Document:

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                                                                   EXHIBIT 10.37

                            SUBORDINATION AGREEMENT

          THIS SUBORDINATION AGREEMENT (this "Agreement"), ") is entered into as
                                              ---------
of March 13, 2001 between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), and MRT Technology, LLC a California Limited Liability Company
  --------
doing business as Ritek Global Media ("Junior Lender"), with reference to the
                                       -------------
following recitals of fact:

          WHEREAS, Image Entertainment, Inc., a California corporation
("Debtor") and Foothill have entered into that certain Loan and Security
  ------
Agreement dated as of December 28, 1998 (as amended, restated, modified or
supplemented from time to time, the "Loan Agreement"), pursuant to which
                                     --------------
Foothill has agreed to make certain loans to Debtor;

          WHEREAS, Debtor and Junior Lender have entered into that certain
Optical Disc Replication Agreement dated as of March 13, 2001 (the "Optical Disc
                                                                    ------------
Replication Agreement"), a copy of which is attached hereto as Exhibit A;
---------------------                                          ---------

          WHEREAS, Junior Lender has made or hereafter may make loans and other
advances to Debtor pursuant to the Optical Disc Replication Agreement; and

          WHEREAS, Junior Lender has agreed to the subordination of such
indebtedness to it, upon the terms and subject to the conditions set forth in
this Agreement.

          NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:

SECTION 1  DEFINITIONS; INTERPRETATION.

          (a)  Terms Defined in Loan Agreement.  All capitalized terms used in
               -------------------------------
this Agreement and not otherwise defined herein shall have the meanings
assigned to them in the Loan Agreement.

          (b)  Certain Defined Terms. As used in this Agreement, the following
               ---------------------
terms shall have the following meanings:

          "Dollars" means and refers to United States of America dollars or such
           -------
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts in the United States
of America.

          "Insolvency Event" has the meaning set forth in Section 3.
           ----------------                               ---------

          "Optical Disc Replication Agreement" has the meaning set forth in the
           ----------------------------------
Recitals to this Agreement.
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          "Senior Debt" shall mean all indebtedness and liabilities (including
           -----------
all principal, interest (including interest accruing after the commencement of a
Proceeding whether or not such interest is allowed as a claim therein), default
interest, fees, charges, and collection expenses) now or hereafter owed by
Debtor under the Loan Agreement or any other Loan Document.

          "Subordinated Debt" means all indebtedness, liabilities and other
           -----------------
monetary obligations of Debtor owing to Junior Lender under or pursuant to the
Subordinated Debt Documents, whether now existing or hereafter arising, and
whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, including all principal under the
Subordinated Debt Documents, all interest accrued thereon, all fees, and all
other amounts payable by Debtor to Junior Lender thereunder. "Subordinated Debt"
shall not include any indebtedness owed by Debtor to Junior Lender as a result
of the "Ritek Services" as defined in Paragraph 1(d) of the Optical Disc
Replication Agreement.

          "Subordinated Debt Documents" means Paragraph 5 of the Optical Disc
           ---------------------------
Replication Agreement, entitled "Title Development Fund; Loan from Ritek to
Image," and any instruments, documents or agreements related thereto. The term
"Subordinated Debt Documents" does not include any other provisions of the
Optical Disc Replication Agreement.

          "Subordinated Debt Payment" means any payment or distribution by or on
           -------------------------
behalf of Debtor, directly or indirectly, of assets of Debtor of any kind or
character, whether in cash, property or securities, including on account of the
purchase, redemption or other acquisition of Subordinated Debt, as a result of
any collection, sale or other disposition of collateral, or by setoff
(including, but not limited to, any setoff by Junior Lender against Subordinated
Debt of any indebtedness, liabilities, or other monetary obligation owing to
Debtor by Junior Lender under any provision of the Optical Disc Replication
Agreement), exchange or in any other manner, for or on account of the
Subordinated Debt.

          "Subordinated Lender Remedies" means any action which results in (i)
           ----------------------------
the sale, foreclosure, realization on or liquidation of any of Debtor's assets
or properties in respect of the Subordinated Debt, (ii) the execution on any
judgment obtained against Debtor in respect of the Subordinated Debt, (iii) the
acceleration of the Subordinated Debt, (iv) the filing of any petition or lien
under any bankruptcy, insolvency or creditors' rights laws with respect to
Debtor, or (v) the institution or exercise against Debtor of any suit, legal
action, arbitration or other enforcement remedy in respect of the Subordinated
Debt.

          (c)  Interpretation. Unless the context of this Agreement clearly
               --------------
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto. References to statutes or regulations are to be

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construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to. The captions and
headings are for convenience of reference only and shall not affect the
construction of this Agreement.

SECTION 2  SUBORDINATION TO PAYMENT OF SENIOR DEBT.

           All payments on account of the Subordinated Debt shall be subject,
subordinate and junior, in right of payment and exercise of remedies, to the
extent and in the manner set forth herein, to the prior payment, in full, in
cash (or other consideration acceptable to Foothill in its sole discretion and
agreed to by Foothill) of the Senior Debt.

SECTION 3  SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF DEBTOR.

           In the event of any payment or distribution of assets or properties
of Debtor of any kind or character, whether in cash, property, or securities,
upon the dissolution, winding up, or total or partial liquidation or
reorganization, readjustment, arrangement, or similar proceeding relating to
Debtor or its property, whether voluntary or involuntary, or in bankruptcy,
insolvency, receivership, arrangement or similar proceedings or upon an
assignment for the benefit of creditors, or upon any other marshaling or
composition of the assets and liabilities of Debtor, or otherwise (such events,
collectively, the "Insolvency Events"):  (i) all amounts owing on account of
                   -----------------
the Senior Debt shall first be paid, in full, in cash, or payment provided for
in cash (or other consideration acceptable to Foothill in its sole discretion
and agreed to by Foothill), before any Subordinated Debt Payment is made; and
(ii) to the extent permitted by applicable law, any Subordinated Debt Payment to
which Junior Lender would be entitled except for the provisions hereof, shall,
in the event of any such Insolvency Event, be paid or delivered by the trustee
in bankruptcy, receiver, assignee for the benefit of creditors, or other
liquidating agent making such payment or distribution directly to Foothill for
application to the payment of the Senior Debt in accordance with clause (i),
after giving effect to any concurrent payment or distribution or provision
therefor to Foothill in respect of such Senior Debt.

SECTION 4  PAYMENTS ON SUBORDINATED DEBT.

           (a)  Permitted Payments. Until all of the Senior Debt shall have been
                ------------------
first paid, in full, in cash, or payment provided for in cash (or other
consideration acceptable to Foothill in its sole discretion and agreed to by
Foothill), Debtor shall not make and Junior Lender shall not accept any
Subordinated Debt Payment, except for repayments from time to time of the
principal amount of the Subordinated Debt in an amount not to exceed $1.00 for
each DVD and $0.50 for each CD ordered by Debtor from Junior Lender pursuant to
and in accordance with the provisions of Section 5(d) of the Optical Disc
Replication Agreement, such payments subject to the "Maximum Quarterly Payment"
as set forth in Section 5(d) ("Permitted Principal Payment"), provided that at
                               ---------------------------    --------
the time of any such Permitted Principal Payment (a) no "Event of Default" has
occurred and is continuing under the Loan Agreement, (b) no Event of Default
would result from the making of any such Permitted Principal Payment and (c)
after giving effect to any such Permitted Principal Payment, Debtor shall have
Excess Availability of no less than Three Million Dollars ($3,000,000).

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          (b)  Prohibition on Payments. Notwithstanding the provisions of
               -----------------------
subsection 4(a) above, upon the happening of any Event of Default under and
---------------
defined in the Loan Agreement, and upon receipt by Junior Lender of written
notice thereof (the "Default Notice") from Foothill, no Subordinated Debt
                     --------------
Payment shall be made or agreed to be made by Debtor or accepted by Junior
Lender on account of the principal of, premium or interest on, or any other
amounts in respect of the Subordinated Debt, and Debtor shall not segregate or
hold in trust money for any such payment or distribution, unless and until
Junior Lender has received a written notice from Foothill that the default
referred to in such Default Notice has been cured or waived by Foothill, and
thereafter Junior Lender shall be entitled to the payment or suspended payments
of the Subordinated Debt from Debtor, to the extent permitted as an Allowed
Payment under subsection 4(a) hereof, and provided that no Event of Default will
              ---------------
result from the making of any such payments by Debtor.

