EXHIBIT 99.3
COLLATERAL SUBSTITUTION AGREEMENT
THIS COLLATERAL SUBSTITUTION AGREEMENT (this "Agreement") is entered
into as of December 21, 2001, among SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
("Borrower"), and SILICON VALLEY BANK ("Bank"), and is based on the following
facts:
RECITALS
6. Borrower and Bank previously entered into that certain Loan and
Security Agreement, dated June 29, 2000, as amended by that certain Loan
Modification Agreement, dated September 20, 2000 (as further amended from time
to time, the "Loan Agreement"). Under the Loan Agreement, Bank made certain
loans and advances to Borrower.
7. In order to secure the present and future Obligations (as that term is
defined in the Loan Agreement), Borrower granted to Bank a security interest in
certain "Collateral," as that term is defined in the Loan Agreement.
8. From time to time, Bank, at the request of Borrower, has extended the
maturity date of the Loan Agreement. However, to induce Bank to agree to the
extensions, Borrower granted to Bank a security interest in 2,000,000 shares of
common stock of Borrower (the "Stock Collateral") pursuant to that certain
Security Agreement - Stock Pledge, dated August 3, 2001, between Borrower and
Bank (the "Stock Pledge").
9. Borrower has advised Bank that investors are interested in purchasing
the Stock Collateral, free and clear of Bank's security interest, as part of a
transaction that would benefit the Borrower by enhancing Borrower's ability to
obtain a $1,000,000 bridge loan (the "Bridge Loan"), as well as possible
additional future investment financing. The proceeds from the Bridge Loan, as
well as future investment financing, would increase Borrower's available working
capital.
10. Borrower has requested that Bank release its security interest in the
Stock Collateral in exchange for a grant by Borrower of a limited security
interest in the intellectual property of Borrower, including all of its present
and future patents, trade names, trademarks, servicemarks, copyrights, know how
and all rights related thereto (the "IP Collateral").
AGREEMENT
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Bank, intending to be
legally bound, agree as follows:
18. Recitals. Each of the Recitals and facts set forth above are true and
correct and are incorporated herein by this reference and made a part hereof.
19. Definitions. In addition to the definitions contained in the first
paragraph and Recitals to this Agreement, terms defined in the Loan Agreement,
unless specifically defined herein, shall have the same definition when used in
this Agreement. The following terms shall have the specific definitions when
used herein:
(a) "IP Security Agreement" means an intellectual property security
agreement executed and delivered by Borrower and Bank, the form and substance of
which is satisfactory to Bank.
(b) "IP Collateral Documents" shall have the meaning set forth in
Section 3.1 of this Agreement.
20. Substitution of Collateral. Borrower and Bank agree that concurrent
with the execution of this Agreement, Borrower and Bank shall substitute the
Stock Collateral for the IP Collateral. In this connection, Borrower and Bank
hereby agree as follows:
(a) Borrower hereby grants to Bank a security interest in the IP
Collateral to secure the repayment of all present and future Obligations;
provided, however, that the net proceeds of the IP Collateral received by Bank
from any foreclosure sale shall be distributed as follows: (i) $2,500,000, plus
accrued interest, costs, fees and expenses owed by Borrower to Bank and Bridge
Loan lender, respectively, shall be distributed to Bank and Bridge Loan lender
in accordance with the terms of that an inter-creditor agreement to be entered
into between Bank and Bridge Loan lender, and (ii) the balance shall be
distributed to Borrower, subject to the claims of secured creditors, if any,
holding a security interest in the IP Collateral junior to the security interest
of Bank and the Bridge Loan lender and the unsecured creditors of Borrower,
including Bank to the extent the remaining Collateral provided by Borrower to
secure the Obligations is not adequate to fully secure such Obligations. In
connection with the grant of the security interest in the IP Collateral
hereunder, Borrower agrees to execute and deliver to Bank the IP Security
Agreement, uniform commercial code financing statements, and all other documents
that Bank may require in order to perfect or protect Bank's security interest in
the IP Collateral (collectively, the "IP Collateral Documents").
(b) Immediately effective upon the execution and delivery of the IP
Collateral Documents by Borrower to Bank, and the acceptance thereof by Bank,
Bank shall terminate its security interest in the Stock Collateral and return to
Borrower all of the stock certificates delivered to Bank and evidencing the
Stock Collateral.
21. Conditions Subsequent. Borrower shall fulfill the following conditions
subsequent. Failure to satisfy these conditions subsequent shall constitute an
Event of Default under the Loan Agreement:
(a) [Intentionally Omitted].
22. Loan Agreement. Except as modified by this Agreement, the Loan
Agreement shall remain unchanged and in full force and effect.
23. Reaffirmation of Bank's Liens and Security Interests. Borrower hereby
reaffirms the granting of, and represents and warrants that Bank has a first
priority, valid, enforceable, perfected and unavoidable lien on and security
interests in, all of the Collateral, subject to the filing of the IP Collateral
Documents with the appropriate registries, and that the Collateral secures all
Obligations. The Bridge Loan is to be secured by a security interest in the IP
Collateral which, pursuant to the terms of an inter-creditor agreement between
Bank and the Bridge Loan lender, shall be of equal priority to the security
interest of Bank in the IP Collateral.
