Document:

Exhibit 10.3

 

TERM PROMISSORY NOTE

 

	$500,000.00	March 8, 2016

 

 

FOR VALUE RECEIVED, SUPERIOR DRILLING
PRODUCTS, INC., a Utah corporation, SUPERIOR DRILLING SOLUTIONS, LLC, a Utah limited liability company, HARD
ROCK SOLUTIONS, LLC, a Utah limited liability company, and EXTREME TECHNOLOGIES, LLC, a Utah limited liability company
(individually and together, “Debtor”), hereby unconditionally and jointly and severally promise to pay to the order
of FEDERAL NATIONAL PAYABLES, INC., doing business as Federal National Commercial Credit (“Payee”) at the offices
of Payee at 7315 Wisconsin Avenue, Suite 600W, Bethesda, MD 20814, or at such other place as Payee or any holder hereof may from
time to time designate, on or before the Termination Date (as defined in the Credit Agreement), the principal sum of Five Hundred
Thousand Dollars ($500,000.00), payable in sixty (60) consecutive monthly principal installments commencing the 1st day of April,
2016, and continuing the same day of each month thereafter until this Promissory Note (“Note”) is paid in full, of
which the first fifty-nine (59) installments shall each be in the amount of Eight Thousand Three Hundred Thirty-Three Dollars and
Thirty-Three Cents ($8,333.33), followed by a sixtieth (60th) and final installment in the amount of the entire unpaid
balance of this Note.

 

Debtor hereby further promises to pay to
the order of Payee, together with each installment of principal, interest on the unpaid principal balance hereof at the per annum
interest rate at all times equal to the Prime Rate then in effect plus five percent (5% ) per annum, until the indebtedness evidenced
by this Note is paid in full. The “Prime Rate” is defined as the interest rate reported from time to time in
the "Money Market Rates" section of The Wall Street Journal. Any change in the interest rate hereunder as a result
of a change in the Prime Rate shall become effective on the date of said announcement. Interest shall be computed on the basis
of a 360 day year and applied to actual days elapsed.

 

This
Note is the Term Note defined and referenced in that certain Loan and Security Agreement, dated of even date herewith, between
Debtor and Payee, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, or
replaced (herein referred to as the “Credit Agreement”), and evidences the Term Loan under the Credit Agreement.

 

All payments made hereunder shall be applied
to fees and Expenses, interest (including, as applicable, interest at the Default Rate), and principal in such order or proportion
as Payee, in its sole discretion, may elect from time to time in accordance with the terms of the Credit Agreement. The entire
unpaid principal balance of this Note and all accrued but unpaid interest shall be due and payable on the Termination Date, or
as otherwise may be provided for in the Credit Agreement.

 

Subject to the terms and conditions of
the Credit Agreement, the principal balance of this Note may be paid in full at any time or in part from time to time; provided,
however, that (i) all payments of principal of this Note shall be accompanied by the payment of all accrued and unpaid
interest under this Note, (ii) all partial prepayments shall be applied to installments under this Note in the inverse order of
their respective maturities, and (iii) in the event this Note (but not the Credit Facility) is paid in full other than as provided
in Section 11.1 of the Credit Agreement, Debtor shall pay to Payee and there shall be included in the Obligations, a prepayment
fee of Ten Thousand Dollars ($10,000).

 

    	 

     

    

This Note is issued pursuant
to and is subject to the terms and provisions of the Credit Agreement, which contains provisions for acceleration upon the happening
of certain events, for optional and mandatory prepayments and for the amendment or waiver of certain terms and conditions therein
specified. Unless otherwise defined herein, all capitalized terms used herein shall have the meaning assigned thereto in the Credit
Agreement. This Note is secured by the Collateral described in or referred to in the Credit Agreement and all other existing and
future Credit Documents, and is entitled to all of the benefits and rights thereof.