          (c)  Forbearance of Legal Remedies. For a period of 180 days after
               -----------------------------
delivery of a Default Notice, as provided in subsection 4(b) above, Junior
                                             ---------------
Lender shall not exercise any Subordinated Lender Remedies or other remedies it
may have for a default under the Subordinated Debt Documents, except as
permitted below. Whether or not a Default Notice is then in effect, Junior
Lender may exercise one or more or all of the following rights or remedies (in
each case, subject at all times to the payment subordination and lien
subordination provisions as set forth in this Agreement), but only the following
rights and remedies, after prior written notice to Foothill and upon the
occurrence of any of the following conditions, including any such occurrence
during the effective period of any Default Notice: (i) an Insolvency Event shall
occur, or (ii) Foothill commences legal proceedings against the Debtor: (x)
accelerate payment of the Subordinated Debt; (y) commence legal proceedings
against Debtor and, if requested by Foothill, become a co-plaintiff in any legal
proceedings commenced by Foothill, provided, that in no event shall Junior
Lender be permitted to execute on any judgment obtained against Debtor until the
Senior Debt shall have been paid in full, in cash, or payment provided for in
cash (or other consideration acceptable to Foothill in its sole discretion and
agreed to by Foothill) unless the proceeds of such execution or judgment are
paid to Foothill for application against the Senior Debt, and further provided
that Junior Lender shall not be permitted to execute on any judgment obtained
against Debtor if the only predicate act above is the acceleration of payment of
the Senior Debt; and (z) file a proof of claim or otherwise participate in any
Insolvency Event.

          Junior Lender agrees to provide Foothill with not less than fifteen
(15) Business Days prior written notice of its intent to exercise any legal
remedy other than as set forth in clause (b) above, which notice may be given
during the period of time that a Default Notice is in effect.

SECTION 5  SUBORDINATION OF REMEDIES.

          Except as provided in Section 4 above, so long as any Senior Debt
                                ---------
shall remain outstanding and unpaid, Junior Lender shall not, without the prior
written consent of Foothill:

          (i)  accelerate, make demand, or otherwise make due and payable prior
to the original stated maturity thereof any Subordinated Debt or bring suit or
institute any other actions

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or proceedings to enforce its rights or interests in respect of the obligations
of Debtor owing to Junior Lender;

          (ii)  exercise any rights under or with respect to guaranties of the
Subordinated Debt, if any;

          (iii) exercise any rights to setoffs and counterclaims in respect of
any indebtedness, liabilities or obligations of Junior Lender to Debtor against
any of the Subordinated Debt; or

          (iv)  commence, or cause to be commenced, or join with any creditor
other than Foothill in commencing, any bankruptcy, insolvency or receivership
proceeding against Debtor.

SECTION 6  PAYMENT OVER TO FOOTHILL.

          Notwithstanding the provisions of Sections 3, 4, and 5, in the event
                                            --------------------
that any Subordinated Debt Payments shall be received in contravention of such
Sections 3, 4, and 5 by Junior Lender before all Senior Debt is paid, in full,
--------------------
in cash (or other consideration acceptable to Foothill in its sole discretion
and agreed to by Foothill), such Subordinated Debt Payments shall be held in
trust for the benefit of Foothill and shall be paid over or delivered to
Foothill for application to the payment, in full, in cash (or other
consideration acceptable to Foothill in its sole discretion and agreed to by
Foothill) of all Senior Debt remaining unpaid to the extent necessary to give
effect to such Sections 3, 4, and 5, after giving effect to any concurrent
               --------------------
payments or distributions to Foothill in respect of the Senior Debt.

SECTION 7  AUTHORIZATION TO FOOTHILL.

          Notwithstanding the provisions of subsection 4(a) above, if, while any
                                            ---------------
Subordinated Debt is outstanding, any Insolvency Event shall occur relating to
Debtor or its property:  (i) Foothill is hereby irrevocably authorized and
empowered (in the name of Junior Lender or otherwise), but shall have no
obligation, to demand, sue for, collect, and receive every payment or
distribution in respect of the Subordinated Debt and give acquittance therefor
and to file claims and proofs of claim and take such other action (including
voting the Subordinated Debt with the exception that Junior Creditor may vote
the Subordinated Debt for or against the approval of a plan of reorganization of
the Debtor in the event that Foothill's claim against the Debtor is unimpaired
under such plan of reorganization) as it may deem necessary or advisable for the
exercise or enforcement of any of the rights or interests of Foothill; and (ii)
Junior Lender shall promptly take such action as Foothill reasonably may request
(A) to collect the Subordinated Debt for the account of Foothill and to file
appropriate claims or proofs of claim in respect of the Subordinated Debt, (B)
to execute and deliver to Foothill such powers of attorney, assignments, and
other instruments as it may request to enable it to enforce any and all claims
with respect to the Subordinated Debt, and (C) to collect and receive any and
all Subordinated Debt Payments to the extent permitted by applicable law.

SECTION 8 CERTAIN AGREEMENTS OF JUNIOR LENDER.

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          (a)  No Benefits.  Junior Lender understands that there may be various
               -----------
agreements among Foothill and Debtor evidencing and governing the Senior Debt,
and Junior Lender acknowledges and agrees that such agreements are not intended
to confer any benefits on Junior Lender and that Foothill shall have no
obligation to Junior Lender or any other Person to exercise any rights, enforce
any remedies, or take any actions which may be available to them under such
agreements.

          (b)  No Interference.  Junior Lender acknowledges that Debtor has
               ---------------
granted Foothill a security interest in all of Debtor's assets, and agrees that,
so long as Junior Lender holds Subordinated Debt, Junior Lender will not
interfere with or in any manner oppose a disposition of any Collateral by
Foothill that is affected in accordance with the terms of the agreements
governing such grants and applicable law.

          (c)  Reliance by Foothill.  Junior Lender acknowledges and agrees
               --------------------
that Foothill will have relied upon and will continue to rely upon the
subordination provisions provided for herein and the other provisions hereof in
entering into the Loan Documents and making or making the Advances thereunder.

          (d)  Waivers. With the exception of the notice requirements of
               -------
subsection 4(b) above, Junior Lender waives any and all notice of the incurrence
of the Senior Debt or any part thereof and any right to require marshaling of
assets.

          (e)  Obligations of Junior Lender Not Affected.  Junior Lender agrees
               -----------------------------------------
that at any time and from time to time, without notice to or the consent of
Junior Lender, without incurring responsibility to Junior Lender, and without
impairing or releasing the subordination provided for herein or otherwise
impairing the rights of Foothill hereunder: (i) the time for Debtor's
performance of or compliance with any of its agreements contained in the Loan
Documents may be extended or such performance or compliance may be waived by
Foothill; (ii) the agreements of Debtor with respect to the Loan Documents may
from time to time be modified by Debtor and Foothill for the purpose of adding
any requirements thereto or changing in any manner the rights and obligations of
Debtor or Foothill thereunder; (iii) the manner, place or terms for payment of
Senior Debt or any portion thereof may be altered or the terms for payment
extended, or the Senior Debt may be renewed in whole or in part; (iv) the
maturity of the Senior Debt may be accelerated in accordance with the terms of
any present or future agreement by Debtor and Foothill; (v) any Collateral may
be sold, exchanged, released or substituted in accordance with the Loan
Documents and any Lien in favor of Foothill may be terminated, subordinated, or
fail to be perfected or become unperfected; (vi) any Person liable in any manner
for Senior Debt may be discharged, released, or substituted; and (vii) all other
rights against Debtor, any other Person, or with respect to any Collateral may
be exercised (or Foothill may waive or refrain from exercising such rights) in
accordance with the Loan Documents.

