EXHIBIT 10.3
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of December
__, 2007, is made and given by [__________________], (the "Junior Creditor") in
favor of PALA INVESTMENTS HOLDINGS LIMITED, a [____________________] limited
liability company (the "Senior Creditor").
RECITALS:
A. Reclamation Consulting and Applications, Inc., a Colorado
corporation (the "Borrower"), is or may become indebted to the Junior Creditor
by reason of loans or other extensions of credit made or to be made by the
Junior Creditor to the Borrower.
B. The Borrower is now, or may hereafter be, indebted to the Senior
Creditor as a result of the advance of monies and other extensions of credit by
the Senior Creditor to the Borrower under agreements or arrangements for the
extension of financial accommodations now, heretofore or hereafter in effect.
C. The Junior Creditor acknowledges that the loan or advance of monies
or other extensions of any financial accommodation or credit to the Borrower by
the Senior Creditor is of value to the Junior Creditor.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged by the Junior Creditor, and in order to induce the Senior
Creditor to make loans or extend credit or any other financial accommodation to
or for the benefit of the Borrower, or to grant such renewals or extension
thereof as the Senior Creditor may deem advisable, and to better secure the
Senior Creditor in respect of the foregoing, the Junior Creditor hereby agrees
as follows:
Section 1. DEFINITIONS, RULES OF CONSTRUCTIONS.
1(a) For purpose of this Agreement, the following terms shall
have the following meanings:
"BANKRUPTCY CODE" shall mean 11 U.S.C. 101 et seq., as amended
from time to time.
"BORROWER" shall mean Reclamation Consulting and Applications,
Inc. and any successor (including a debtor-in-possession under the
Bankruptcy Code), assignee, receiver, trustee or estate thereof.
"DEFAULT" shall mean any event which with the giving of notice
or lapse of time, or both, would become an Event of Default.
"EVENT OF DEFAULT" shall mean (i) any failure of the Borrower
to pay when due (whether at the date scheduled therefor or earlier upon
acceleration) or when demanded (with respect to any obligation payable
on demand) any item constituting Senior Debt, (ii) the occurrence of
any other event constituting a default under the terms of any of the
Senior Debt, or (iii) any event shall occur or condition shall exist
and shall continue for more than the period of grace, if any,
applicable thereto and shall have the effect of causing, or permitting
the Senior Creditor or any subsequent holder of Senior Debt to cause,
any item of Senior Debt to become due prior to its stated maturity or
to realize upon any collateral given as security therefor.
"JUNIOR CREDITOR" shall mean [________________] and any
successor thereto (including a debtor-in-possession under the
Bankruptcy Code), assignee, receiver, trustee or estate thereof.
"PERSON" shall mean an individual, corporation, association,
partnership, limited partnership, trust, organization, individual or
government or any governmental agency or any political subdivision
thereof.
"SENIOR CREDITOR" shall mean Pala Investments Holdings
Limited, its successors and its assignees with respect to any of the
Senior Debt.
"SENIOR DEBT" shall mean all liabilities and obligations of
the Borrower to the Senior Creditor howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising or incurred,
including, without limitation, any and all interest accruing on any of
the Senior Debt after the commencement of any proceedings referred to
in Section 4 hereof, notwithstanding any provision or rule of law which
might restrict the rights of the Senior Creditor, as against the
Borrower or anyone else, to collect such interest.
"SUBORDINATED DEBT" shall mean all liabilities and obligations
of the Borrower to the Junior Creditor, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising or incurred, under any
written or unwritten agreement.
1(b) In this Agreement, in the computation of a period of time
from a specified date to a later specified date, unless otherwise stated the
word "from" means "from and including" and the word "to" or "until" each means
"to but excluding."
1(c) Other terms may be defined in other parts of this
Agreement. All references to agreements and other contractual instruments shall
be deemed to include all subsequent amendments thereto or changes therein
entered into in accordance with their respective terms, and all references to
Persons shall be deemed to include their permitted successors and assigns.
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Unless the context in which used herein otherwise clearly requires, "or" has the
inclusive meaning represented by the phrase "and/or." All incorporations by
reference of covenants, terms, definitions or other provisions from other
agreements are incorporated into this Agreement as if such provisions were fully
set forth herein, and include all necessary information and related provisions
from such other agreements, and all such covenants, terms, definitions or other
provisions from other agreements incorporated into this Agreement by reference
shall survive any termination of such other agreements until the Senior Debt has
been paid in full and all financing arrangements between the Borrower and the
Senior Creditor shall have been terminated.
