Exhibit 10.3


SUBORDINATION AGREEMENT


          This
Subordination Agreement is entered into among the signatories hereto (the
“Subordinating Note Holders”) on this 19th day of October 2009. 


          WHEREAS, the Subordinating Note
Holders
were issued certain Amended and Restated Senior Secured Convertible Notes (the
“Senior Secured Notes”) by HC Innovations, Inc., a Delaware corporation
(“HCI”), pursuant to that certain Securities Amendment and Purchase Agreement
(the “SAPA”) dated as of December 23, 2008 by and among HCI and the Note
Holders identified therein;


          WHEREAS, pursuant to that certain
Guarantee
and Amended and Restated Security Agreement (the “Guarantee and Security
Agreement”) dated as of December 23, 2008 by and among HCI, each of the
subsidiaries of HCI identified therein, the Note Holders and the Collateral
Agent identified therein, the Senior Secured Notes are guaranteed by such
subsidiaries of HCI and secured by the collateral identified therein;


          WHEREAS, subsequent to the execution
of the
SAPA, HCI and
Brahma Finance (BVI) Limited (“Brahma”) entered into a Standby Purchase
Agreement dated August 4, 2009, pursuant to which, on the terms and conditions
therein set forth (i) HCI has agreed to conduct an offering (the “Rights
Offering”) of 240,000,000 shares of its common stock, par value $0.001 (“Common
Stock”), to each holder of its Common Stock and each holder of its securities
that are convertible into or exercisable or exchangeable for Common Stock, and
(ii) Brahma has agreed to provide a standby commitment to purchase all of the
shares of Common Stock not purchased pursuant to the Rights Offering;


          WHEREAS, in order to provide HCI with
funding necessary to support its day to day operations prior to the completion
of the Rights Offering, Brahma has agreed to provide interim funding to HCI in
the amount of Two Million Four Hundred Thousand Dollars ($2,400,000), to be
evidenced by a promissory note issued by the Company to Brahma (the “Brahma
Note”);


          WHEREAS, it is a condition to the
funding
of the Brahma Note that, among other matters, the Brahma Note and all rights
relating thereto shall be senior in rank and priority to (i) the Senior Secured
Notes held by the Subordinating Note Holders, and (ii) all other rights relating
to such Senior Secured Notes; and


          WHEREAS, each of the Subordinating
Note
Holders agrees to the subordination of their Senior Secured Notes, and of any
of HCI’s obligations to the Subordinating Note Holders relating thereto, to all
obligations under the Brahma Note and all rights relating thereto, on the terms
hereinafter set forth.


          NOW THEREFORE, in consideration of
the
above, and in consideration of the terms and conditions set forth herein, the
Subordinating Note Holders hereby agree as follows:


          1.          Effective
on the date of this Agreement, the Subordinating Note Holders agree that the
Senior Secured Notes held by the Subordinating Note Holders and all rights
relating thereto shall be wholly subordinated to the Brahma Note and all rights
relating thereto.





          2.          The
Senior Secured Notes held by the Subordinating Note Holders shall be amended to
include the subordination provisions set forth below. All capitalized terms not
defined in this paragraph 2 shall have the meaning assigned to them in the
Senior Secured Notes.


	
  

 	
  

 	
  

 
	
  

