SUBORDINATION AGREEMENT
This Agreement, dated as of August 15, 2000, is made by
Morgenthaler Venture Partners V, L.P., a Delaware limited partnership (the
"Subordinated Creditor"), for the benefit of Wells Fargo Bank Minnesota,
National Association, a national banking association f/k/a Norwest Bank
Minnesota, National Association, in its capacity as agent for the Lenders
(defined below) (the "Agent").
Sheldahl, Inc., a Minnesota corporation (the "Borrower"), is now
or hereafter may be indebted to the Lenders on account of loans or the other
extensions of credit or financial accommodations from the Lenders to the
Borrower, or to any other person under the guaranty or endorsement of the
Borrower.
The Subordinated Creditor has on the date hereof made a $2
million loan to the Borrower evidenced by the Subordinated Note.
As a condition to making the loan to the Borrower evidenced by
the Subordinated Note, the Agent and Lenders have required that the
Subordinated Creditor subordinate the payment of the Subordinated Note to the
payment of any and all indebtedness of the Borrower to the Lenders.
ACCORDINGLY, in consideration of the loans and other financial
accommodations that have been made and may hereafter be made by the Lenders
for the benefit of the Borrower, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Subordinated Creditor hereby agrees as follows:
1. Definitions. As used herein, the following terms have the
meanings set forth below:
"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.
"Credit Agreement" means the Credit and Security Agreement dated
as of June 19, 1998, by and among the Borrower, the Agent and the
Lenders as amended to date and as the same may hereafter be amended,
supplemented or restated from time to time.
"Lender Indebtedness" means each and every debt, liability and
obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Agent or any Lender, 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, all interest
thereon, all renewals, extensions and modifications thereof and any
notes issued in whole or partial substitution therefor.
"Lenders" means Wells Fargo Bank Minnesota, National Association,
CIT Group/Equipment Financing, Inc. and any other financial institution
that becomes a party to the Credit Agreement as a lender.
"Subordinated Indebtedness" means all obligations arising under
or related to the Subordinated Note.
"Subordinated Note" means the Borrower's promissory note, dated
as of August 15, 2000, payable to the order of the Subordinated
Creditor in the original principal amount of $2,000,000, together with
all renewals, extensions and modifications thereof and any note or
notes issued in substitution therefor.
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 the Lender Indebtedness; and
regardless of any priority otherwise available to the Subordinated Creditor
by law or by agreement, the Agent and Lenders shall hold a first security
interest in all collateral securing payment of the Lender Indebtedness (the
"Collateral"), and any security interest claimed therein (including any
proceeds thereof) by the Subordinated Creditor shall be and remain fully
subordinate for all purposes to the security interest of the Agent and
Lenders therein for all purposes whatsoever.
3. Payments. Until all of the Lender Indebtedness has been
paid in full, the Subordinated Creditor shall not, without the Agent's prior
written consent, demand, receive or accept any payment, whether of principal,
interest or otherwise, from the Borrower in respect of the Subordinated
Indebtedness, or exercise any right of or permit any setoff in respect of the
Subordinated Indebtedness.
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 the Agent and the Lenders and will forthwith turn over such payment
to the Agent 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
the Agent 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 the Agent, 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, the
Agent, or any of its officers or employees or agents on behalf of the Agent,
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.
5. Action on Subordinated Debt. The Subordinated Creditor will
not commence any action or proceeding against the Borrower to recover all or
any part of the Subordinated Indebtedness, or join with any creditor (unless
the Agent and the Lenders shall so join) in bringing any proceeding against
the Borrower 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 the Lender Indebtedness has been paid in full.
6. Security Interest; Action Concerning Collateral. The
Subordinated Creditor will not take, receive, obtain, procure or otherwise
acquire any security interest in or lien against the Collateral unless and
until the Lender Indebtedness has been paid in full.
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 Borrower, dissolution, liquidation or any other marshaling of
the assets or liabilities of the Borrower, the Subordinated Creditor will
file all claims, proofs of claim or other instruments of similar character
necessary to enforce the obligations of the Borrower in respect of the
Subordinated Indebtedness and will hold in trust for the Lenders and the
Agent and promptly pay over to the Agent 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 the Lender Indebtedness has been paid in full.