Section 2. STANDBY; SUBORDINATION. The payment and performance of the
Subordinated Debt is hereby subordinated to the payment and performance of the
Senior Debt, and the Junior Creditor will not take or receive from the Borrower
or any other Person liable for all or any part of the Senior Debt, by setoff or
in any other manner, the whole or any part of the Subordinated Debt, or any
monies which may now or hereafter be owing in respect of the Subordinated Debt
(whether such amounts represent principal or interest, or obligations which are
due or not due, direct or indirect, absolute or contingent), including, without
limitation, taking any security for any of the foregoing, or the taking of any
negotiable instrument therefor, unless and until all of the Senior Debt shall
have been fully paid and satisfied and all financing arrangements between the
Borrower and Senior Creditor have been terminated, except that the Junior
Creditor may (i) accept scheduled payments (but not cash prepayments without the
Senior's Creditor prior written approval) of principal and interest required to
be paid under that certain [INSERT TITLE OF SPECIFIC NOTE] (the "Junior Debt
Instrument"), or convert the principal and interest into shares of Borrower's
common stock is so permitted by the terms thereof , so long as no Event of
Default has occurred and is continuing or will occur as a result of or
immediately following any such payment, (ii) take any against the Borrower or
the property of the Borrower permissible under applicable law or the Junior Debt
Instrument in the event of a material breach by the Borrower of its obligations
under the Junior Debt Instrument , provided that in such event Junior Creditor
shall first provide Senior Creditor with ten (10) business days prior written
notice. All liens and security interests of the Junior Creditor in any assets of
the Borrower or any assets securing the Senior Debt shall be and hereby are
subordinated to the rights and interests of the Senior Creditor, if any, in
those assets. The Junior Creditor warrants and agrees that (a) the Junior
Creditor hereafter will not accept any additional security for the Subordinated
Debt from the Borrower, except pursuant to section 6.2.1 of the Secured
Convertible Debenture between the Senior Creditor and the Borrower dated as of
[_______] (the "Debenture Agreement"); and (b) in the event the Junior Creditor
does obtain any additional security for the Subordinated Debt in violation
thereof, (i) the Junior Creditor shall have no right to possession of any such
assets or to foreclose upon any such assets, whether by judicial action or
otherwise, unless and until all the Senior Debt shall have been fully paid and
satisfied and all financing arrangements between the Borrower and Senior
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Creditor have been terminated, and (ii) at the request of the Senior Creditor,
the Junior Creditor shall execute and deliver to the Senior Creditor such
termination statements and releases as the Senior Creditor shall reasonably
request to release the Junior Creditor's additional security interest in or lien
against such property. The Junior Creditor acknowledges and agrees that, to the
extent the terms and provisions of this Agreement are inconsistent with any
agreement or understanding between the Junior Creditor and the Borrower, such
agreement or understanding shall be subject to this Agreement.
Section 3. SUBORDINATED DEBT OWED ONLY TO THE JUNIOR CREDITOR. The
Junior Creditor warrants and represents that the Junior Creditor has not
previously assigned any interest in the Subordinated Debt, that no other Person
owns an interest in the Subordinated Debt (whether as joint holders of
Subordinated Debt, participants or otherwise) and that the entire Subordinated
Debt is owing only to the Junior Creditor. The Junior Creditor further covenants
that the entire Subordinated Debt shall continue to be owing only to the Junior
Creditor unless it is assigned to a Person who agrees with the Senior Creditor
to be bound by the subordination provisions set forth herein.
Section 4. PRIORITY. In the event of (a) any distribution, division, or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any substantial part of the assets of the Borrower or
the proceeds thereof to the creditors of the Borrower or to their claims against
the Borrower, or (b) any readjustment of the debt or obligations of the Borrower
by reason of liquidation, bankruptcy, arrangement, receivership, assignment for
the benefit of creditors involving the readjustment of all or any substantial
part of the Senior Debt or Subordinated Debt, or the application of the assets
of the Borrower to the payment or liquidation thereof, or (c) the dissolution or
other winding up of the business of the Borrower, or (d) the sale of all or
substantially all of the assets of the Borrower, THEN, and in any such event,
the Senior Creditor shall be entitled to receive payment in full of all of the
Senior Debt prior to the payment of all or any part of the Subordinated Debt.