 	
 “(a)       Anything
 in this Note to the contrary notwithstanding, the Holder, by acceptance of
 this Note, agrees that the indebtedness evidenced by this Note and all Note
 Obligations shall be subordinate and junior in right of payment, to the
 extent and in the manner set forth hereinafter, to the Senior Debt:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (i)          The
 holders of the Senior Debt shall be entitled to payment in full in cash of
 all amounts constituting the Senior Debt before the Holder of this Note is
 entitled to receive any payment on account of this Note or the Note
 Obligations and, in that connection, unless and until the principal of, and
 interest and premium (if any) on, and all other amounts in respect of, the
 Senior Debt shall have been paid in full in cash: (x) no payment on account
 of the principal amount, or interest on, or any other amount in respect of,
 this Note or the Note Obligations, or any judgment with respect thereto (and
 no payment on account of the purchase or redemption or other acquisition of
 this Note or the Note Obligations) shall be made by or on behalf of the
 Company, and (y) the Holder shall not (A) ask, demand, sue for, take or
 receive from the Company, by set-off or in any other manner, any payment on
 account of the principal amount, or interest on, or any other amount in
 respect of, this Note or the Note Obligations or (B) seek any other remedy
 allowed at law or in equity against the Company for breach of the Company’s obligations
 under this Note or the Note Obligations.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (ii)         Upon
 the occurrence and during the continuance of any Event of Default, the
 holders of Senior Debt shall be entitled to receive payment in full of all
 amounts constituting Senior Debt before the Holder is entitled to receive, or
 make any demand for, any payment on account of this Note or the Note
 Obligations, and to that end the holders of the Senior Debt shall be entitled
 to receive for application in payment thereof any payment or distribution of
 any kind or character, whether in cash or property or securities.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (iii)        If
 any payment or distribution of any character, whether in cash, securities or
 other property, in respect of this Note or the Note Obligations shall (despite
 these subordination provisions) be received by the Holder before the
 principal of, and interest (and premium) on, and all other amounts in respect
 of, all Senior Debt shall have been paid in full in cash, such payment or
 distribution shall be segregated and held in trust for the benefit of, and
 shall be paid over or delivered to, the holders of Senior Debt (or their
 representatives), ratably according to the respective aggregate amounts
 remaining unpaid thereon, to the extent necessary to pay the principal of,
 and interest (and premium) on, and all other amounts in respect of, Senior
 Debt.

 
	
  

 	
  

 	
  

 
	
  

 	
 (b)        The
 subordination provisions contained in “(a)” above are for the benefit of, and
 may be enforced by, any of the holders of the Senior Debt. Such 

 













	
  

 	
  

 
	
  

 	
 subordination
 provisions shall remain in effect notwithstanding that the amount of the
 Senior Debt outstanding may vary from time to time.

 
	
  

 	
  

 
	
  

 	
 (c)        For
 the purposes hereof:

 
	
  

 	
  

 
	
  

 	
 “Senior
 Debt” shall mean (i) the Senior Secured Note issued by the Company to Brahma
 Finance (BVI) Limited on October 19, 2009 in the amount of Two Million Four
 Hundred Thousand Dollars, together with any amounts, whether as principal,
 interest, fees or other amounts, payable thereon, (ii) any extension,
 renewal, replacement or refinancing thereof, (iii) all promissory notes, loan
 agreements, mortgages, indentures and other documents and instruments
 establishing and evidencing the foregoing, (iv) all security agreements,
 pledge agreements and other documents creating a security interest for the
 benefit of the holders of the foregoing, (v) all guarantees of the foregoing
 and all other agreements, instruments and documents entered into pursuant to
 any of the foregoing, in all cases as are in full force and effect (in each case,
 whether now existing or hereafter entered into, and all amendments,
 restatements, supplements and modifications thereto).

 
	
  

 	
  

 
	
  

 	
 “Note
 Obligations” shall mean all rights relating to this Note including, without
 limitation, any amounts, whether as principal, interest, fees or other
 amounts, payable hereon, (ii) any extension, renewal, replacement or
 refinancing hereof, (iii) all promissory notes, loan agreements, mortgages,
 indentures and other documents and instruments establishing and evidencing
 the foregoing, (iv) all security agreements, pledge agreements and other
 documents creating a security interest for the benefit of the holders of the
 foregoing, (v) all guarantees of the foregoing and all other agreements,
 instruments and documents entered into pursuant to any of the foregoing, in
 all cases as are in full force and effect (in each case, whether now existing
 or hereafter entered into, and all amendments, restatements, supplements and
 modifications thereto).”