          (f)  Rights of Foothill Not to Be Impaired.  No right of Foothill to
               -------------------------------------
enforce the subordination provided for herein or to exercise its other rights
hereunder shall at any time in any way be prejudiced or impaired by any act or
failure to act by Debtor hereunder or under or in connection with the other Loan
Documents or by any noncompliance by Debtor with the terms

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<PAGE>

and provisions and covenants herein or in any other Loan Document, regardless of
any knowledge thereof Foothill may have or otherwise be charged with.

          (g)  Financial Condition of Debtor.  With the exception of the notice
               -----------------------------
requirements of subsection 4(b) above, Junior Lender shall not have any right to
require Foothill to obtain or disclose any information with respect to: (i) the
financial condition or character of Debtor or the ability of Debtor to pay and
perform Senior Debt; (ii) the Senior Debt; (iii) the Collateral or other
security for any or all of the Senior Debt; (iv) the existence or nonexistence
of any guarantees of, or any other subordination agreements with respect to, all
or any part of the Senior Debt; (v) any action or inaction on the part of
Foothill or any other Person; or (vi) any other matter, except as otherwise
expressly required by any provision of any Loan Document or law (except to the
extent that any otherwise applicable requirement of law has been waived by
Junior Lender pursuant to a legally enforceable waiver).

          (h)  Acquisition of Liens or Guaranties.  Unless otherwise expressly
               ----------------------------------
permitted under the Loan Documents, Junior Lender shall not, without the prior
written consent of Foothill, acquire any right or interest, including any lien
or security interest, in or to any property of the Debtor or any subsidiary of
the Debtor or accept any guaranties for the Subordinated Debt.

SECTION 9  SUBROGATION.

          (a)  Subrogation.  Until the payment and performance in full of all
               -----------
Senior Debt, Junior Lender shall not have, and shall not directly or indirectly
exercise, any rights that it may acquire by way of subrogation under this
Agreement, by any payment or distribution to Foothill hereunder or otherwise.

          (b)  Payments Over to Junior Lender. If any payment or distribution to
               ------------------------------
which Junior Lender would otherwise have been entitled but for the provisions of
Section 3, 4, or 5 shall have been applied pursuant to the provisions of Section
------------------                                                       -------
3, 4, or 5 to the payment of all amounts payable under the Senior Debt, Junior
----------
Lender shall be entitled to receive from Foothill any payments or distributions
received by Foothill in excess of the amount sufficient to pay in full all
amounts payable under or in respect of the Senior Debt. If any such excess
payment is made to Foothill, Foothill shall promptly remit such excess to Junior
Lender and until so remitted shall hold such excess payment for the benefit of
Junior Lender.

SECTION 10 CONTINUING AGREEMENT; REINSTATEMENT.

          (a)  Continuing Agreement.  This Agreement is a continuing agreement
               --------------------
of subordination and shall continue in effect and be binding upon Junior Lender
until payment and performance in full of the Senior Debt. The subordinations,
agreements, and priorities set forth herein shall remain in full force and
effect regardless of whether any party hereto in the future seeks to rescind,
amend, terminate, or reform, by litigation or otherwise, its respective
agreements with Debtor.

          (b)  Reinstatement.  This Agreement shall continue to be effective or
               -------------
shall be reinstated, as the case may be, if, for any reason, any payment of the
Senior Debt by or on behalf

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of Debtor shall be rescinded or must otherwise be restored by Foothill, whether
as a result of an Insolvency Event or otherwise.

SECTION 11 TRANSFER OF SUBORDINATED DEBT.

          Junior Lender may not assign or transfer its rights and obligations in
respect of the Subordinated Debt or any interest in the Subordinated Debt unless
any such transferee or assignee, as a condition to acquiring an interest in the
Subordinated Debt shall agree to be bound hereby, in form reasonably
satisfactory to Foothill.

SECTION 12 OBLIGATIONS OF DEBTOR NOT AFFECTED.

          The provisions of this Agreement are intended solely for the purpose
of defining the relative rights against Debtor of Junior Lender, on the one
hand, and Foothill, on the other hand. Nothing contained in this Agreement shall
(i) impair, as between Debtor and Junior Lender, the obligation of Debtor to pay
its obligations with respect to the Subordinated Debt as and when the same shall
become due and payable in accordance with the terms thereof, which obligations
shall remain absolute and unconditional, or (ii) otherwise affect the relative
rights against Debtor of Junior Lender, on the one hand, and the creditors of
Debtor (other than Foothill), on the other hand.

SECTION 13 FURTHER ASSURANCES AND ADDITIONAL ACTS.

          (a)  Endorsement of Subordinated Debt Documents.  At the request of
               ------------------------------------------
Foothill, all documents and instruments evidencing any of the Subordinated Debt
shall be endorsed with a legend noting that such documents and instruments are
subject to this Agreement, and Junior Lender shall promptly deliver to Foothill
evidence of the same.

          (b)  Further Assurances and Additional Acts.  Each of Junior Lender
               --------------------------------------
and Debtor shall execute, acknowledge, deliver, file, notarize and register at
its own reasonable expense all such further agreements, instruments,
certificates, financing statements, documents and assurances, and perform such
acts as Foothill reasonably shall deem necessary or appropriate to effectuate
the purposes of this Agreement, and promptly provide Foothill with evidence of
the foregoing reasonably satisfactory in form and substance to Foothill.

SECTION 14  NOTICES.

          All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including by facsimile
transmission) and shall be mailed, sent, or delivered at or to the address or
facsimile number of the respective party or parties set forth below:

                                       8
<PAGE>

            If to Foothill:              FOOTHILL CAPITAL CORPORATION
                                         2450 Colorado Avenue
                                         Suite 3000 West
                                         Santa Monica, California 90404
                                         Attn: Business Finance Division Manager
                                         Telecopier: 310.453.7413

            With a copy to:              BROBECK, PHLEGER & HARRISON LLP
                                         550 S. Hope Street, Suite 2100
                                         Los Angeles, CA 90071
                                         Attn: John Francis Hilson, Esq.
                                         Telecopier: 213.239.1324

            If to Junior Lender:         MRT TECHNOLOGY, LLC
                                         18560 San Jose Avenue
                                         City of Industry, CA 91748
                                         Attention: Joe Fernando
                                         Telecopier: 626.810.6001

            With a copy to:              IMAGE ENTERTAINMENT, INC.
                                         9333 Oso Avenue
                                         Chatsworth, CA 91311
                                         Attention: Jeff Framer
                                         Telecopier: 818.407.9331

          The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other parties. All notices and communications sent in accordance with this
section shall be effective (i) if delivered by hand, when delivered; (ii) if
sent by mail, upon the earlier of the date of receipt or five (5) Business Days
after deposit in the mail, first class (or air mail, with respect to
communications to be sent to or from the United States), postage prepaid; and
(iii) if sent by facsimile transmission, when sent.

SECTION 15 NO WAIVER; CUMULATIVE REMEDIES.

          No failure on the part of either party herein to exercise, and no
delay in exercising, any right, remedy, power, or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power, or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power, or privilege. The
rights and remedies under this Agreement are cumulative and not exclusive of any
rights, remedies, powers, and privileges that may otherwise be available to the
parties herein.

SECTION 16 COSTS AND EXPENSES.

                                       9
<PAGE>

          Debtor agrees to pay to Foothill on demand the reasonable out-of-
pocket costs and expenses of Foothill, and the reasonable fees and disbursements
of counsel to Foothill, in connection with the negotiation, preparation,
execution, delivery, and enforcement of this Agreement, and any amendments,
modifications, or waivers of the terms thereof.

SECTION 17 SURVIVAL.

          All covenants, agreements, representations and warranties made in this
Agreement shall, except to the extent otherwise provided herein, survive the
execution and delivery of this Agreement, and shall continue in full force and
effect so long as any Senior Debt remains unpaid.  Without limiting the
generality of the foregoing, the obligations of Debtor under Section 16 shall
                                                             ----------
survive the satisfaction of the Senior Debt.

SECTION 18 BENEFITS OF AGREEMENT.

          This Agreement is entered into for the sole protection and benefit of
the parties hereto and their successors and assigns, and no other Person shall
be a direct or indirect beneficiary of, or shall have any direct or indirect
cause of action or claim in connection with, this Agreement.

SECTION 19 BINDING EFFECT.