 

Debtor
(i) waives diligence, demand, presentment, protest, and notice of any kind, (ii) agrees that it will not be necessary for Payee
to first institute suit in order to enforce payment of this Note, and (iii) consents to any one or more extensions or postponements
of time of payment, release, surrender, or substitution of collateral security, or forbearance or other indulgence, without notice
or consent. The pleading of any statute of limitations as a defense to any demand against Debtor is expressly hereby waived by
Debtor.Should this Note be referred to an attorney for collection, whether or not suit has been filed, Debtor shall pay all
out of pocket costs, fees and Expenses, including attorneys' fees, resulting from such referral.

 

The validity, interpretation, and enforcement
of this Note and the other Credit Documents and any dispute arising in connection herewith or therewith shall be governed by the
internal laws of the State of Maryland (without giving effect to principles of conflicts of law).

 

DEBTOR IRREVOCABLY CONSENTS AND SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF THE STATE OF MARYLAND AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND AND
WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN ARISING UNDER THIS NOTE
OR ANY OF THE OTHER CREDIT DOCUMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF DEBTOR AND PAYEE
IN RESPECT OF THIS NOTE OR ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE, AND AGREES THAT ANY DISPUTE ARISING OUT
OF THE RELATIONSHIP BETWEEN DEBTOR AND PAYEE OR THE CONDUCT OF SUCH PERSONS IN CONNECTION WITH THIS NOTE OR OTHERWISE SHALL BE
HEARD ONLY IN THE COURTS DESCRIBED ABOVE (EXCEPT THAT PAYEE SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST DEBTOR
OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THAT PAYEE DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL
OR TO OTHERWISE ENFORCE ITS RIGHTS AGAINST DEBTOR OR ITS PROPERTY).

 

    	 

     

    

This Note shall be binding upon the successors
and assigns of Debtor and shall inure to the benefit of Payee and its successors, endorsees, and assigns. Whenever used herein,
the term “Debtor” shall be deemed to include its successors and assigns and the term “Payee” shall be deemed
to include its successors, endorsees, and assigns. If any term or provision of this Note shall be held invalid, illegal, or unenforceable,
the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note evidences an extension of
credit made for business or commercial purposes.

 

WITNESS, the due execution of this Term
Promissory Note, as a sealed instrument, the date and year first above written.

 

	 	SUPERIOR DRILLING PRODUCTS, INC.	 
	 	 	 	 
	 	By:	/s/
Troy Meier	(Seal)
	 	 	Troy
Meier, Chief Executive Officer	 
	 	 	 	 
	 	SUPERIOR DRILLING SOLUTIONS, LLC	 
	 	 	 	 
	 	By:	/s/
Troy Meier	(Seal)
	 	 	Troy
Meier, Chief Executive Officer	 
	 	 	 	 
	 	HARD ROCK SOLUTIONS, LLC	 
	 	 	 	 
	 	By:	/s/
Troy Meier	(Seal)
	 	 	Troy
Meier, Chief Executive Officer	 
	 	 	 	 
	 	EXTREME TECHNOLOGIES, LLC	 
	 	 	 	 
	 	By:	/s/
Troy Meier	(Seal)
	 	 	Troy
Meier, Chief Executive OfficerExhibit 10.4

  

SUBORDINATION AGREEMENT

 

THIS SUBORDINATION
AGREEMENT (“Agreement”) is entered into as of March 8, 2016, among Superior Drilling Products, Inc.,
a Utah corporation (“Superior”), Superior Drilling Solutions, LLC, a Utah limited liability company (“Drilling”),
Hard Rock Solutions, LLC, a Utah limited liability company (“Hard Rock”), Extreme Technologies, LLC,
a Utah limited liability company (“Extreme”, and together with Superior, Drilling and Hard Rock, “Borrower”
or “Borrowers”), FEDERAL NATIONAL PAYABLES, INC., a Delaware corporation doing business as Federal
National Commercial Credit (“Lender”) and the noteholder whose name and address is set forth on the signature
page to this Agreement (hereinafter collectively called “Noteholder”).