Section 5. PAYMENTS RECEIVED BY THE JUNIOR CREDITOR. If the Junior
Creditor receives any payment or distribution or security or instrument or
proceeds thereof upon or with respect to the Subordinated Debt prior to the
payment in full of the Senior Debt and termination of all financing arrangements
between the Borrower and the Senior Creditor, except as otherwise permitted
hereunder, the Junior Creditor shall receive and hold the same in trust, as
trustee, for the benefit of the Senior Creditor and shall forthwith deliver the
same to the Senior Creditor in precisely the form received (except for the
endorsement or assignment by the Junior Creditor where necessary), for
application on any of the Senior Debt, due or not due and, until so delivered,
the same shall be held in trust by the Junior Creditor as the property of the
Senior Creditor. In the event of the failure of the Junior Creditor to make any
such endorsement or assignment to the Senior Creditor, the Senior Creditor, or
any of its officers or employees, is hereby irrevocably authorized to make the
same.
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Section 6. CONTINUING NATURE OF SUBORDINATION. This Agreement shall be
effective and may not be terminated or otherwise revoked by the Junior Creditor
until the Senior Debt shall have been fully paid and discharged and all
financing arrangements between the Borrower and the Senior Creditor have been
terminated. This is a continuing agreement of subordination and the Senior
Creditor may continue, at any time and without notice to the Junior Creditor, to
extend credit or other financial accommodations and loan monies to or for the
benefit of the Borrower in reliance hereon. No obligation of the Junior Creditor
hereunder shall be affected by the death or incapacity of, or written revocation
by, the Junior Creditor or any other subordinated party, pledgor, endorser, or
guarantor, if any. The Junior Creditor hereby waives any and all right to
require the marshalling of assets in connection with the exercise of any of the
Senior Lender's remedies permitted by applicable law or agreement.
Section 7. ADDITIONAL AGREEMENTS BETWEEN SENIOR CREDITOR AND BORROWER.
The Senior Creditor, at any time and from time to time, may enter into such
agreement or agreements with the Borrower as the Senior Creditor may deem
proper, increasing the amount of, extending the time of payment of or renewing
or otherwise altering the terms of all or any of the Senior Debt or affecting
any security underlying any or all of the Senior Debt, and may exchange, sell,
release, surrender or otherwise deal with any such security, without in any way
thereby impairing or affecting this Agreement.
Section 8. BANKRUPTCY ISSUES. If the Borrower becomes the subject of
proceedings under the Bankruptcy Code and if the Senior Creditor desires to
permit the use of cash collateral or to provide financing to the Borrower under
either Section 363 or Section 364 of the Bankruptcy Code, the Junior Creditor
agrees that adequate notice of such financing to the Junior Creditor, if
required under applicable law, shall have been provided if the Junior Creditor
receives notice two (2) business days prior to entry of any order approving such
cash collateral usage or financing. Notice of a proposed financing or use of
cash collateral shall be deemed given upon the sending of such notice to the
Junior Creditor in the manner specified in Section 19. All allocations of
payments between the Senior Creditor and the Junior Creditor shall continue to
be made after the filing of a petition under the Bankruptcy Code on the basis
provided in this Agreement. The Junior Creditor agrees not to assert any right
it may have to "adequate protection" in any Bankruptcy proceeding without the
prior written consent of the Senior Creditor. The Junior Creditor waives any
claim the Junior Creditor may now or hereafter have against the Senior Creditor
arising out of the Senior Creditor's election, in any proceeding instituted
under Chapter 11 of the Bankruptcy Code, of the application of Section
1111(b)(2) of the Bankruptcy Code, and/or any borrowing or grant of a security
interest under Section 364 of the Bankruptcy Code by the Borrower, as debtor in
possession, or by a trustee. To the extent that the Senior Creditor receives
payments on, or proceeds of any collateral for, the Senior Debt which are
subsequently avoided, invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any Bankruptcy law, state or federal law, common law or equitable cause,
then, to the extent of such payment or proceeds received, the Senior Debt, or
part thereof, intended to be satisfied shall be revived and continue in full
force and effect as if such payments or proceeds had not been received by the
Senior Creditor.
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Section 9. INSTRUMENT LEGEND; NO AMENDMENTS TO SUBORDINATED
INSTRUMENTS. Within five business days of the Effective Date, any agreement or
instrument evidencing the Subordinated Debt, or any portion thereof, which has
been or is hereafter executed by the Borrower will, on the date hereof or the
date of execution, be inscribed with a legend conspicuously indicating that
payment thereof is subordinated to the claims of the Senior Creditor pursuant to
the terms of this Agreement. The Junior Creditor will not agree to any
amendment, restatement or other modification of any such instrument or agreement
or any other agreement or document evidencing the Subordinated Debt without the
prior written consent of the Senior Creditor, except as otherwise provided in
section 6.2.1 of the Debenture Agreement.