24. No Waiver by Bank. Except as otherwise expressly set forth in this
Agreement, this Agreement shall not constitute a waiver or modification of any
of Bank's rights or remedies, and it shall not preclude the exercise of any
right or remedy available to Bank at law or in equity, including any procedure
necessary or appropriate to enforce any of the terms and conditions set forth in
this Agreement, the Loan Agreement or any of the other Loan Documents. Bank
shall have the right to waive any of the rights, remedies, claims, powers,
benefits or privileges granted in or pursuant to this Agreement, the Loan
Agreement and the other Loan Documents, and Bank shall have no obligation or
duty to any other entity, with respect to the exercise of Bank's rights,
remedies, claims, powers, benefits and privileges. Any delay in or failure to
exercise any of Bank's rights, remedies, claims, powers, benefits or privileges
shall not subject Bank to any liability to any entity, and no other entity may
rely upon or in any way seek to assert as a defense to any obligation owing to
Bank such delay or failure. Such delay or failure, if any, shall not be deemed
to constitute a waiver of any such right, remedy, claim, power, benefit or
privilege of Bank. All of Bank's rights with respect to all of the matters
referred to in this Agreement and each of the Loan Documents, in general, and
this Section 7, in particular, are expressly reserved.
25. Release by Borrower. Borrower, for itself, and for its agents,
servants, employees, shareholders, subsidiaries, officers, directors, heirs,
executors, administrators, agents, successors and assigns forever releases and
discharges Bank and its agents, servants, employees, accountants, attorneys,
shareholders, subsidiaries, officers, directors, heirs, executors,
administrators, successors and assigns from any and all claims, demands,
liabilities, accounts, obligations, costs, expenses, liens, actions, causes of
action, rights to indemnity (legal or equitable), rights to subrogation, rights
to contribution and remedies of any nature whatsoever, known or unknown, which
Borrower has, now has, or has acquired, individually or jointly, at any time
prior to the date of the execution of this Agreement, including specifically,
but not exclusively, and without limiting the generality of the foregoing, any
and all of the claims, damages, demands and causes of action, known or unknown,
suspected or unsuspected by Borrower which:
(1) Arise out of the Loan Documents;
(2) Arise by reason of any matter or thing alleged or referred
to in, directly or indirectly, or in any way connected with, the Loan Documents;
or
(3) Arise out of or in any way are connected with any loss,
damage, or injury, whatsoever, known or unknown, suspected or unsuspected,
resulting from any act or omission by or on the part of the Bank or any party
acting on behalf of Bank committed or omitted prior to the date of this
Agreement.
26. Waiver of California Civil Code Section 1542. Borrower acknowledges
that there is a risk that subsequent to the execution of this Agreement it may
incur or suffer losses, damages or injuries which are in some way caused by the
transactions referred to in the Loan Documents or this Agreement, but which are
unknown and unanticipated at the time this Agreement is executed. Borrower does
hereby assume the above mentioned risks and agrees that this Agreement shall
apply to all unknown or unanticipated results of the transactions and
occurrences described herein, as well as those known and anticipated, and upon
advice of
counsel, Borrower does hereby knowingly waive any and all rights and protections
under California Civil Code Section 1542 which section has been duly explained
and reads as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
27. Legal Advice Obtained. The advice of legal counsel has been obtained
by each party prior to signing this Agreement and each party executes this
Agreement voluntarily, with full knowledge of its significance, and with the
express intention of effecting the legal consequences provided by Section 1541
of the California Civil Code, namely, the extinguishment of obligations except
for the executory provisions of this Agreement.
28. Counterparts. This Agreement may be executed in counterparts, all of
which taken together shall constitute a single document.
29. Headings. The headings in this Agreement are inserted for convenience
and are not a part of this Agreement.
30. Further Assurances. Upon request of a party hereto, each party will
take all reasonable actions, including execution of additional documents and
agreements, necessary or appropriate to carry out the terms, conditions and
intent of this Agreement.
31. Successors and Assigns. This Agreement shall be binding on and inure
to the benefit of the parties' respective successors and assigns.
32. Attorneys' Fees; Choice of Law and Jury Trial Waiver. In the event it
becomes necessary for any party to bring an action or proceeding to construe or
enforce the terms and conditions set forth in this Agreement, the prevailing
party in such action or proceeding shall be entitled to recover reasonable
attorneys' fees and costs incurred in such action or proceeding, in addition to
all other relief awarded. This Agreement and all transactions hereunder and/or
evidenced hereby shall be governed by, construed under and enforced 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. Borrower waives any right it may have to assert
the doctrine of forum non conveniens or to object to such venue and hereby
consent to any court ordered relief. IN ANY ACTION TO ENFORCE THE TERMS HEREOF,
OR INVOLVING THIS AGREEMENT, BORROWER KNOWINGLY AND VOLUNTARILY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM,
RIGHT OR REMEDY, WHETHER ARISING IN CONTRACT, TORT, AT LAW OR IN EQUITY UNDER OR
IN CONNECTION WITH THIS AGREEMENT, AND ANY OF THE OTHER LOAN DOCUMENTS, AND
CONSENTS TO A COURT TRIAL BEFORE A JUDGE.
33. Neutral Construction. This Agreement is the product of negotiation
among the parties hereto and represents the jointly conceived, bargained-for and
agreed upon language mutually determined by the parties to express their
intentions in entering into this Agreement. Any ambiguity or uncertainty in this
Agreement shall be deemed to be caused by, or attributable
to, all parties hereto collectively. In any action or proceeding to enforce or
interpret this Agreement, the Agreement shall be construed in a neutral manner,
and no term or condition of this Agreement, or the Agreement as a whole, shall
be construed more or less favorably to any one party, or group of parties, to
this Agreement. In the event any provision contained in this Agreement is
determined to be unenforceable by a court competent jurisdiction, then that
provision shall be deemed omitted from this Agreement and the remaining
provisions of this Agreement shall continue to be in full force and effect.
This Agreement is entered into as of the date first set forth above.
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
By
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SILICON VALLEY BANK
By
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