 

WHEREAS, Lender has
extended or agreed to extend financing to Borrower under a Loan and Security Agreement dated on or about March 8, 2016 (as amended,
revised, restated, or supplemented from time to time, hereinafter referred to as the “Financing Documents”);
and

 

WHEREAS, any and all
indebtedness, liabilities, and obligations of every kind or nature, whether now existing or hereafter arising, due or to become
due, matured or contingent, joint or several, of Borrower to Lender, including, without limitation, interest accruing after the
commencement of bankruptcy or similar insolvency proceedings, is collectively referred to herein as the “Senior Debt”;
and

 

WHEREAS, Borrower is
indebted to Noteholder under a certain Founders Note dated on or about May 29, 2014, in the principal amount of $2,000,000.00 (as
amended, revised, restated, or supplemented from time to time, hereinafter called the “Subordinated Note”);
and

 

WHEREAS, any and all
indebtedness, liabilities, and obligations of every kind or nature, whether now existing or hereafter arising, due or to become
due, matured or contingent, joint or several, of Borrower to Noteholder including, without limitation, the Subordinated Note, and
further including, without limitation, interest accruing after the commencement of bankruptcy or similar insolvency proceedings,
is collectively referred to herein as the “Subordinated Debt”; and

 

WHEREAS, Lender is
willing to enter into and provide financing to the Borrower under the Financing Documents subject to Noteholder entering into this
Agreement.

 

NOW, THEREFORE, THIS
AGREEMENT WITNESSETH, that in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

 

1.Any terms not otherwise defined
herein shall have the respective meanings ascribed to such terms in the Financing Documents.

 

2.The payment of any and all Subordinated
Debt is expressly subordinated to the Senior Debt to the extent and in the manner set forth in this Agreement:

 

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(a)While
the Senior Debt remains outstanding and any commitment to extend financing under the Financing Documents has not been terminated
Borrower may not make and Noteholder may not receive or accept any payments or prepayments of any kind (by voluntary payment,
acceleration, setoff or otherwise) of interest, principal, costs, fees or expenses with respect to the Subordinated Debt, without
the prior written consent of Lender first obtained;

 

(b)In
the event Noteholder at any time incurs any obligation to pay money to Borrower, Noteholder hereby irrevocably agrees that it shall
pay such obligation in cash or cash equivalents in accordance with the terms of the contract governing such obligation and shall
not deduct from or setoff against any amounts owed by the Noteholder to Borrower in connection with any such transaction any amounts
Noteholder claims are due to it with respect to the Subordinated Debt.

 

(c) Notwithstanding anything in the Agreement or in Section (a) above, Borrower may make the following “Permitted Payments”:
Borrower may make and Noteholder may receive and retain any payments of principal and/or interest, on an unaccelerated basis, in
respect of the Subordinated Note in accordance with the terms of the Subordinated Note as in effect on the date hereof; provided,
that no Event of Default shall have occurred and be continuing or will occur upon the making such Permitted Payment.

 

3.Any payments on the Subordinated
Debt received by Noteholder in contravention of the terms of this Agreement or at any time that Noteholder is in violation of its
undertakings or obligations under this Agreement shall be held in trust for Lender, and Noteholder will immediately turn over any
such payments to Lender, without further notice or demand, in the form received, to be applied to the Senior Debt as determined
by Lender.

 

4.Noteholder covenants and agrees
that it shall not take or accept any liens or security interests in any property of Borrower, whether now owned or hereafter acquired,
as security for the Subordinated Debt.

 

5.Until such time as the Senior
Debt has been paid in full in cash and any commitment to make advances have been terminated Noteholder will not commence any lawsuit,
action or proceeding of any kind against Borrower to recover all or any part of the Subordinated Debt.

 

6.Noteholder will not join with
any creditor in bringing any proceeding against Borrower under any liquidation, conservatorship, bankruptcy, reorganization, rearrangement,
or other insolvency law now or hereafter existing, unless and until the Senior Debt has been paid in full in cash and any commitment
to make advances under the Senior Debt has been terminated.