Section 10. WAIVERS. The Senior Debt shall be deemed to have been made
or incurred in reliance upon this Agreement. The Junior Creditor expressly
waives all notice of the acceptance by the Senior Creditor of the subordination
and other provisions of this Agreement and all other notices not specifically
required pursuant to the terms of this Agreement whatsoever, and the Junior
Creditor expressly waives reliance by the Senior Creditor upon the subordination
and other agreements as herein provided. The Junior Creditor agrees that the
Senior Creditor has made no warranties or representations with respect to the
collectability of the Senior Debt.
Section 11. FINANCIAL CONDITION OF BORROWER; OTHER ACTIONS BY THE
SENIOR CREDITOR. The Junior Creditor hereby assumes responsibility for keeping
informed of the financial condition of the Borrower, any and all endorsers and
any and all guarantors of the Subordinated Debt and of all other circumstances
bearing upon the risk of nonpayment of the Senior Debt and/or the Subordinated
Debt that diligent inquiry would reveal. The Junior Creditor hereby agrees that
the Senior Creditor shall have no duty to advise the Junior Creditor of
information known to the Senior Creditor regarding such condition or any such
circumstances. In the event the Senior Creditor, in its sole discretion,
undertakes, at any time or from time to time, to provide any such information to
the Junior Creditor, the Senior Creditor shall be under no obligation (i) to
provide any such information to the Junior Creditor on any subsequent occasion,
(ii) to undertake any investigation not a part of its regular business routine,
or (iii) to disclose any information which, pursuant to its usual practices, the
Senior Creditor wishes to maintain confidential. The Junior Creditor hereby
agrees that all payments received by the Senior Creditor may be applied, in
whole or in part, to any of the Senior Debt, as the Senior Creditor, in its sole
discretion, deems appropriate and assents to any extension or postponement of
the time of payment of the Senior Debt or to any other indulgence with respect
thereto, to any substitution, exchange or release of collateral which may at any
time secure the Senior Debt and to the addition or release of any other Person
primarily or secondarily liable therefor.
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Section 12. SUBROGATION. When the Senior Debt shall have been fully
paid and discharged and all financing arrangements between the Borrower and the
Senior Creditor have been terminated, the Junior Creditor shall be subrogated to
the rights of the Senior Creditor to receive payments or distribution of assets
of the Borrower made on such Senior Debt until the principal of and premium, if
any, and interest on (and any other amounts due with respect to) the
Subordinated Debt shall be paid in full. For the purposes of such subrogation,
no payments or distributions to the Senior Creditor of any cash, property or
securities to which the Junior Creditor would be entitled except for these
provisions shall, as between the Borrower, its creditors other than the Senior
Creditor, and the Junior Creditor, be deemed to be a payment by the Borrower to
or on account of Senior Debt, it being understood that these provisions in this
Section are used, and are intended, solely for the purpose of defining the
relative rights of the Junior Creditor, on the one hand, and the Senior
Creditor, on the other hand.
Section 13. SENIOR CREDITOR'S WAIVERS. No failure on the part of the
Senior Creditor in exercising any power or right hereunder will operate as a
waiver of the power or right nor will any single or partial exercise of such
right or power preclude exercise of any other right or power hereunder. No
amendment, modification or waiver of any condition of this Agreement or consent
to any departure by the Junior Creditor therefrom will be effective unless it is
in writing signed by the Senior Creditor. No notice to or demand on the Junior
Creditor will entitle the Junior Creditor to any other further notice or demand
in similar or other circumstances unless specifically provided for in this
Agreement.
Section 14. TIME. Time is of the essence in the performance of this
Agreement.
Section 15. FURTHER ASSURANCES. The parties to this Agreement will do,
execute and deliver or will cause to be done, executed and delivered all such
further acts, documents and things as may be reasonably required for the purpose
of giving effect to this Agreement.
Section 16. ASSIGNMENT. The Junior Creditor may not assign this
Agreement or its interest herein or any part hereof except with the prior
written consent of the Senior Creditor. The Senior Creditor may assign this
Agreement, or its interest in this Agreement or any part hereof upon ten (10)
days' written notice to the Junior Creditor.