          This Agreement shall be binding upon, inure to the benefit of and be
enforceable by Debtor, Junior Lender, and Foothill and their respective
successors and assigns.

SECTION 20 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

          THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL
MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. EACH PARTY HERETO
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20. EACH PARTY HERETO
HEREBY WAIVES ITS 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
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY HERETO
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION

                                       10
<PAGE>

WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

SECTION 21 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.

          (a)  Entire Agreement.  This Agreement constitutes the entire
               ----------------
agreement of Debtor, Foothill, and Junior Lender with respect to the matters set
forth herein and supersedes any prior agreements, commitments, drafts,
communications, discussions, and understandings, oral or written, with respect
thereto.

          (b)  Amendments and Waivers.  No amendment to any provision of this
               ----------------------
Agreement shall in any event be effective unless the same shall be in writing
and signed by Debtor, Junior Lender, and Foothill; and no waiver of any
provision of this Agreement, or consent to any departure by Debtor or Junior
Lender therefrom, shall in any event be effective unless the same shall be in
writing and signed by Foothill. Any such amendment, waiver, or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

SECTION 22 CONFLICTS.

          In case of any conflict or inconsistency between any terms of this
Agreement, on the one hand, and any documents or instruments in respect of the
Subordinated Debt, on the other hand, then the terms of this Agreement shall
control.

SECTION 23 SEVERABILITY.

          Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Agreement shall be
prohibited by or invalid under any such law or regulation in any jurisdiction,
it shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Agreement or the validity or effectiveness of such provision in any other
jurisdiction.

SECTION 24 INTERPRETATION.

          This Agreement is the result of negotiations between, and has been
reviewed by counsel to, Foothill, Junior Lender, and Debtor and is the product
of all parties hereto. Accordingly, this Agreement shall not be construed
against Foothill merely because of Foothill's involvement in the preparation
hereof.

SECTION 25 COUNTERPARTS.

                                       11
<PAGE>

          This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.

SECTION 26 TERMINATION OF AGREEMENT.

          Upon payment and performance in full of the Senior Debt, this
Agreement shall terminate and Foothill shall promptly execute and deliver to
Debtor and Junior Lender such documents and instruments as shall be necessary to
evidence such termination; provided, however, that the obligations of Debtor and
Junior Lender under Section 16 shall survive such termination.
                    ----------

SECTION 27 ATTORNEYS FEES.

          If there is any claim or controversy litigated in any lawsuit between
the parties hereto in connection with this Agreement, the prevailing party in
the lawsuit shall be entitled to recover from the other parties the reasonable
costs and attorneys' fees.

                                       12
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.

                                  FOOTHILL CAPITAL CORPORATION,
                                  a California Corporation

                                  By: _____________________________
                                  Name: Andy Hall
                                  Title: Senior Vice President

                                  MRT TECHNOLOGY, LLC,
                                  a California Limited Liability Company

                                  By: _____________________________
                                  Name:
                                  Title:

                                       13
<PAGE>

                             DEBTOR ACKNOWLEDGEMENT

Debtor has received a copy of, and has read, the foregoing Subordination
Agreement. Debtor agrees to be bound by such agreement, and not to take any
action that would breach or violate the terms thereof. Debtor consents to the
execution, delivery, and performance of such agreement by Foothill and Junior
Lender, and agrees that Debtor's obligations to Foothill and Junior Lender are
not diminished by such agreement. Debtor acknowledges that it has no rights
under the foregoing agreement and is not a third party beneficiary of such
agreement.

Dated as of the date first set forth above:

                                   IMAGE ENTERTAINMENT, INC.,
                                   a California corporation

                                   By:_____________________________
                                   Name:
                                   Title:

                                       14<PAGE>

                                                                  Exhibit 10.9.2

                    AMENDED AND RESTATED SUBLEASE AGREEMENT

   (Office Space at 13112 Evening Creek Drive South, San Diego, California)

          THIS SUBLEASE AGREEMENT (this "Sublease") is made as of September 1,
2000, by and between Smiths Industries Aerospace & Defense Systems, Inc., a
Delaware corporation ("Sublandlord"), and E.Digital Corporation, a Delaware
corporation ("Subtenant").

          IN CONSIDERATION OF the mutual covenants, conditions and demise herein
contained, and other good and valuable consideration, receipt of which is hereby
acknowledged by each of Sublandlord and Subtenant, the parties hereto (together,
the "Parties" and each, sometimes, a "Party") do hereby agree and act as
follows:

     1.  Definitions.

          1.1  "Base Rent" means the following amounts payable to Sublandlord by
Subtenant, in accordance with Section 4 of this Sublease:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
     Time Period                 Annual Rate Per      Annual Base Rent    Monthly Base Rent
                                 Square Foot of
                               Premises Rentable
                                     Area
--------------------------------------------------------------------------------------------------
<S>                            <C>                    <C>                 <C>
From September 1,                  $14.64              $184,054.08          $15,337.84
2000 to July 31, 2001
--------------------------------------------------------------------------------------------------
From August 1, 2001 to             $15.24              $191,597.28          $15,966.44
July 31, 2002
--------------------------------------------------------------------------------------------------
From August 1, 2001 to             $15.85              $199,266.24          $16,605.52
July 31, 2003
--------------------------------------------------------------------------------------------------
</TABLE>

          1.2  "Base Year" means a twelve-month period ending July 31, 2000.

          1.3  "Common Areas" means all those areas and facilities of the Master
Premises designated by Sublandlord for the common use and enjoyment of
Sublandlord, subtenants and their respective employees and invitees, including
lobbies, corridors, sidewalks, access driveways, and other public areas and
facilities within the Master Premises.

          1.4  "Default" means (A) any Event of Default under the Master Lease,
other than with respect to a Sublandlord Retained Obligation, (B) any failure by
Subtenant to pay Base Rent when due hereunder which is not cured within 3
business days after Sublandlord gives Subtenant written notice thereof, (C) any
assignment, subletting or other transfer by Subtenant of this Sublease or its
interest in the Premises, except as expressly permitted hereunder, (D) any
holding over after the expiration or earlier termination of this Lease without
Sublandlord's prior written consent or any failure to surrender the Premises in
the condition required under Section 5.3 of the Master Lease, or (E) any failure
by Subtenant to perform any of its covenants under this Sublease, unless such
failure is cured, at the earliest, (i) before maturing into an Event of Default
under the Master Lease or (ii) within 10 days after Sublandlord or Landlord
gives Subtenant
<PAGE>

                                                                  Exhibit 10.9.2

written notice of such failure, if reasonably susceptible to cure within 10 days
(and, if not reasonably susceptible to cure within 10 days, as soon as
reasonably diligent efforts allow, so long as Subtenant commences such efforts
within 10 days after receiving such notice).

          1.5 "Expense Year" means each twelve month period beginning on
August 1, in which any portion of the Term falls beginning August, 2000, through
and including the period in which the Term expires.

          1.6  "Incorporated Provisions of the Master Lease" means the sections
and subsections of the Master Lease which are specified in the Schedule of
Incorporated Provisions attached hereto as Schedule 2, as may be limited or
otherwise modified by such Schedule.

          1.7  "Landlord" means Bedford Property Investors, Inc., a Maryland
corporation, and any successor Landlord under the Master Lease.

          1.8  "Master Lease" means that certain Lease, dated as of August 14,
1996, between Landlord and Sublandlord, as "Tenant," for the Master Premises, a
copy of which is attached hereto as Exhibit A.

          1.9  "Master Premises" means the land more particularly described in
the Master Lease attached hereto as Exhibit A, and all rights, easements, and
appurtenances thereunto belonging or pertaining, together with the improvements
thereon (the "Building") containing approximately 109,780 square feet of space,
and fixtures, furnishings and equipment located at 13112 Evening Creek Drive,
South, San Diego, California 92128.

          1.10 "Operating Expenses" means those expenses, costs and amounts of
every kind that Sublandlord pays or incurs during any Expense Year because of or
in connection with the ownership, operation, management, maintenance, repair,
replacement, or restoration of the Master Premises, including, without
limitation, all costs incurred by Sublandlord for (a) heat, light, power, air
conditioning and ventilation, and other utilities, and (b) real estate taxes,
and (c) insurance costs.