 

7.In the event
of any liquidation, conservatorship, bankruptcy, rearrangement, or other insolvency proceedings of Borrower, Noteholder will, at
Lender’s request, file any claims, proofs of claim, or other instruments of similar character necessary to enforce the obligations,
if any, of Borrower with respect to the Subordinated Debt and will hold in trust for Lender and pay over to Lender in the form
received, to be applied against the Senior Debt as determined by Lender, any and all money, dividends or other assets received
in any such proceedings on account of the Subordinated Debt, unless and until the Senior Debt has been paid in full in cash and
any commitment to make advances has been terminated. Lender may, as attorney-in-fact for Noteholder, take such action (in Lender’s
discretion but without any duty or obligation to do so) on behalf of Noteholder and Noteholder hereby irrevocably appoints Lender
as attorney-in-fact for Noteholder, to demand, sue for, collect, and receive any and all such money, dividends or other assets
and to file any claim, proof of claim or other instrument of similar character and to take such other proceedings in Lender’s
name or in the name of Noteholder as Lender may deem necessary or advisable for the enforcement of this Agreement. Noteholder will
execute and deliver to Lender such other and further powers of attorney or other instruments as Lender may request in order to
accomplish the foregoing.

 

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8.Subject at all time to the terms
of this Agreement, Lender may, at any time and from time to time, without the consent of or notice to Noteholder, without incurring
responsibility to Noteholder and without impairing or releasing any of Lender’s rights, or any of the obligations of Noteholder
hereunder:

 

(a)Change the amount, manner, place
or terms of payment or change or extend the time of payment of or increase, renew or alter the Senior Debt or any part thereof,
waive nonperformance by Borrower of or amend, alter, supplement or replace the Financing Documents and/or the notes issued thereunder
or agreements related thereto, in any manner or enter into or amend in any manner any other agreement relating to the Senior Debt
or the Financing Documents; and

 

(b)Sell, exchange, release or otherwise
enforce Lender’s rights against or deal with all or any part of any real or personal property at any time pledged or mortgaged
to Lender, or in which Lender has been granted a security interest, by any party to secure or securing the Senior Debt, or any
part thereof; and

 

(c)Release or compromise claims
against Borrower or any other party liable in any manner for the payment or collection of the Senior Debt; and

 

(d)Exercise or refrain from exercising
any rights against Borrower or others (including Noteholder) or exercise rights against Borrower, its property or any other party
at any time and in any order.

 

9.Noteholder will advise each future
holder of all or any part of the Subordinated Debt that the Subordinated Debt is subordinated to the Senior Debt in the manner
and to the extent provided herein. Noteholder represents that no part of the Subordinated Debt or any instrument evidencing the
same has been transferred or assigned and Noteholder will not transfer or assign, except to Lender, any part of the Subordinated
Debt or any instrument evidencing the same while any Senior Debt remain outstanding, unless such transfer or assignment is made
expressly subject to this Agreement.

 

10.If Noteholder violates any of
the terms of this Agreement, in addition to any remedies at law, in equity or otherwise, Lender may restrain such violation in
any court of law or equity and may interpose this Agreement as a defense in any action by Noteholder.

 

    	3 

     

    

11.This Agreement is solely for
the benefit of Lender, and its personal representatives, successors and assigns, and neither Borrower nor any other person or entities
are intended to be third party beneficiaries hereunder or to have any right, benefit, priority or interest under, or because of
the existence of, or to have any right to enforce, this Agreement.

 

12.This Agreement contains the
entire agreement between the parties regarding the subject matter hereof and may only be amended, revised, restated, supplemented
or modified by written instrument executed by Borrower, Lender, and Noteholder.

 

13.Noteholder represents and warrants
that Noteholder has the power, capacity and authority to enter into this Agreement and that neither the execution or delivery of
this Agreement nor fulfillment of nor compliance with the terms and provisions hereof will conflict with, or result in a breach
of the terms, conditions, or provisions of or constitute a default under any agreement or instrument to which Noteholder or any
of its assets is now subject.