Section 17. SURVIVAL. All representations and warranties contained in
this Agreement or in any other agreement between the Junior Creditor and the
Senior Creditor shall survive the execution, delivery and performance of this
Agreement.
Section 18. CUMULATIVE REMEDIES. All rights and remedies of the Senior
Creditor shall be cumulative and may be exercised singularly or concurrently, at
the Senior Creditor's option, and the exercise or enforcement of any one such
right or remedy shall neither be a condition to nor bar the exercise or
enforcement of any other.
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Section 19. NOTICES. All notices, requests, demands and other
communications to be given hereunder shall be in writing and shall be deemed to
have been duly given on the date of personal service or transmission by fax if
such transmission is received during the normal business hours of the addressee,
or on the first business day after sending the same by overnight courier service
or by telegram, or on the third business day after mailing the same by first
class mail, or on the day of receipt if sent by certified or registered mail,
addressed as set forth below, or at such other address as any party may
hereafter indicate by notice delivered as set forth in this Section 19:
If to the Junior Creditor: _________________________
_________________________
_________________________
_________________________
If to the Senior Creditor: Pala Investments Holdings Limited
00 Xxxxxx Xxxxxx
Xx. Xxxxxx
Xxxxxx
XX0 0XX
Channel Islands
Attn: Xx. Xxxxx Xxxxxx, Director
With a copy to : Pala Investments AG
Xxxxxxxxxxx 00
0000 Xxx
Xxxxxxxxxxx
Attn: Xx. Xxx Xxxxxx,
Managing Director
Section 20. AMENDMENTS. This Agreement may be amended, waived,
discharged or terminated only with the agreement of the party against whom
enforcement of the amendment, waiver, discharge or termination is sought and
only in writing signed by both parties to this Agreement and subject to the same
governing law and venue as stated in Section 22 hereof.
Section 21. COUNTERPART AND FAX EXECUTION. This Agreement may be
executed in two or more counterparts and by fax transmission, each of which will
be deemed to be an original and all of which will constitute one agreement,
effective as of the date given above.
Section 22. GOVERNING LAW AND VENUE. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of California
applicable to the performance and enforcement of contracts made within such
state, without giving effect to the law of conflicts of laws applied thereby. In
the event that any dispute shall occur between the parties arising out of or
resulting from the construction, interpretation, enforcement or any other aspect
of this Agreement, the parties hereby agree to accept the exclusive jurisdiction
of the Courts of the State of California sitting in and for the County of
Orange.
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Section 23. SEVERABILITY. If any one or more of the provisions
contained in this Agreement is found to be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein will not in any way be affected or impaired thereby.
Section 24. PARTIES IN INTEREST. This Agreement inures to the benefit
of and is binding on the parties hereto and their respective successors and
permitted assigns.
Section 25. HEADINGS AND MARGINAL REFERENCES. The division of this
Agreement into sections, subsections, paragraphs and subparagraphs and the
insertion of headings are for convenience of reference only and do not affect
the construction or interpretation of this Agreement.
Section 26. ACKNOWLEDGMENT. The Junior Creditor hereby acknowledges
that (a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement, (b) the Senior Creditor has no fiduciary
relationship to the Junior Creditor, and (c) no joint venture exists between the
Junior Creditor and the Senior Creditor.
Section 27. ENTIRE AGREEMENT. This Agreement, together with the
Schedules and Exhibits referred to herein which are incorporated herein by this
reference, and the agreements referred to herein, supersedes all prior
agreements and understandings and shall constitute the entire agreement between
the parties hereto with respect to the transactions contemplated hereby.
SIGNATURES ON NEXT PAGE
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IN WITNESS WHEREOF, this instrument has been signed as of the date
first set forth above.
THE JUNIOR CREDITOR:
[ ]
By: _____________________
Name: _____________________
Title:_____________________
Accepted:
PALA INVESTMENTS HOLDINGS LIMITED
By: __________________
Name:__________________
Title:_________________
ACCEPTANCE AND ACKNOWLEDGMENT
-----------------------------
The Borrower named above hereby accepts, and acknowledges receipt of a copy of,
the foregoing Subordination Agreement and agrees that it will not pay any of the
"Subordinated Debt" (as defined in the foregoing Agreement) or grant any
security therefor, except as the foregoing Agreement provides.
RECLAMATION CONSULTING AND
APPLICATIONS, INC.
By: _____________________
Name: _____________________
Title:_____________________