          1.11 "Premises" means that portion of the Master Premises that is
described or delineated on Exhibit B attached hereto which contains
approximately 12,974 rentable square feet.

          1.12 "Sublandlord Improvements" means those improvements that
Sublandlord shall make, at its sole cost and expense, to the Premises prior to
the Commencement Date, as described on Exhibit C attached hereto.

          1.13 "Sublandlord Retained Obligations" means (A) those obligations
and liabilities of Tenant under the Master Lease which are specified in the
Schedule of Sublandlord Retained Obligations attached hereto as Schedule 1 and
(B), whether or not specified on Schedule 1, all of Tenant's obligations and
liabilities under the Master Lease which (i) arise or accrue during, or
otherwise pertain to, periods of the term of the Master Lease that do not fall
within the Term or portions of the Master Premises that do not lie within the
Premises, or (ii) result from an action on the part of Sublandlord or any of its
employees, contractors or other agents (unless such action is performed at the
direction or request of Subtenant).
<PAGE>

                                                                  Exhibit 10.9.2

          1.14  "Sublease Commencement Date" means September 1, 2000.

          1.15  "Subtenant Alterations" means those alterations, improvements
and installations (including, without limitation, the Subtenant Improvements
defined below) that Subtenant makes to the Premises, other than trade fixtures
and the installation of equipment or personal property that can be removed from
the Premises without material damage thereto.

          1.16  "Subtenant Assumed Obligations" means all obligations and
liabilities of Tenant under the Master Lease except for Sublandlord Retained
Obligations.

          1.17  "Subtenant Improvements" means those improvements that Subtenant
shall make, at its sole cost and expense, to the Premises prior to the
Commencement Date, as described on Exhibit D attached hereto.

          1.18  "Subtenant's Proportionate Share" shall be 11.4%.

          1.19  "Term" means term of this Sublease, beginning on the Sublease
Commencement Date and ending on July 31, 2003, unless sooner terminated in
accordance with the express provisions of this Sublease.

Each of the foregoing terms, and every other term defined in this Sublease,
shall have its defined meaning wherever capitalized herein (including, in any
Exhibit or Schedule hereto). Terms which are not otherwise defined herein, but
are defined in the Master Lease, shall have the meaning assigned to them there
wherever capitalized in this Sublease. As used in this Sublease, the terms
"herein," "hereof" and "hereunder" refer to this Sublease in its entirety and
are not limited to any specific sections; and the term "person" means any
natural person, other legal entity, or combination of natural persons and/or
other legal entities acting as a unit. Wherever appropriate in this Sublease,
the singular shall be deemed to refer to the plural and the plural to the
singular, and pronouns of certain genders shall be deemed to comprehend either
or both of the other genders.

     2.  Demising Clause.  Effective as of the Sublease Commencement Date,
Sublandlord hereby demises and subleases to Subtenant, and Subtenant hereby
accepts and subleases from Sublandlord, the Premises, for the Term, at the rents
and upon all of the other terms and conditions set forth herein.  The sublease
of the Premises to Subtenant shall include (a) the non-exclusive right to use
the Common Areas, and (b) the exclusive right to use the modular furniture
(including desks, chairs, cabinets, cubicles) currently located in the Premises.
Subtenant's use of the Common Areas shall be subject to reasonable rules and
regulations of Sublandlord and with respect to parking areas shall be further
subject to the provisions of Section 7 below.

     3.  Condition of Premises; Improvements.

               3.1 Sublandlord shall deliver the Premises to Subtenant on the
Sublease Commencement Date with the Sublandlord Improvements, clean and free of
debris but otherwise in its existing condition, AS-IS, WHERE-IS and with all
faults and defects. Subtenant hereby acknowledges that Sublandlord has not made,
will not make and shall not be deemed to make any warranties or representations
concerning the condition of the Premises or their suitability for Subtenant's
contemplated use or any undertakings to improve the Premises (except for the
<PAGE>

                                                                  Exhibit 10.9.2

Sublandlord Improvements) or repair the Premises (except as expressly provided
herein), and that the foregoing disclaimer of warranties and representations and
Subtenant's agreement to accept the Premises in their existing condition are a
material consideration to Sublandlord for this Sublease.

          3.2 Subtenant shall be responsible for the Subtenant Improvements and
any other Subtenant Alterations or installations to the Premises that Subtenant
desires. Subtenant shall obtain Sublandlord's and Landlord's prior approval of
the Subtenant Improvements and all other Subtenant Alterations, including
submitting detailed plans and specifications for all such work for Sublandlord's
approval, and shall make the same in accordance with the provisions of the
Master Lease, this Sublease and with such approved plans and specifications.

          3.3 Upon the expiration or earlier termination of this Sublease,
Subtenant shall return the Premises to Sublandlord in the same condition as the
Premises were delivered by Sublandlord to Subtenant, reasonable wear and tear
excepted. Without limiting the generality of the foregoing:

          (a) Upon the expiration or earlier termination of this
Sublease,Subtenant shall remove all of Subtenant's trade fixtures, equipment and
personal property installed or affixed by Subtenant and repair all damage to the
Premises caused by such removal.

          (b) By delivery of written notice by Sublandlord to Subtenant no later
than 30 days prior to the expiration of this Sublease (or upon earlier
termination of this Sublease) Sublandlord may elect (i) to retain any of the
Subtenant Alterations made to the Premises by Subtenant, (ii) to require
Subtenant to remove the Subtenant Alterations (or that part of such Subtenant
Alterations identified by Sublandlord to Subtenant in said notice), or (iii)
require Subtenant to pay Sublandlord an amount equal to the estimated cost for
Sublandlord to remove the Subtenant Alterations (or that part of such Subtenant
Alterations identified by Sublandlord to Subtenant in said notice), as estimated
by Sublandlord in Sublandlord's reasonable determination (but in no event shall
the estimated cost of removal of the Subtenant Improvements exceed the cost
originally paid by Subtenant for the Subtenant Improvements, as referenced in
Exhibit D).

          3.4 Except for the Sublandlord Improvements, Sublandlord shall have no
obligation to incur, pay or bear any cost or expense for such alterations and
improvements and Subtenant shall hold Sublandlord harmless therefrom.

     4. Rent. As rent for the Premises ("Rent"), Subtenant shall pay the
following:

          4.1 Subtenant shall pay to Sublandlord for each calendar month falling
wholly or partially within the Term (prorated with respect to any partial month)
the monthly Base Rent. Each installment of the monthly Base Rent shall be due
and payable in advance, by the first day of each calendar month beginning within
the Term (and, in a prorated amount, by the Sublease Commencement Date for any
partial month at the beginning of the Term), except that the monthly Base Rent
for the first full calendar month of the Term (September 2000) shall be due and
payable upon Subtenant's execution and delivery of this Sublease.

          4.2 Subtenant shall pay to Sublandlord, Subtenant's Proportionate
Share of the Operating Expenses incurred for the Master Premises during any
Expense Year in excess of
<PAGE>

                                                                  Exhibit 10.9.2

those incurred for the Master Premises during the Base Year. If Subtenant uses
water, electricity, heat or air-conditioning in the Premises in excess of that
which is customary for office space or after normal Monday through Friday
business hours, Subtenant shall pay to Sublandlord, within thirty (30) days
after billing, Sublandlord's actual cost of providing such excess service,
without profit or overhead. In addition Landlord reserves the right, at
Subtenant's sole cost and expense, to install devices to separately meter
Subtenant's use of one or more utilities.

          4.3 Subtenant shall be responsible for any interest or late charge
incurred because of its failure to make timely payment of any Base Rent or
Operating Expenses.

