Intercreditor Agreement - SheerVision Inc.
EXECUTION COPY
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INTERCREDITOR AGREEMENT
RELATING TO THE OFFERING OF
12% SECURED CONVERTIBLE NOTES DUE 2006
OF
SHEERVISION, INC.
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DATED AS OF SEPTEMBER 13, 2005
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INTERCREDITOR AGREEMENT (this "AGREEMENT"), dated as of September
13, 2005, between SHEERVISION, INC., a California corporation with
offices located at 4040 Palos Verdes Drive North, Suite 105,
Rolling Hills Estates, California 90274 (the "COMPANY") and THE
HOLDERS (the "INVESTORS") of the 12% Secured Convertible Notes due
2006 of the COMPANY (the "NOTES").
INTRODUCTION
In accordance with the Confidential Private Placement Memorandum, dated
August 24, 2005, of the Company and the documents attached thereto, including,
without limitation, the Subscription Package attached thereto (the
"SUBSCRIPTION"), the Investors have agreed to purchase from the Company the
Notes, each dated as of the date hereof, and delivered respectively to the
Investors pursuant to the Subscription, dated as of the date hereof, by and
between the Company and each of the Investors. Pursuant to Notes, the
obligations of the Company under the Notes are secured by a security interest,
granted in favor of the Investors in and to all property and assets of the
Company (the "SECURITY INTEREST"). The Company's obligations, as set forth in
the Notes, are sometimes referred to herein as the "COMPANY'S OBLIGATIONS". The
Investors desire to enter into this Agreement in order to set forth their
understanding with respect to several matters pertaining to the servicing of the
Loan (as hereinafter defined) and the enforcement of their respective rights
with respect to the Notes, as well as matters related to the subordination
thereof.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties, and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Loan Advance.
The Investors have advanced, pursuant to the terms and conditions
set forth in the Transaction Documents (as defined in the Notes), the amounts
set forth in Exhibit A attached hereto (in the aggregate, the "LOAN"). For the
purposes of this Agreement, the amount of principal, plus interest accrued
thereon, owed to each Investor under its respective Note as a proportion of the
aggregate amount of the Loan, shall be referred to as such Investor's respective
percentage interest (the "PERCENTAGE INTERESTS").
2. Ownership Interest.
Each Investor shall own an interest in the Loan equal to its
Percentage Interest as described on Exhibit A and each Investor shall own its
interest the Company's Obligations. Except as otherwise stated herein, the
Investor shall own, PARI PASSU to each of the other Investors, an undivided
fractional interest equal to such Investor's Percentage Interest in: (a) the
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Loan; (b) all payments made on or in respect of the Loan; (c) all recoveries or
distributions in connection with the Loan; and (d) all present and future
collateral (and all proceeds in connection therewith) securing the same.
3. No Representation or Warranty Relating to Loan.
3.1. No Investor has made any warranty or representation to any
other Investor, expressed or implied, with respect to the Loan, the adequacy of
security for the Loan, the existing or future solvency or financial worth of the
Company, and the ability of the Company to repay the Loan and the Company's
Obligations. Each Investor acknowledges that the Loan and the Company's
Obligations carry a high degree of risk; that the Company may default on the
Loan, which may result in a bankruptcy filing and/or foreclosure action and/or a
deterioration of the collateral for the Loan; and that it may not be possible
for the Investors to collect the full principal balance of the Loan, any or all
of the accrued interest on the Loan, and/or any or all other amounts due with
respect to the Loan.
3.2. Any information, data, projections and other materials
heretofore supplied to each Investor has been extrapolated from material
supplied by the Company or due diligence. Each Investor acknowledges and agrees
that no Investor makes any representation or warranty as to the nature and
quality of such information. Each Investor acknowledges and agrees that it has
had ample opportunity to make and have made such investigations as it has deemed
necessary under the circumstances.
4. Expenses.
All expenses including, but not limited to, counsel fees and court
costs paid or incurred by any Investor (an "OBLIGATED PARTY") in any action to
collect or foreclose on any of the Company's Obligations, the Security Interest
or the Loan, shall be borne by the Investors in accordance with their respective
Percentage Interests at the time of the default or the failure of performance
giving rise to the action to collect or enforce the rights of the Investors
under the Noteor the Company's Obligations. Payment shall be made by each
Investor to the Obligated Party within five (5) days after receipt of notice of
demand for the payment of such Investor's PRO RATA share. If such payment is not
made when due, the Obligated Party may make such payment on the defaulting
Participant's behalf, such payment shall bear interest at the rate of ten
percent (10%) PER ANNUM and shall be automatically repaid to the Obligated Party
out of the first funds received on behalf of the defaulting Participant from or
on behalf of the Company.