 


          3.          This
Agreement shall extend to, shall inure to the benefit of and shall be binding
upon the parties hereto and upon all of their respective heirs, successors and
representatives.


          4.          Each
Subordinating Note Holder shall, at any time and from time to time, upon the
written request of any holder of the Brahma Notes, execute and deliver to such
holder such further documents and instruments and do such other acts and things
as such Holder may reasonably request in order to effectuate fully the purpose
and intent of this Agreement.


          5.          All
of the reasonable legal and professional costs incurred by the parties hereto
in connection with the transactions contemplated by this Agreement shall be
paid by the Company.


          6.          This
Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement. Counterparts
transmitted by facsimile may be treated as an original instrument and relied
upon for all purposes as such. This Agreement shall become effective as to each
Subordinating Note Holder upon execution and delivery of this Agreement by such
Subordinating Note Holder, whether or not any other Subordinating Note Holder
shall have executed and delivered this Agreement.





          7.          This
Agreement contains the entire agreement among the parties with respect to the
matters contemplated hereby and supersedes all prior agreements and
undertakings between the parties with respect to such matters. This Agreement
may not be amended, modified or terminated in whole or in part, except in
writing, executed by each of the parties hereto and each of the holders of the
Brahma Note.


          8.          This
Agreement shall be interpreted and performed in accordance with the laws of the
State of New York, and the parties agree, notwithstanding the principles of
conflicts of law, that the internal laws of the State of New York shall govern
and control the validity, interpretation, performance, and enforcement of this
Agreement.


 [Remainder of Page Intentionally Left Blank. Signature Pages Follow.]





          IN WITNESS WHEREOF, the undersigned
have
executed this Subordination Agreement on this 19th day of October
2009.


SUBORDINATING NOTE HOLDERS:


	
  

 	
  

 	
  

 	
  

 	
  

 
	
 WELWYN
 MANAGEMENT COMPANY

 	
  

 	
 JAMES J.
 BIGL REVOCABLE TRUST

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 By:

 	 
 	
  

 	
 By:

 	 

 
	
 Name: Richard DeLater

 	
  

 	
 Name: James J. Bigl

 
	
 Title:

 	
  

 	
 Title:

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 THE
 KENNETH D LAMÉ

 	
  

 	
 PACIFIC
 AERIE HOLDING LLC

 
	
 LIVING
 TRUST

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 
	
 By:

 	 

 	
  

 	
 By:

 	 

 
	
 Name: Kenneth D. Lamé

 	
  

 	
 Name: Jon T. Lamé

 
	
 Title: Manager

 	
  

 	
 Title: Manager

 
	
  

 	
  

 	
  

 
	
 DUSTIN LEFEBVRE



 	
  

 	
 LESLIE S. LEFEBVRE



 
	
  

 	
  

 	
  

 
	 

 

 	
  

 	 

 
	
  

 	
  

 	
  

 
	
 PAUL B. LEFEBVRE

 	
  

 	
 RAYMOND MARKMAN, as Assignee 

 of

 MCCORKLE COURT REPORTERS, 

 INC.

 
	
  

 	
  

 	
  

 
	 

 

 	
  

 	 

 
	
  

 	
  

 	
  

 
	
 VI TILPAK



 	
  

 	
 ADAM LEFEBVRE



 
	
  

 	
  

 	
  

 
	 

 

 	
  

 	 

 
	
  

 	
  

 	
  

 
	
 RYAN LEFEBVRE



 	
  

 	
 JEROME ADLER



 
	
  

 	
  

 	
  

 
	 

 

 	
  

 	 

 









ACKNOWLEDGED BY:


HC INNOVATIONS, INC.


	
  

 	
  

 	
  

 
	
 By:

 	 

 	
  

 
	
 Name: John Randazzo

 	
  

 
	
 Title:
 Interim Chief Executive Officer