     5. Option to Extend Term Sublandlord hereby grants Subtenant three (3)
options (each, an "Extension Option") to extend the Term for a period of one (1)
year (each, an "Option Term"), subject to the conditions described in this
Section 5. Subtenant shall have no other right to extend the Term beyond the
Option Term. Each Extension Option is subject to the following conditions:

          5.1 The Extension Option may be exercised only by written notice
delivered by Subtenant to Sublandlord of the exercise of the Extension Option no
earlier than 6 months, but no later than 5 months prior to the expiration of the
then current Term or Option Term (as applicable);

          5.2 Subtenant is not in default under this Sublease at the time of
exercise or any time thereafter until the beginning of any such Option Term;

          5.3 The exercise of any Extension Option by Subtenant shall be
irrevocable and shall cover the entire Premises subleased by Subtenant pursuant
to this Sublease;

          5.4 A later Extension Option cannot be exercised unless the prior
Extension Option has been validly exercised;

          5.5 The Annual Base Rent for any Option Term shall be increased by 4%
over the Annual Base Rent that was paid by Subtenant immediately prior to the
commencement of any such Option Term; and

          5.6 The rights contained in this Section 5, shall be personal to the
originally name Subtenant and may be exercised only the originally named
Subtenant (and not any assignee, sublessee, or other transferee of Subtenant's
interest in this Lease).

          5.7 If Subtenant exercises the Extension Option under this Section 5,
the Term shall be extended for the Option Term.

     6. Right of First Offer Sublandlord hereby grants to Subtenant a right of
first offer ("Right of First Offer") with respect to all of the space or a
portion thereof, consisting of approximately 20,903 square feet, located
adjacent to the Premises as depicted on Exhibit "B" ("Expansion Space").
Subtenant's Right of First Offer shall be on the terms and conditions set forth
in this Section 6. The First Offer Right shall begin only after the expiration
or earlier termination of the Sublease Agreement between Sublandlord and
BuyMatrix, Inc., a California
<PAGE>

                                                                  Exhibit 10.9.2

corporation, doing business as Med-eCommerce.com, including any renewal or
extension of such sublease (whether or not such renewal or extension is under an
express written provision in such sublease or consummated under a sublease
amendment or new sublease). At any time during the term of this Sublease, if
Sublandlord determines that any Expansion Space will become available for lease
to third parties, Sublandlord shall provide Subtenant with written notice
("First Offer Notice"). The First Offer Notice shall (a) describe the Expansion
Space that will become available for lease; and (b) state all the material terms
under which Sublandlord intends to offer such space to other prospective
subtenants. Subtenant shall have five (5) business days from and after the
receipt of the First Offer Notice from Sublandlord, in which to elect to lease
the Expansion Space at the rental rate and on the terms and conditions contained
in the First Offer Notice. If Subtenant does not elect to lease the Expansion
Space, then Subtenant's Right of First Offer shall terminate and Sublandlord
shall be free to lease the Expansion Space to anyone on any terms at any time
during the Term, without any obligation to provide Subtenant with a further
right to lease that space. Subtenant's election to lease the Expansion Space
described in the First Offer Notice, shall be subject to the following
conditions:

          6.1 The First Offer Right may be exercised only by written notice
delivered by Subtenant to Sublandlord within the five business day period
following receipt by Subtenant of the First Offer Notice;

          6.2 Subtenant is not in default under this Sublease at the time of
exercise or as of the date of the scheduled date of delivery of the specific
Expansion Space;

          6.3 The exercise of the First Offer Right by Subtenant shall be
irrevocable and shall cover the entire Expansion Space described in the First
Offer Notice; and

          6.4 The rights contained in this Section 6, shall be personal to the
originally name Subtenant and may be exercised only by the originally named
Subtenant (and not any assignee, sublessee, or other transferee of Subtenant's
interest in this Lease).

If Subtenant properly exercises the First Offer Right under this Section 6,
Sublandlord shall deliver the specific Expansion Space to Subtenant on the date
set forth in the First Offer Notice ("Delivery Date") in its AS-IS condition,
the specific Expansion Space shall become part of the Premises, and the Base
Rent and Subtenant's Proportionate Share shall be adjusted (in accordance with
the First Offer Notice) and shall commence on the Delivery Date. Subtenant's
lease of the specific Expansion Space shall be on the same terms and conditions
as affect the original Premises from time to time, except as otherwise provided
in this Section 6.

     7. Onsite Parking. Subtenant shall have the right to use 40 unreserved
parking stalls located in the open parking lot within the Master Premises,
except that if the Premises are reduced during the Term, the amount of parking
stalls shall also be reduced to the whole number which comes closest to that
number bearing the same relation as the number of rentable square feet in the
reduced Premises bears to the number of rentable square feet in the Premises.
Subtenant's right to use the parking stalls shall be conditioned upon
Subtenant's abiding by all rules and regulations prescribed from time to time
for the orderly operation and use of the parking lot. Subtenant shall use all
reasonable efforts to ensure that Subtenant's employees and visitors also comply
with such rules and regulations.
<PAGE>

                                                                  Exhibit 10.9.2

     8. Security Deposit. As security for Subtenant's performance of its
obligations hereunder, Subtenant shall provide the following security listed in
Section 8.1 below ("Security Deposit"):

          8.1 Subtenant has already deposited, in cash, with Sublandlord the sum
of $6,198.51. Subtenant shall deposit additional funds with Sublandlord prior to
the Commencement Date in the amount of $9,139.33, for a total cash deposit in
the amount of $15,337.84.

          8.2. Upon any Default by Subtenant, Sublandlord may (but shall not be
obligated to) debit the Security Deposit for the payment of all or any portion
of such delinquent Rent or to compensate Sublandlord for any loss or damage
suffered by reason of such Default. Within ten business days after demand by
Sublandlord, Subtenant shall pay to Sublandlord any amount of the Security
Deposit so debited, thus restoring the Security Deposit to its original amount.
To the greatest extent permitted, Subtenant waives any applicable law (such as
Section 1950.7 of the California Civil Code) that would impose restrictions,
limitations or conditions on Sublandlord's rights to hold and apply the Security
Deposit which are inconsistent with this Section 8.

     9. Use. Subtenant may use the Premises for general office, laboratory and
light manufacturing uses only. In its use of the Premises, Subtenant shall
comply with all applicable laws and (except for Sublandlord Retained
Obligations) applicable provisions of the Master Lease, including rules and
regulations now or hereafter adopted by Landlord thereunder and disclosed to
Subtenant.

     10. Services.

          10.1  Sublandlord shall provide the following utilities and services,
which are included in the payment of Base Rent:

          (a)  Hot and cold water to the wet stacks of the Building.

          (b)  Cleaning services as specified in Exhibit E, Monday through
Friday of each week, except on the holidays listed in subparagraph (iii) below.

          (c) Heat and air-conditioning to the Premises in season, Monday
through Friday from 8:00 a.m. to 5:00 p.m., except for the following holidays:
New Year's Day, Presidents' Day, Memorial Day, Fourth of July, Labor Day,
Thanksgiving Day and the Friday immediately following Thanksgiving Day, and
Christmas Day, and any other national holiday promulgated by a Presidential
Executive Order or Congressional Act. Sublandlord may agree to provide heat and
air-conditioning at times in addition to those specified in the preceding
sentence, provided Subtenant gives Sublandlord prior reasonable written notice
requesting such after-hours service.

          (d)  A card-entry or other controlled-access system to the Premises.

          (e)  Electricity and electrical facilities to furnish commercially
reasonable amounts of electricity for equipment and machinery of Subtenant.
<PAGE>

                                                                  Exhibit 10.9.2

          10.2 In the event any public utility supplying energy requires, or
     government law, regulation, executive or administrative order results in a
     requirement, that Sublandlord, Sublandlord  or Subtenant must reduce, or
     maintain at a certain level, the consumption of electricity for the
     Premises or Building, which affects the heating, air-conditioning,
     lighting, or hours of operation of the Premises or Building, Sublandlord
     and Subtenant shall each adhere to and abide by said laws, regulations or
     executive orders without any reduction in Rent.

          10.3 Subandlord's inability to furnish, to any extent or for any
     reason, these defined services, or any interruption or cessation thereof,
     shall not render Sublandlord liable for damages to Subtentant, nor be
     construed as an eviction of Subtenant, nor work as an abatement of any
     portion of rent, nor relieve Subtenant from fulfillment of any covenant or
     agreement hereto.

