ex10_3.htm


    
      

    

    
      Exhibit
10.3

      


      SUBORDINATION
AGREEMENT

      


      1    THIS SUBORDINATION
AGREEMENT, dated as of
August 17, 2009, is made by Richard P. Kiphart (the “Subordinated
Creditor”), for the benefit of
M&I Business Credit, LLC, a Minnesota limited liability company (with its
participants, successors and assigns, “Lender”).

      


      2    Nature Vision, Inc., a Minnesota
corporation and Nature Vision Operating, Inc., a Minnesota corporation (each a
“Borrower” and
collectively, the “Borrowers”) are now or hereafter may be
indebted to Lender on account of loans or the other extensions of credit or
financial accommodations from Lender to the Borrowers, or to any other person
under the guaranty or endorsement of the Borrowers.

      


      3    The
Subordinated Creditor has made or may make loans or grant other financial
accommodations to one or both Borrowers.

      


      4    As a condition to making any loan or
extension of credit to the Borrowers, Lender has required that the Subordinated
Creditor subordinate the payment of the Subordinated Creditor’s loans and other
financial accommodations to the payment of any and all indebtedness of the
Borrowers to Lender.  Assisting the Borrowers in obtaining credit
accommodations from Lender and subordinating his interests pursuant to the terms of
this Agreement are in the Subordinated Creditor’s best
interest.

      


      5    ACCORDINGLY,
in consideration of the loans and other financial accommodations that have been
made and may hereafter be made by Lender for the benefit of the Borrowers, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Subordinated Creditor hereby agrees as
follows:

      


      6   1.       Definitions.  As used herein, the
following terms have the meanings set forth below:

      


      .1            “Borrower Default” means a Default or Event of Default
as defined in any agreement or instrument evidencing, governing, or issued in
connection with Lender Indebtedness, including, but not limited to, the Credit
Agreement, or any default under or breach of any such agreement or
instrument.

      


      “Collateral” means all
collateral now or hereafter securing payment of Lender Indebtedness, including
all proceeds thereof.

      


      “Credit Agreement” means that
certain Credit and Security Agreement dated November 8, 2007, by and between the
Borrowers and as the same may be amended, supplemented or restated from time to
time.

      


      “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.

      


      “Lender Indebtedness” is used
herein in its most comprehensive sense and means any and all advances, debts,
obligations and liabilities of the Borrowers to 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 Borrowers with
Lender, and whether the Borrowers may be liable individually or jointly with
others, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.

      


      “Subordinated Indebtedness”
means all obligations arising under the Subordinated Note and each and every
other debt, liability and obligation of every type and description which the
Borrowers may now or at any time hereafter owe to the Subordinated Creditor,
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 Note” means the
Promissory Note executed by one or both Borrower, dated as of August 17, 2009,
payable to the order of the Subordinated Creditor in the original principal
amount of $200,000, together with all renewals, extensions and modifications
thereof and any note or notes issued in substitution therefor.

      


      7    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 Lender Indebtedness;
and regardless of any priority otherwise available to the Subordinated Creditor
by law or by agreement, Lender shall hold a first priority Lien in the
Collateral, and any Lien claimed therein by the Subordinated Creditor shall be
and remain fully subordinate for all purposes to the Lien of Lender therein for
all purposes whatsoever.  The Subordinated Indebtedness shall continue
to be subordinated to Lender Indebtedness even if Lender Indebtedness is deemed
unsecured, under-secured, subordinated, avoided or disallowed under the United
States Bankruptcy Code or other applicable law.

      


      8    3.       Payments.  Until all of Lender
Indebtedness has been paid in full and Lender has released its Lien in the
Collateral, the Subordinated Creditor shall not, without Lender’s prior written
consent, demand, receive or accept any payment (whether of principal, interest
or otherwise) from the Borrowers in respect of the Subordinated Indebtedness, or
exercise any right of or permit any setoff in respect of the Subordinated
Indebtedness.

      


      9    4.       Receipt
of Prohibited Payments. 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 Lender and will forthwith turn over such payment to Lender in the form
received (except for the endorsement of the Subordinated Creditor where
necessary) for application to then-existing Lender Indebtedness (whether or not
due), in such manner of application as Lender may deem
appropriate.  If the Subordinated Creditor exercises any right of
setoff which the Subordinated Creditor is not permitted to exercise under the
provisions of this Agreement, the Subordinated Creditor will promptly pay over
to Lender, in immediately available funds, an amount equal to the amount of the
claims or obligations offset.  If the Subordinated Creditor fails to
make any endorsement required under this Agreement, Lender, or any of its
officers or employees or agents on behalf of Lender, is hereby irrevocably
appointed as the attorney-in-fact (which appointment is coupled with an
interest) for the Subordinated Creditor to make such endorsement in the
Subordinated Creditor’s name.