5. Distribution of Sale or Refinance Proceeds.
5.1. If Company repays or refinances the Loan, or if the Company
is in default of the Company's Obligations and any Investor sells or disposes of
any Collateral for the Loan or any Investor otherwise recovers all or part of
the principal and interest and other amounts due and owing under the Company's
Obligations, the net proceeds of said refinances or sale or the amount of
principal, interest and other amounts repaid shall be distributed in the
following order of priority:
(a) First, repayment of each Investor's expenses
described above in Section 4;
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(b) Second, repayment of remaining principal and
interest (exclusive of default interest and late charges to each Investor);
(c) Third, repayment of default interest, late charges,
and any other amounts to each Investor PARI PASSU in accordance with their
respective Percentage Interests;
5.2. The priorities of allocation set forth in Section 5.1 shall
apply in all circumstances, including with respect to any distribution made in
any case or proceeding under Title 11 of United States Code or any other
proceeding relating to the Company under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation.
5.3. If any Investor (an "EXCESS PARTY") shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff, or otherwise) as a result of the realization, sale or other remedial
disposition of, or foreclosure on, any Collateral or any repayment under the
Note in excess of the amount it is then entitled to receive under the terms of
this Agreement and the Note, such Excess Party shall hold such amount in trust
for the ratable benefit of the other Investors in accordance with the terms of
this Agreement.
6. Subordination.
6.1. The Investors hereby expressly subordinate the obligations
under the Notes to the Qualified Facility (as hereinafter defined) as set forth
below. Notwithstanding the respective dates of attachment or perfection of the
security interest of the Investors and the security interest securing the
Qualified Facility, the security interest securing the Qualified Facility in the
Collateral shall at all times be senior to the security interest of Investors.
For purposes hereof, the term "QUALIFIED FACILITY" shall mean a single revolving
credit line or term loan entered into by the Company and an FDIC-insured
commercial bank lender between the Issue Date and the Maturity Date with a
principal amount not to exceed $1,000,000.
6.2. The Notes shall be subordinated in right of payment to the
payment obligations of the Company set forth in the Qualified Facility now
existing or hereafter arising, together with all costs of collecting such
obligations (including attorneys' fees), including, without limitation, all
interest accruing after the commencement by or against the Company of any
bankruptcy, reorganization or similar proceeding.
6.3. The Investors shall be entitled to receive the payment of
the principal amount of, and accrued and unpaid interest on, the Notes, provided
that an Event of Default, as defined in the Notes, has not occurred and is not
continuing and would not exist immediately after such payment. Nothing in the
foregoing paragraph shall prohibit the Investors from converting all or any part
of the obligations under the Notes into equity securities of the Company.
6.4. The Investors shall promptly deliver to the creditor with
respect to the Qualified Facility in the form received (except for endorsement
or assignment by the Investor where required by the creditor with respect to the
Qualified Facility) for application to the obligations under the Qualified
Facility any payment, distribution, security or proceeds received
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by, or on behalf of, the Investor with respect to the obligations under the
Notes other than in accordance with this Agreement.
6.5. In the event of the Company's insolvency, reorganization or
any case or proceeding under any bankruptcy or insolvency law or laws relating
to the relief of debtors, these provisions shall remain in full force and
effect, and the claims of the creditor with respect to the Qualified Facility
against the Investors and the estate of any Investor shall be paid in full
before any payment is made to any Investor.
6.6. By the execution of this Agreement, the Investors hereby
authorize the creditor under the Qualified Facility to amend any financing
statements filed by or on behalf of the Investors against the Company
substantially as follows: "In accordance with a terms and conditions set forth
in the 12% Secured Convertible Notes due 2006 by the Debtor in favor of the
creditors, has subordinated any security interest or lien that such secured
party may have in any property of the Debtor to the security interest of the
undersigned in all assets of the Debtor, notwithstanding the respective dates of
attachment or perfection of the security interest of the secured party and the
undersigned."