     11. Master Lease. This Lease is subject and subordinate to the Master
Lease. To the extent applicable to the Premises and the Term, and not directly
contradicted by this Sublease, each of the Incorporated Provisions of the Master
Lease are incorporated herein, and made an integral part hereof, subject to the
following:

          11.1 Unless the context plainly otherwise requires, the terms
     "Landlord," "Premises," "Tenant," "Term," and "Event of Default" therein
     shall refer herein to "Sublandlord," "Premises," (as defined herein),
     "Subtenant," "Term" (as defined herein) and "Default," respectively.

          11.2 With respect to obligations of Landlord (including, without
     limitation, obligations to maintain, repair, replace and restore the
     Building or the Premises) which are not within Sublandlord's control,
     Sublandlord's obligation shall be limited to using commercially reasonable
     efforts in enforcing its rights under the Master Lease to cause Landlord to
     perform (or to compensate Sublandlord, who in turn shall from amounts so
     recovered compensate Subtenant, for Landlord's failure to perform).

          11.3 Where Landlord's consent is required, Sublandlord's obligations
     shall be (A)  to give or withhold its own consent, which it shall not
     unreasonably withhold or delay, and (B) unless reasonably denying its own
     consent, request Landlord's timely consent.

          11.4 Where Subtenant has a right whose exercise requires that a
     request, demand or other notice be made to Landlord, Sublandlord shall be
     obligated upon Subtenant's request to make such communication to Landlord
     (but Subtenant shall bear and pay any expenses otherwise incurred by
     Sublandlord in the exercise of such right).

          11.5. Sublandlord shall provide Subtenant with a copy of any notice
     pertaining to Subtenant's occupancy or use of the Premises that Sublandlord
     receives from Landlord.

          11.6 Any amount which may be payable by Tenant under an Incorporated
     Provision shall be payable by Subtenant to Sublandlord, for payment by
     Sublandlord to Landlord, unless Sublandlord or Landlord directs that
     payment be made directly to Landlord.
<PAGE>

                                                                  Exhibit 10.9.2

          11.7 Sublandlord shall not agree to any amendment or other
     modification of the Master Lease which would materially impair Subtenant's
     occupancy and use of the Premises without Subtenant's prior written
     consent, which shall not be unreasonably withheld.

Subtenant shall fully, faithfully and seasonably perform each of Subtenant's
Assumed Obligations (including, without limitation, payment of rents, to the
extent required by Section 3 of the Master Lease), for the benefit of both
Sublandlord and Landlord; and the fact that the Incorporated Provisions do not
contain the provision of the Master Lease which contains a particular Subtenant
Assumed Obligation shall not be construed as negating Subtenant's obligation to
perform the same.  Subtenant shall hold harmless, indemnify and defend
Sublandlord from and against any claim by or liability to Landlord, and related
expenses (including attorneys' fees actually and reasonably incurred), based on
breach of any of Subtenant's Assumed Obligations.  Sublandlord shall maintain
the Master Lease in effect until the commencement of and throughout the Term
(except for any termination thereof through no fault or act of Sublandlord).

     12. Assignment.  Subtenant shall not sublease the Premises or any part
thereof or assign or encumber any of its interest under this Sublease without
Sublandlord's prior written consent, which Sublandlord may withhold in its sole
and absolute discretion.  No assignment or sublease shall release Subtenant from
its obligations and liabilities hereunder.

     13. Notices.  Any notice, consent, demand or other communication to be
delivered to a Party hereunder shall be deemed delivered and received when made
in writing and transmitted to the applicable Party either by receipted courier
service, or by the United States Postal Service, first class registered or
certified mail, postage prepaid, return receipt requested, or by electronic
facsimile transmission ("Fax"), at the address or addresses indicated for such
Party below (and/or to such other address as such Party may from time to time by
written notice designate to the other):

     If to Sublandlord:       Smiths Industries Aerospace
                              & Defense Systems, Inc.
                              13112 Evening Creek Dr., South
                              San Diego, CA 92128
                              Attention:  Mr. Barry Golko
                              FAX:  (858) 679-6100

     with a copy to:          Morgan, Lewis & Bockius, LLP
                              300 S. Grand Ave., 22nd Floor
                              Los Angeles, CA 90071
                              Attention: Mary L. Dickson, Esq.
                              FAX: 213-612-2554

     If to Subtenant:         E.Digital Corporation
                              13114 Evening Creek Dr., South
                              San Diego, CA 92128
                              Attention: Robert Putnam
<PAGE>

                                                                  Exhibit 10.9.2

and shall be deemed delivered and received (A) upon actual or attempted delivery
(as evidenced by postal or courier receipt), or completion of fax transmission
(as evidenced by fax machine-generated transmission confirmation report), if
such delivery is made or such fax transmission completed before 5:00pm
recipient's local time on a business day, or such delivery is attempted on a
business day between the hours of 9:00am and 5:00pm recipient's local time, and
(B), otherwise, on the business day following the day on which such delivery is
made or such fax transmission is completed.

     14. No Third Party Beneficiaries.  Except for Landlord, nothing in this
Sublease is intended or shall be construed to confer any rights or remedies on
any person other than the Parties and their respective successors and assigns,
or to relieve, discharge or alter the obligations of any third person to either
Party or to give any third person any right of subrogation or action over
against any Party.

     15. No Brokers. Each Party hereby warrants and represents that it has not
employed, used or otherwise promised any compensation to any broker, finder or
similar intermediary in connection with the transaction contemplated by this
Sublease.  Each Party shall hold harmless, indemnify and defend the other from
and against any claim by or liability to any such person for a commission, fee
or other compensation by reason of such transactions, and related expenses
(including attorneys' fees actually and reasonably incurred), where such claim
or liability is based on an action by the indemnifying Party which constitutes a
breach on its part of the foregoing warranty and representation.

     16. Consent to Sublease by Landlord.  This Sublease shall be contingent
upon and shall not become operative unless and until the Landlord has given its
consent hereto.  Sublandlord shall not be responsible for the failure of
Landlord to consent to this Sublease or the failure or refusal of Landlord to
grant any consent of Landlord required by this Sublease or the Master Lease.
Should the Landlord not grant its consent to this Sublease within thirty (30)
days from the date hereof, Sublandlord and Subtenant shall be released from all
obligations with respect hereto and neither shall have any further rights at law
or in equity with respect to this Sublease.  The Parties hereby acknowledge that
Landlord's consent to this Sublease shall not make Landlord a party to this
Sublease, shall not create any contractual liability or duty on the part of
Landlord and shall not in any manner increase, decrease or otherwise affect the
rights and obligations of Landlord and Sublandlord with respect to the Master
Premises.

     17. Termination of Existing Sublease; Integration and Binding Effect.  Upon
execution of this Sublease, the Parties agree that the certain Sublease
Agreement dated July 11, 1997, as amended by that certain First Amendment to
Sublease Agreement dated November 1, 1999, shall terminate and this Sublease
shall constitute the entire agreement among the Parties pertaining to the
subject matter hereof and supersede all prior agreements, understandings and
representations of the Parties with respect to the subject matter hereof.  This
Sublease may not be modified, amended, supplemented or otherwise changed, except
by a writing executed by all Parties.  Except as otherwise expressly provided
herein, this Sublease shall bind and inure to the benefit of the Parties and
their respective successors and assigns.
<PAGE>

                                                                  Exhibit 10.9.2

     18.  Computation of Time.  Any time period specified in this Sublease which
would otherwise end on a non-business day shall automatically be extended to the
immediately following business day.

     19.  Captions. Article and section headings used herein are for convenience
of reference only and shall not affect the construction of any provision of this
Sublease.

     20.  Further Assurances. Each Party shall each execute and deliver such
additional instruments or other documents as the other Party may reasonably
request to accomplish the purposes and intent of this Sublease; provided,
however, that nothing in this Section shall be deemed to enlarge the obligations
of the Parties hereunder or to require any Party to incur any material expense
or liability not otherwise required of it hereunder.

     21.  Enforcement Costs. Should either Party institute any action or
proceeding to enforce any provision of this Sublease or for damages by reason of
an alleged breach of any provision hereof, the prevailing Party shall be
entitled to recover from the Party not prevailing all costs and expenses
(including reasonable attorneys' fees) incurred by such prevailing Party in
connection with such action or proceeding. A Party entitled to recover costs and
expenses under this Section shall also be entitled to recover all costs and
expenses (including reasonable attorneys' fees) incurred in the enforcement of
any judgement or settlement obtained in such action or proceeding (and in any
such judgement provision shall be made for the recovery of such post-judgement
costs and expenses).

