EXHIBIT 10.17
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of August 25, 1999, by and
between the undersigned creditor ("Creditor"), and Venture Banking Group, a
division of Cupertino National Bank ("Bank").
A. Videonics, Inc. ("Borrower") has requested and/or obtained
certain loans or other credit accommodations from Bank to Borrower which are or
may be from time to time secured by assets and property of Borrower.
B. Creditor has extended or other credit accommodations to
Borrower, and/or may extend loans or other credit accommodations to Borrower
from time to time.
C. In order to induce Bank to continue to extend credit to
Borrower and, at any time or from time to time, at Bank's option, to make such
further loans, extensions of credit, or other accommodations to or for the
account of Borrower, or to purchase or extend credit upon any instrument or
writing in respect of which Borrower may be liable in any capacity, or to grant
such renewals or extension of any such loan, extension of credit, purchase, or
other accommodation as Bank may deem advisable, Creditor is willing to
subordinate: (i) all of Borrower's indebtedness and obligations to Creditor,
whether presently existing or arising in the future (the "Subordinated Debt") to
all of Borrower's indebtedness and obligations to Bank; and (ii) all of
Creditor's security interests, if any, to all of Bank's security interests in
the Borrower's property.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or lien
that Creditor may have in any property of Borrower. Notwithstanding the
respective dates of attachment or perfection of the security interest of
Creditor and the security interest of Bank, the security interest of Bank in the
Collateral, as defined in the Loan and Security Agreement, between Borrower and
Bank, as amended from time to time (the "Loan Agreement"), shall at all times be
prior to the security interest of Creditor.
All Subordinated Debt is subordinated in right of payment to all obligations of
Borrower to Bank now existing or hereafter arising, together with all costs of
collecting such obligations (including attorneys' fees), including, without
limitation, all interest accruing after the commencement by or against Borrower
of any bankruptcy, reorganization or similar proceeding, and all obligations
under the Loan Agreement (the "Senior Debt").
2. Creditor will not demand or receive from Borrower (and
Borrower will not pay to Creditor) all or any part of the Subordinated Debt, by
way of payment, prepayment, setoff, lawsuit or otherwise, nor will Creditor
exercise any remedy with respect to the Collateral, nor will Creditor commence,
or cause to commence, prosecute or participate in any administrative, legal or
equitable action against Borrower, for so long as any portion of the Senior Debt
remains outstanding. The foregoing notwithstanding, Creditor shall be entitled
to receive each regularly scheduled payment of interest that constitutes
Subordinated Debt, provided that an Event of Default, as defined in the Loan
Agreement, has not occurred and is not continuing or would not exist immediately
after such payment.
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Creditor shall promptly deliver to Bank in the form received (except for
endorsement or assignment by Creditor where required by Bank) for application to
the Senior Debt any payment, distribution, security or proceeds received by
Creditor with respect to the Subordinated Debt other than in accordance with
this Agreement.
5. In the event of Borrower's insolvency, reorganization or
any case or proceeding under any bankruptcy or insolvency law or laws relating
to the relief of debtors, these provisions shall remain in full force and
effect, and Bank's claims against Borrower and the estate of Borrower shall be
paid in full before any payment is made to Creditor.
6. For so long as any of the Senior Debt remains unpaid,
Creditor irrevocably appoints Bank as Creditor's attorney-in-fact, and grants to
Bank a power of attorney with full power of substitution, in the name of
Creditor or in the name of Bank, for the use and benefit of Bank, without notice
to Creditor, to perform at Bank's option the following acts in any bankruptcy,
insolvency or similar proceeding involving Borrower:
(i) To file appropriate claim or claims in respect of
the Subordinated Debt on behalf of Creditor if Creditor does not do so prior to
30 days before the expiration of the time to file claims in such proceeding and
if Bank elects, in its sole discretion, to file such claim or claims; and
(ii) To accept or reject any plan of reorganization
or arrangement on behalf of Creditor and to otherwise vote Creditor's claims in
respect of any Subordinated Debt in any manner that Bank deems appropriate for
the enforcement of its rights hereunder.
7. Creditor shall immediately affix a legend to the
instruments evidencing the Subordinated Debt stating that the instruments are
subject to the terms of this Agreement. No amendment of the documents evidencing
or relating to the Subordinated Debt shall directly or indirectly modify the
provisions of this Agreement in any manner which might terminate or impair the
subordination of the Subordinated Debt or the subordination of the security
interest or lien that Creditor may have in any property of Borrower. By way of
example, such instruments shall not be amended to (i) increase the rate of
interest with respect to the Subordinated Debt, or (ii) accelerate the payment
of the principal or interest or any other portion of the Subordinated Debt.
8. This Agreement shall remain effective for so long as
Borrower owes any amounts to Bank under the Loan Agreement or otherwise. If, at
any time after payment in full of the Senior Debt any payments of the Senior
Debt must be disgorged by Bank for any reason (including, without limitation,
the bankruptcy of Borrower), this Agreement and the relative rights and
priorities set forth herein shall be reinstated as to all such disgorged
payments as though such payments had not been made and Creditor shall
immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Creditor, Bank
may take such actions with respect to the Senior Debt as Bank, in its sole
discretion, may deem appropriate, including, without limitation, terminating
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advances to Borrower, increasing the principal amount, extending the time of
payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or any other person. No such action or inaction shall
impair or otherwise affect Bank's rights hereunder. Creditor waives the
benefits, if any, of Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848,
2849, 2850, 2899 and 3433.
9. This Agreement shall bind any successors or assignees of
Creditor and shall benefit any successors or assigns of Bank. This Agreement is
solely for the benefit of Creditor and Bank and not for the benefit of Borrower
or any other party. Credit further agrees that if Borrower is in the process of
refinancing a portion of the Senior Debt with a new lender, and if Bank makes a
request of Creditor, Creditor shall agree to enter into a new subordination
agreement with the new lender on substantially the terms and conditions of this
Agreement.
10. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
11. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws principles. Creditor and Bank submit to the exclusive
jurisdiction of the state and federal courts located in Santa ▇▇▇▇▇ County,
California. CREDITOR AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
OF THE TRANSACTIONS CONTEMPLETED HEREIN.
12. This Agreement represents the entire agreement with
respect to the subject matter hereof, and supersedes all prior negotiations,
agreements and commitments. Creditor is not relying on any representations by
Bank or Borrower in entering into this Agreement, and Creditor has kept and will
continue to keep itself fully apprised of the financial and other condition of
Borrower. This Agreement may be amended only by written instrument signed by
Creditor and Bank.
13. In the event of any legal action to enforce the rights of
a party under this Agreement, the party prevailing in such action shall be
entitled, in addition to such other relief as may be granted, all reasonable
costs and expenses, including reasonable attorneys' fees, incurred in such
action.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
"Creditor"
By: /s/ ▇▇▇▇ ▇▇▇▇
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▇▇▇▇ ▇▇▇▇
"Bank"
Venture Banking Group, a division of
Cupertino National Bank
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Title: Commercial Loan Officer
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The undersigned approves of the terms of this Agreement.
"Borrower"
Videonics Inc.
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By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
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Title: V.P. Finance and CFO
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