      


      10 5.       Action
on Subordinated Indebtedness. The Subordinated Creditor will not
commence any action or proceeding against the Borrowers to recover all or any
part of the Subordinated Indebtedness, or join with any creditor (unless Lender
shall so join) in bringing any proceeding against the Borrowers 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 the Subordinated Creditor
with respect to any such Collateral, unless and until Lender Indebtedness has
been paid in full and Lender has released its Lien in the
Collateral.

      


      11 6.       Action
Concerning Collateral.

      


      .1   (a)      Notwithstanding
any Lien now held or hereafter acquired by the Subordinated Creditor, Lender may
take possession of, sell, dispose of, and otherwise deal with all or any part of
the Collateral, and may enforce any right or remedy available to it with respect
to the Borrowers or the Collateral, all without notice to or consent of the
Subordinated Creditor.

      


      .2   (b)      In
addition, and without limiting the generality of the foregoing, if the Lender
requests that the Subordinated Creditor release its security interest or lien in
connection with the sale or disposition of any Collateral, then (i) Lender shall
notify the Subordinated Creditor in writing of such request and provide a
description of the Collateral to be sold; and (ii) the Subordinated Creditor
hereby authorizes the Lender (and irrevocably appoints Lender, or any of its
officers or employees on behalf of Lender, as the attorney-in-fact for the
Subordinated Creditor (which appointment is coupled with an interest) with the
full power) to file a partial release of Subordinated Creditor’s security
interest or lien in such Collateral and the Subordinated Creditor shall be
deemed to have consented to such sale or disposition.


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      .3  (c)       Lender
shall have no duty to preserve, protect, care for, insure, take possession of,
collect, dispose of, or otherwise realize upon any of the Collateral, and in no
event shall Lender be deemed the Subordinated Creditor’s agent with respect to
the Collateral.  All proceeds received by Lender with respect to any
Collateral may be applied, first, to pay or reimburse Lender for all costs and
expenses (including reasonable attorneys’ fees) incurred by Lender in connection
with the collection of such proceeds, and, second, to any Lender Indebtedness
secured by Lender’s Lien in that Collateral in any order that it may
choose.

      


      12  7.        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 Borrowers, dissolution, liquidation or any other marshalling of
the assets or liabilities of the Borrowers, the Subordinated Creditor will file
all claims, proofs of claim or other instruments of similar character necessary
to enforce the obligations of the Borrowers in respect of the Subordinated
Indebtedness and will hold in trust for Lender and promptly pay over to Lender
in the form received (except for the endorsement of the Subordinated Creditor
where necessary) for application to the then-existing Lender Indebtedness, any
and all moneys, dividends or other assets received in any such proceedings on
account of the Subordinated Indebtedness, unless and until Lender Indebtedness
has been paid in full and Lender’s Lien in the Collateral has been
terminated.  If the Subordinated Creditor shall fail to take any such
action, Lender, as attorney-in-fact for the Subordinated Creditor, may take such
action on the Subordinated Creditor’s behalf.  The Subordinated
Creditor hereby irrevocably appoints Lender, or any of its officers or employees
on behalf of 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 Lender’s own name or in the name of the Subordinated Creditor as
Lender may deem necessary or advisable for the enforcement of the agreements
contained herein; and the Subordinated Creditor will execute and deliver to
Lender such other and further powers-of-attorney or instruments as Lender may
request in order to accomplish the foregoing.  If Lender desires to
permit the use of cash collateral or to provide post-petition financing to the
Borrowers, the Subordinated Creditor shall not object to the same or assert that
its interests are not being adequately protected.