6.7. No amendment of the documents evidencing or relating to the
obligations under the Notes shall directly or indirectly modify the provisions
of this Agreement in any manner which might terminate or impair the
subordination of the obligations under the Notes or the subordination of the
security interest or lien that the Investors may have in any property of the
Company. By way of example, such instruments shall not be amended to (i)
increase the rate of interest with respect to the obligations under the Notes,
or (ii) accelerate the payment of the principal or interest or any other portion
of the obligations under the Notes.
7. Miscellaneous.
7.1. Authorization. Each of the Investors warrants and
represents that it is duly authorized to execute this Agreement and comply with
its obligations hereunder.
7.2. Survival. The representations, warranties, covenants and
agreements made herein shall survive the execution of this Agreement.
7.3. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by any party hereto without
the prior written consent of the other party. Any instrument purporting to make
an assignment in violation of this Section 7.3 shall be void.
7.4. Benefits of Agreement. This Agreement and all obligations
hereunder shall be binding upon the successors and assigns of the parties
hereto, and shall, together with the rights and remedies of the Investors
hereunder, inure to the benefit of the Investors and their respective successors
and assigns.
7.5. Entire Agreement. This Agreement and the Exhibit hereto and
the Transaction Documents constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
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7.6. Severability. In case any provision of the Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.7. Further Assurances. Each party agrees to execute such other
documents, instruments, agreements and consents, and take such other actions as
may be reasonably requested by the other parties hereto to effectuate the
purposes of this Agreement.
7.8. Amendment and Waiver. This Agreement may be amended,
modified or waived only with the prior written consent of each of the parties.
7.9. Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the
Transaction Documents, shall impair any such right, power or remedy, nor shall
it be construed to be a waiver of any such breach, default or noncompliance, or
any acquiescence therein, or of or in any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character of any breach, default or
noncompliance under this Agreement or the Transaction Documents, or any waiver
on such party's part of any provisions or conditions therein and must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies shall be cumulative and not alternative.
7.10. Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. Any notice herein required or permitted to be
given shall be given by depositing the same in the United States first class
mail, postage prepaid, or hand delivered or transmitted by facsimile, in any
case with a copy sent by overnight courier service, and addressed to the parties
as follows:
IF TO THE INVESTORS: At the respective address set forth on
the signature page hereto.
WITH A COPY TO:
or, to such other place or places as any of the parties shall designate by
written notice to the other party.
7.11. Titles and Subtitles. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
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7.12. Counterparts. This Agreement may be executed in any number
of counterparts (facsimile or otherwise), each of which shall be an original,
but all of which together shall constitute one instrument.
7.13. Pronouns. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as the identity of the parties hereto may require.
7.14. Governing Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of New York (without
giving effect to conflict of laws principles).
7.15. Consent to Jurisdiction and Service of Process. Each of the
parties hereby irrevocably and unconditionally submits to the jurisdiction of
the courts of the State of New York and of the Federal courts sitting in the
State of New York in any action or proceeding directly or indirectly arising out
of or relating to this Agreement or the transactions contemplated hereby
(whether based in contract, tort, equity or any other theory). Each of the
parties agrees that all actions or proceedings arising out of or relating to
this agreement must be litigated exclusively in any such State or, to the extent
permitted by law, Federal court that sits in the County of New York, and
accordingly, each party irrevocably waives any objection which it may now or
hereafter have to the laying of the venue of any such action or proceeding in
any such court. Each party further irrevocably consents to service of process in
the manner provided for notices in Section 7.10. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
7.16. Waiver of Jury Trial. Each party waives any right it may
have to a trial by jury in any action or proceeding directly or indirectly
arising out of or relating to this Agreement or the transactions contemplated
hereby (whether based on contract, tort, equity or any other theory). Each of
the parties (a) certifies that no representative, agent or attorney of any other
party has represented, expressly or otherwise, that such other party would not,
in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it and the other parties hereto have been induced to enter
into this agreement by, among other things, the mutual waivers and
certifications in this Section 7.16.
7.17. General. All Exhibits and Schedules are hereby incorporated
by reference and made a part of this Agreement.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the first date written above.
THE COMPANY:
BY:
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NAME:
TITLE:
INVESTOR:
BY:
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NAME:
TITLE:
Note No.:
Amount: $
Investor Name:
Address:
Telephone:
Facsimile:
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EXHIBIT A
PERCENTAGE INTERESTS OF INVESTORS
(AS OF ________________)
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PRINCIPAL AMOUNT
OUTSTANDING UNDER
NAME AND ADDRESS OF INVESTOR PERCENTAGE INTEREST RESPECTIVE NOTE
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TOTALS 100% US$
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