and no
Creditor shall have any obligation or duty to disclose any such information to
the other Creditors. Except as expressly set forth in this Agreement, the
parties hereto have not otherwise made to each other nor do they hereby make to
each other any warranties, express or implied, nor do they assume any liability
to each other with respect to: (a) the enforceability, validity, value or
collectability of any of the Senior Debt or the Junior Debt or any guarantee or
security which may have been granted to any of them in connection therewith,
(b) Debtorss’ title to or right to transfer any of the collateral, or (c) any
other matter except as expressly set forth in this Agreement.

20. This Agreement is a continuing agreement and shall remain in full force and
effect until the indefeasible satisfaction in full of all Senior Debt and the
termination of the financing arrangements among Senior Agent and Debtors.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, Senior Agent, Junior Creditor and Debtors have executed and
delivered this Agreement as of this 6th day of May, 2011.

 

SENIOR AGENT: WELLS FARGO BANK, NATIONAL ASSOCIATION By:  

/s/ Wanda Alverio

Name:  

Wanda Alverio

Title:  

Vice President

JUNIOR CREDITOR: LSGC HOLDINGS II LLC By: Pegasus Partners IV, L.P., its sole
member By: Pegasus Investors IV, L.P., its general partner By: Pegasus Investors
IV GP, L.L.C., its general partner By:  

/s/ Richard Weinberg

Name:  

Richard Weinberg

Title:  

Vice President

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

[Signature Page to Subordination Agreement]

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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

GRANTORS: LIGHTING SCIENCE GROUP CORPORATION By:  

/s/ Gregory T. Kaiser

Name:  

Gregory T. Kaiser

Title:  

CFO

BIOLOGICAL ILLUMINATION, LLC By:  

/s/ Fred Maxik

Name:  

Fred Maxik

Title:  

Manager

LSGC, LLC By: Lighting Science Group Corporation, its sole member By:  

/s/ Gregory T. Kaiser

Name:   Gregory T. Kaiser Title:   Assistant Secretary

[Signature Page to Subordination Agreement]