       

      13  8.       Restrictive
Legend; Transfer of Subordinated Indebtedness.  The Subordinated Creditor
will cause the Subordinated Note and all other notes, bonds, debentures or other
instruments evidencing the Subordinated Indebtedness or any part thereof to
contain a specific statement thereon to the effect that the indebtedness thereby
evidenced is subject to the provisions of this Agreement, and the Subordinated
Creditor will mark its books conspicuously to evidence the subordination
effected hereby.  Attached hereto as Exhibit A is a true and correct copy of the
Subordinated Note bearing such legend.  At the request of Lender, the
Subordinated Creditor shall deposit with Lender the Subordinated Note and all of
the other notes, bonds, debentures or other instruments evidencing the
Subordinated Indebtedness, which notes, bonds, debentures or other instruments
may be held by Lender so long as any Lender Indebtedness remains outstanding or
Lender’s Lien in the Collateral has not been terminated.  The
Subordinated Creditor is the lawful holder of the Subordinated Note and has not
transferred any interest therein to any other person or
entity.  Without the prior written consent of Lender, the Subordinated
Creditor will not assign, transfer or pledge to any other person any of the
Subordinated Indebtedness or agree to a discharge or forgiveness of the
same.

      


      14  9.       Continuing
Effect.  This
Agreement shall constitute a continuing agreement of subordination, and Lender
may, without notice to or consent by the Subordinated Creditor, modify any term
of Lender Indebtedness in reliance upon this Agreement.  Without
limiting the generality of the foregoing, Lender may, at any time and from time
to time, without the consent of or notice to the Subordinated Creditor and
without incurring responsibility to the Subordinated Creditor or impairing or
releasing any of Lender’s rights or any of the Subordinated Creditor’s
obligations hereunder:


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      .1   (a)      change
the interest rate or change the amount of payment or extend the time for payment
or renew or otherwise alter the terms of any Lender Indebtedness or any
instrument evidencing the same in any manner;

      


      .2   (b)      sell,
exchange, release or otherwise deal with any property at any time securing
payment of Lender Indebtedness or any part thereof;

      


      .3   (c)      release
anyone liable in any manner for the payment or collection of Lender Indebtedness
or any part thereof;

      


      .4   (d)      exercise
or refrain from exercising any right against the Borrowers or any other person
(including the Subordinated Creditor); and

      


      .5   (e)      apply
any sums received by Lender, by whomsoever paid and however realized, to Lender
Indebtedness in such manner as Lender shall deem appropriate.

      


      1510.     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 Lender to make any future
loans or other extensions of credit or financial accommodations to the
Borrowers.

      


      The
Subordinated Creditor hereby waives any and all right to require the marshalling
of assets in connection with the exercise of any of Lender’s remedies permitted
by applicable law or agreement.

      


      16  11.     Notice.  All notices and other
communications hereunder shall be in writing and shall be (i) personally
delivered, (ii) transmitted by registered mail, postage prepaid, or (iii)
transmitted by telecopy, in each case addressed to the party to whom notice is
being given at its address as set forth below:

      If to
Lender:

      M&I
Business Credit, LLC

      Suite
450

      651
Nicollet Mall

      Minneapolis,
MN 55402-1657

      
        Attention:
Tom Kopacek

      

      Telecopier:  (612)
677-8798

      
        If to the
Subordinated Creditor:

      

      
        Richard
P. Kiphart

      

      
        c/o
William Blair & Company

      

      
        222 West
Adams Street

      

      
        Chicago,
IL 60603

      

      
        Telecopier:
(312) 236-2260

      

      or at
such other address as may hereafter be designated in writing by that
party.  All such notices or other communications shall be deemed to
have been given on (i) the date received if delivered personally, (ii) the date
of posting if delivered by mail, or (iii) the date of transmission if delivered
by telecopy.


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      17   12.     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 Lender and the Subordinated
Creditor.

      


      18   13.     No
Waiver.  No waiver
shall be deemed to be made by Lender of any of its rights hereunder unless the
same shall be in writing signed on behalf of Lender, 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 Lender or the
obligations of the Subordinated Creditor to Lender in any other respect at any
time.

      


      19   14.     Binding
Effect; Acceptance.  This Agreement shall be
binding upon the Subordinated Creditor and the Subordinated Creditor’s heirs,
legal representatives, successors and assigns and shall inure to the benefit of
Lender and its participants, successors and assigns irrespective of whether this
or any similar agreement is executed by any other creditor of the
Borrowers.  Notice of acceptance by Lender of this Agreement or of
reliance by Lender upon this Agreement is hereby waived by the Subordinated
Creditor.

      


      20   15.     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 and by facsimile (including electronic
communication), each of which shall be an original, but all of which together
shall constitute one instrument.