If the Subordinated Creditor shall fail to take any such action, the Agent,
as attorney-in-fact for the Subordinated Creditor, may take such action on
the Subordinated Creditor's behalf. The Subordinated Creditor hereby
irrevocably appoints the Agent, or any of its officers or employees on behalf
of the Agent, 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 the Agent's own name or in the name of the
Subordinated Creditor as the Agent may deem necessary or advisable for the
enforcement of the agreements contained herein; and the Subordinated Creditor
will execute and deliver to the Agent such other and further
powers-of-attorney or instruments as the Agent may request in order to
accomplish the foregoing.
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 is a true and correct copy of the Subordinated Note bearing such
legend. The Subordinated Creditor is the lawful holder of the Subordinated
Note and has not transferred any interest therein to any other person.
Without the prior written consent of the Agent, which consent shall not be
unreasonably withheld or delayed, 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 so long as there remains
outstanding any of the Lender Indebtedness. Nothing herein shall preclude
any assignment, transfer or pledge of the Subordinated Note or any portion
thereof to any affiliate of any holder thereof who agrees to be bound by the
terms of this agreement or any assignment, transfer or pledge of the
Subordinated Note or any portion thereof the consent to which by the Agent
has been unreasonably withheld or delayed. Nothing herein shall preclude the
conversion of the Subordinated Note in accordance with the terms of section
9(a) or 9(b) thereof.
9. Continuing Effect. This Agreement shall constitute a
continuing agreement of subordination, and the Lenders and the Agent may,
without notice to or consent by the Subordinated Creditor, modify any term of
the Lender Indebtedness in reliance upon this Agreement. Without limiting the
generality of the foregoing, the Lenders and the Agent may, at any time and
from time to time, either before or after receipt of any such notice of
revocation, without the consent of or notice to the Subordinated Creditor and
without incurring responsibility to the Subordinated Creditor or impairing or
releasing the Agent's or any Lender's rights or any of the Subordinated
Creditor's obligations hereunder:
(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;
(b) sell, exchange, release or otherwise deal with any property
at any time securing payment of the Lender Indebtedness or any part
thereof;
(c) release anyone liable in any manner for the payment or
collection of the Lender Indebtedness or any part thereof;
(d) exercise or refrain from exercising any right against the
Borrower or any other person (including the Subordinated Creditor); and
(e) apply any sums received by the Agent or any Lender, by
whomsoever paid and however realized, to the Lender Indebtedness in
such manner as the Agent shall deem appropriate.
10. 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 any Lender to make any future loans or other
extensions of credit or financial accommodations to the Borrower.
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 the Lenders or the Agent:
Wells Fargo Bank Minnesota, National Association
Wells Fargo Center
N9312-040 MAC
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Telecopier: 612-341-2472
Attention: Perry T. Larson
If to the Subordinated Creditor:
Morgenthaler Venture Partners V, L.P.
c/o Morgenthaler
Terminal Tower
50 Public Square, Suite 2700
Cleveland, OH 44113
Attention: John D. Lutsi
Telecopier: 216-416-7525
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.
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 the Agent and the Lenders and the Subordinated Creditor.
13. No Waiver. No waiver shall be deemed to be made by the
Agent or any Lender of any of its rights hereunder unless the same shall be
in writing signed on behalf of the Agent, 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 the Agent or any
Lender or the obligations of the Subordinated Creditor to the Agent and the
Lenders in any other respect at any time.
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 the
Lenders and the Agent and their participants, successors and assigns
irrespective of whether this or any similar agreement is executed by any
other Subordinated Creditor of the Borrower. Notice of acceptance by the
Lenders and the Agent of this Agreement or of reliance by the Agent or any
Lender upon this Agreement is hereby waived by the Subordinated Creditor.
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, each of which shall be an original, but all of which
together shall constitute one instrument.
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 shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
ACKNOWLEDGMENT.
IN WITNESS WHEREOF, the Subordinated Creditor has
executed this Agreement as of the date and year first above-written.
Morgenthaler Venture Partners V, L.P.
By: /s/ John D. Lutsi
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Acknowledgment by Borrower
The undersigned, being the Borrower 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 the Lenders
and the Agent 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 the Lender Indebtedness, and (v) agrees to mark
its books conspicuously to evidence the subordination of the Subordinated
Indebtedness effected hereby.
SHELDAHL, INC.
By /s/ Jill Burchill
Its Chief Financial Officer
<PAGE>
EXHIBIT A
The Subordinated Note
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