 

14.This Agreement may be assigned
by Lender in connection with any assignment or transfer of any portion of the Senior Debt.

 

15.When all of the Obligations
of Borrower under the Financing Documents are fully paid, this Agreement shall be terminated.

 

16.This Agreement shall be binding
upon Noteholder, his, her, or its, heirs, personal representatives, successors and assigns. Upon the reasonable request of any
successor or assignee of Lender, or of any financial institution replacing the Senior Debt, Noteholder shall execute a substantially
similar subordination of the Subordinated Debt.

 

17.THIS AGREEMENT SHALL IN ALL
RESPECTS BE INTERPRETED, CONSTRUED AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF MARYLAND. NOTEHOLDER (i) SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF MARYLAND FOR THE PURPOSES OF RESOLVING ANY CONTROVERSY RELATING HERETO AND (ii) TOGETHER
WITH LENDER, WAIVE THE RIGHT TO A JURY TRIAL FOR THE PURPOSE OF RESOLVING ANY CONTROVERSY HEREUNDER OR ENFORCING OR DEFENDING ANY
RIGHT TO CLAIM HEREUNDER OR IN CONNECTION HEREWITH.

 

18.For the purposes of this Agreement,
written notices shall be sent by United States first class certified mail, return receipt requested, postage prepaid, addressed
to the notified party at its address set forth below its signature line or such other address specified by the party with like
notice, and shall be deemed received three (3) Business Days after deposit in the United States mail, on the first Business Day
after transmittal by nationally recognized overnight courier or on the day of transmittal by personal delivery, facsimile, telex,
cable or other electronic communication device capable of providing a written record.

 

19. Noteholder shall not be subrogated
to, or be entitled to any assignment of any Senior Debt or Subordinated Debt or of any collateral or guarantees or evidence of
any thereof. Noteholder hereby waives any and all rights to have any collateral or any part thereof marshaled upon any foreclosure
or other disposition of such collateral by Lender or Borrower.

 

    	4 

     

    

20.This Agreement may be executed
in one or more counterparts, each one of which when so executed shall be deemed to be an original, and all of which taken together
shall constitute one and the same agreement.

 

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

    	5 

     

    

 

IN WITNESS WHEREOF,
the parties have caused this Agreement to be executed under seal on the day and year first above written.

 

	 	FEDERAL NATIONAL PAYABLES, INC.
	 	 	 
	 	By:	/s/
William Seibold
	 	 	William
Seibold
	 	 	Chief
Credit Officer
	 	 	 
	 	SUPERIOR DRILLING PRODUCTS, INC.
	 	 	 
	 	By:	/s/
Troy Meier
	 	 	Troy
Meier, President
	 	 	 
	 	Address:	1583 South 1700 East
	 	 	Vernal, UT 84078
	 	 	 
	 	SUPERIOR DRILLING SOLUTIONS, LLC
	 	 	 
	 	By:	/s/
Troy Meier
	 	 	Troy
Meier, President
	 	 	 
	 	Address:	1583 South 1700 East
	 	 	Vernal, UT 84078
	 	 	 
	 	HARDROCK SOLUTIONS, LLC
	 	 	 
	 	By:	/s/
Troy Meier
	 	 	Troy
Meier, President
	 	 	 
	 	Address:	1583 South 1700 East
	 	 	Vernal, UT 84078
	 	 	 
	 	EXTREME TECHNOLOGIES, LLC
	 	 	 
	 	By:	/s/
Troy Meier
	 	 	Troy
Meier, President
	 	 	 
	 	Address:	1583 South 1700 East
	 	 	Vernal,
UT 84078
	 	 	 
	 	NOTEHOLDER
	 	Meier Management Company LLC
	 	 	 
	 	By:	/s/
Annette Meier
	 	 	Annette
Meier, Manager

 

 

    	6

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