     22.  Governing Law. This Sublease shall be deemed to be an agreement made
under the laws of the State of California and for all purposes shall be governed
by and construed in accordance with such laws.

     23.  Counterparts. This Sublease, and any amendment hereto, may be executed
in any number of counterparts and by each Party on separate counterparts, each
of which when so executed and delivered shall be deemed an original and all of
which taken together shall constitute but one and the same instrument.

     24.  Signers' Warranty. Each individual executing and delivering this
Sublease on behalf of a corporate Party hereby warrants and represents to the
other Parties that he or she has been duly authorized and empowered to do so.

                        [SIGNATURES ON FOLLOWING PAGE]
<PAGE>

                                                                  Exhibit 10.9.2

IN WITNESS WHEREOF, the Parties have executed and delivered, or caused their
duly authorized representative(s) to execute and deliver, this Sublease as of
the date written above.

SUBLANDLORD:                        SMITHS INDUSTRIES AEROSPACE & DEFENSE
                                    SYSTEMS, INC., a Delaware corporation

                                    By: _______________________________
                                    Name: _____________________________
                                    Title: ____________________________

SUBTENANT:                          E.DIGITAL CORPORATION, a Delaware
                                    corporation

                                    By: /s/ FRED FALK
                                        ------------------------------
                                    Name:  Fred Falk
                                           ---------------------------
                                    Title: President and CEO
                                           ---------------------------

<PAGE>

                                  Schedule 1

                 SCHEDULE OF SUBLANDLORD RETAINED OBLIGATIONS

The following obligations and liabilities (collectively, "obligations") of
Tenant under the Master Lease shall remain obligations of Sublandlord and are
not assumed, or to be paid or performed, by Subtenant:

--------------------------------------------------------------------------------
  (S) of Master Lease         Retained Obligation

--------------------------------------------------------------------------------
          3.1                 Payment of Base Rent to Landlord
--------------------------------------------------------------------------------
          3.2                 All of Tenant's obligations under this provision
--------------------------------------------------------------------------------
          3.3                 All of Tenant's obligations under this provision
--------------------------------------------------------------------------------
          3.4                 Any obligation of Tenant related to its own
                              Personal Property
--------------------------------------------------------------------------------
          3.6                 All of Tenant's obligations under this provision
--------------------------------------------------------------------------------
          3.7                 All of Tenant's obligations under this provision
--------------------------------------------------------------------------------
          5.3                 Any obligation of Tenant related to the removal of
                              its own alterations from the Premises
--------------------------------------------------------------------------------
            6                 Any obligation of Tenant related to repairing and
                              maintaining the Premises, Building and its systems
                              outside of the Premises and the grounds and paved
                              areas adjacent to the Building, except for any
                              repair or maintenance with respect to the Premises
                              or Building and systems outside of the Premises
                              caused by the negligence, act or omission of
                              Subtenant, its employees, agents, contractors,
                              subtenants, licensees or invitees shall be made by
                              Sublandlord at Subtenants sole cost and expense,
                              which amounts shall be payable by Subtenant as
                              additional Rent within 10 days after demand
                              therefor. Subtenant shall promptly notify Landlord
                              of the need for any such repair or maintenance.
--------------------------------------------------------------------------------
           27                 Any obligation or right of Tenant to exercise the
                              Renewal provisions.
--------------------------------------------------------------------------------
           29                 Any obligation or right of Tenant to participate
                              in the Right of First Negotiation.
--------------------------------------------------------------------------------
<PAGE>

                                  Schedule 2

            SCHEDULE OF INCORPORATED PROVISIONS OF THE MASTER LEASE

--------------------------------------------------------------------------------
  (S) of Master Lease         Limitation or Modification

--------------------------------------------------------------------------------
          3.5                 None
--------------------------------------------------------------------------------
          3.7                 Rent shall be payable to Sublandlord at the Master
                              Premises
--------------------------------------------------------------------------------
          3.8                 None
--------------------------------------------------------------------------------
           4                  Subtenant's use of the Premises shall be limited
                              as set forth in Section 9 of the Sublease
--------------------------------------------------------------------------------
           5                  Sublandlord shall not require Subtenant's removal
                              of any of Alterations installed by Sublandlord.
--------------------------------------------------------------------------------
           7                  None
--------------------------------------------------------------------------------
          8.2                 None
--------------------------------------------------------------------------------
           9                  Sublandlord's consent to any assignment or
                              subletting may be withheld in its sole and
                              absolute discretion.
--------------------------------------------------------------------------------
          10                  The term "Landlord" under Article 10 of the Master
                              Lease shall expressly refer to both the Landlord
                              under the Master Lease and Sublandlord.
--------------------------------------------------------------------------------
          11                  Sublandlord's exercise of any right of termination
                              under Article 11 of the Master Lease shall be in
                              its sole discretion. Subtenant shall not have any
                              right to terminate for damage or destruction
                              unless Sublandlord also has a right to terminate.
--------------------------------------------------------------------------------
          12                  Sublandlord's exercise of any right of termination
                              under Article 12 of the Master Lease shall be in
                              its sole discretion. Subtenant shall not have any
                              right to terminate for condemnation unless
                              Sublandlord also has a right to terminate.
--------------------------------------------------------------------------------
          13                  In the event of any inconsistency between Section
                              13.1 of the Master Lease and the definition of
                              Default under the Sublease, the provisions of the
                              Sublease shall control.
--------------------------------------------------------------------------------
          14                  None
--------------------------------------------------------------------------------
          15                  None
--------------------------------------------------------------------------------
<PAGE>

--------------------------------------------------------------------------------
  (S) of Master Lease         Limitation or Modification

--------------------------------------------------------------------------------
       16                     Excluding Section 16.5 and any other provision
                              obligating Sublandlord to deliver a non-
                              disturbance agreement to Subtenant.
--------------------------------------------------------------------------------
       17                     None
--------------------------------------------------------------------------------
       18                     None
--------------------------------------------------------------------------------
       19                     None
--------------------------------------------------------------------------------
       20                     None
--------------------------------------------------------------------------------
       21                     None
--------------------------------------------------------------------------------
       22                     None
--------------------------------------------------------------------------------
       23                     None
--------------------------------------------------------------------------------
       24                     Subtenant shall be obligated to deliver an
                              Estoppel Certificate within ten (10) days of
                              request.
--------------------------------------------------------------------------------
       25                     None
--------------------------------------------------------------------------------
      28.7                    In addition to Lender, Subtenant agrees to modify
                              the Sublease as may be required by Landlord.
--------------------------------------------------------------------------------
      28.8                    None
--------------------------------------------------------------------------------
      28.9                    None
--------------------------------------------------------------------------------
     28.11                    None
--------------------------------------------------------------------------------
<PAGE>

                                   Exhibit A

                                MASTER PREMISES

All those plots, pieces and parcels of land situate, lying or being in the City
of San Diego, County of San Diego, State of California more particularly
described as follows:

     PARCELS 1 AND 2 OF PARCEL MAP NO. 14228, IN THE CITY OF SAN DIEGO, COUNTY
     OF SAN DIEGO, STATE OF CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY
     RECORDER OF SAN DIEGO COUNTY, MARCH 24, 1986 AS FILE PAGE NO. 85-111959 OF
     OFFICIAL RECORDS

TOGETHER WITH all rights, easements and appurtenances thereunto belonging or
pertaining, including all improvements and fixtures, furniture and equipment
located thereon, and commonly known as 13112 Evening Creek Drive South, San
Diego, California 92128
<PAGE>

                                   Exhibit B

                                   PREMISES
<PAGE>

                                   Exhibit C

                           SUBLANDLORD IMPROVEMENTS

                                     NONE
<PAGE>

                                   Exhibit D

                            SUBTENANT IMPROVEMENTS

                                 SEE ATTACHED
<PAGE>

                                   Exhibit E

                             MAINTENANCE SCHEDULE

                                 SEE ATTACHED

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00026-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00026-of-00352.parquet"}]]