      


      21   16.     Governing
Law; Consent to Jurisdiction and Venue; Waiver of Jury Trial.  This Agreement shall be
governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of Minnesota.  Each party consents to the
personal jurisdiction of the state and federal courts located in the State of
Minnesota 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 Hennepin County,
Minnesota.  THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

      [SIGNATURE
PAGE FOLLOWS]


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      IN
WITNESS WHEREOF, the Subordinated Creditor has executed this Agreement as of the
date and year first written above.

      
        	 
      	
                SUBORDINATED
      CREDITOR:

              
	 
      	 
      
	 
      	
                /s/ Richard P. Kiphart

              
	 
      	
                Richard
      P. Kiphart

              


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Acknowledgment by
Borrowers

      


      22           The
undersigned, being the Borrowers 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 Lender that it shall make no
payment on the Subordinated Indebtedness that the Subordinated Creditor would
not be entitled to receive under the provisions of the Agreement, (iv) agrees
that any such payment will constitute a default under Lender Indebtedness, and
(v) agrees to mark its books conspicuously to evidence the subordination of the
Subordinated Indebtedness effected hereby.

      


      


      
        	 
      	
                NATURE
      VISION, INC.

              
	 
      	
                By:

              	
                /s/Jeffery P. Zernov

              
	 
      	 
      	
                Jeffery P. Zernov

              
	 
      	 
      	
                Its: President – Chief Executive
      Officer

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                NATURE
      VISION OPERATING, INC.

              
	 
      	
                By:

              	
                /s/Jeffery P. Zernov

              
	 
      	 
      	
                Jeffery P. Zernov

              
	 
      	 
      	
                Its: President – Chief Executive
      Officer

              


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      EXHIBIT
A

      


      attach
copy of Subordinated Note with following legend:

      “THIS
INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY RICHARD P.
KIPHART IN FAVOR OF M&I BUSINESS CREDIT, LLC, DATED AUGUST 17,
2009.”

      


      


      DEMAND
PROMISSORY NOTE

      
        	
                $200,000

              	
                August
      17, 2009

              


      

      


      


      FOR VALUE
RECEIVED, Nature Vision, Inc., a Minnesota corporation (the “Company”) promises to pay to
Richard Kiphart or his successors or assigns (“Holder”), ON DEMAND AT ANY
TIME, at such place as the Holder of this Note may designate in writing to the
Company, the principal sum of Two Hundred Thousand Dollars ($200,000.00),
together with simple interest on the unpaid principal balance from the date of
this Note until fully paid at the rate of fifteen percent (15%) per annum, based
on actual days elapsed in a year of 365 days.  Principal and interest
are due and payable in lawful money of the United States of
America.  To the extent that funds in excess of $100,000 are available
to the Company after M&I Business Credit, LLC has been paid in full, the
Company will pay such funds to Holder with or without any demand.

      


      This Note
may be fully or partially prepaid at any time without penalty or
premium.  Any prepayment shall be applied first to accrued but unpaid
interest and the remainder to principal.

      


      The
Company waives presentment, dishonor, protest, demand, diligence, notice of
protest, notice of demand, notice of dishonor, notice of nonpayment, and any
other notice of any kind otherwise required by law in connection with the
delivery, acceptance, performance, default, enforcement or collection of this
Note and expressly agrees that this Note, or any payment hereunder, may be
extended or subordinated (by forbearance or otherwise) at any time, without in
any way affecting the liability of the Company.

      


      The
Company agrees to pay on demand all reasonable
costs of collecting or enforcing payment under this Note, including
attorney fees and legal expenses, whether through courts of original
jurisdiction, courts of appellate jurisdiction, or bankruptcy courts, or through
other legal proceedings.

      


      This Note
may not be amended or modified, nor shall any waiver of any provision hereof be
effective, except only by an instrument in writing signed by the party against
whom enforcement of any amendment, modification, or waiver is
sought.  This Note shall be governed by and construed according to the
laws of the State of Minnesota without regard to conflicts of laws
principles.

      


      
        	 
      	
                NATURE
      VISION, INC.

              	 
      
	 
      	 
      	 	 
      
	 
      	 
      	 	 
      
	 
      	
                By:

              	 	 
      
	 
      	
                Its:

              	 	 
      


      

      


      THIS
INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY RICHARD
KIPHART IN FAVOR OF M&I BUSINESS CREDIT, LLC, DATED AUGUST 17,
2009.