FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-11860
FOCUS Enhancements, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 04-3186320
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
600 Research Drive
Wilmington, MA 01887
(Address of principal executive offices)
(978) 988 - 5888
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X No_____
As of March 31, 1999, there were outstanding 18,005,090 shares of Common Stock,
$.01 par value per share.
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FOCUS Enhancements, Inc.
FORM 10-QSB
QUARTERLY REPORT
March 31, 1999
TABLE OF CONTENTS
Page
Facing Page 1
Table of Contents 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations
for the Three Months Ended March 31, 1999
and 1998 4
Statement of Changes in Equity for the Three
Months Ended March 31, 1999 5
Statement of Changes in Equity for the Three
Months Ended March 31, 1998 6
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999
and 1998 7-8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
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<TABLE>
<CAPTION>
FOCUS ENHANCEMENTS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 234,126 $ 1,128,380
Certificates of deposit 257,202 253,067
Securities available for sale 320,120 248,983
Accounts receivable, net of allowances of $662,475 and 3,444,808 2,553,139
$649,987 at March 31, 1999 and December 31, 1998,
respectively
Inventories 5,736,221 5,948,624
Prepaid expenses and other current assets 244,232 217,092
------------ ------------
Total current assets 10,236,709 10,349,285
Property and equipment, net 1,843,140 1,272,477
Other assets, net 303,117 304,498
Goodwill, net 764,075 810,673
------------ ------------
Total assets
$ 13,147,041 $ 12,736,933
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 969,459 $ 702,057
Obligations under capital leases 124,562 119,536
Current portion of long-term debt 290,279 283,180
Accounts payable 6,600,488 5,999,694
Accrued liabilities 1,298,238 1,810,025
------------ ------------
Total current liabilities 9,283,026 8,914,492
Deferred income 84,212 84,212
Obligations under capital leases 264,491 321,760
Long-term debt, net of current portion 463,312 538,597
------------ ------------
Total liabilities 10,095,041 9,859,061
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; 3,000,000 shares authorized; none issued -- --
Common stock, $.01 par value; 25,000,000 shares authorized,
18,005,090 shares outstanding at March 31, 1999 and
December 31, 1998, respectively 180,051 180,051
Additional paid-in capital 38,913,304 38,913,304
Accumulated deficit (35,095,945) (35,198,935)
Accumulated other comprehensive income 71,138 --
Note receivable, common stock (316,418) (316,418)
Treasury stock at cost, 450,000 shares (700,130) (700,130)
------------ ------------
Total stockholders' equity 3,052,000 2,877,872
------------ ------------
Total liabilities and stockholders' equity $ 13,147,041 $ 12,736,933
============ ============
</TABLE>
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FOCUS ENHANCEMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, March 31,
1999 1998
------------ ------------
Net sales $ 5,067,079 $ 5,251,948
Cost of goods sold 2,937,134 2,781,936
------------ ------------
Gross profit 2,129,945 2,470,012
------------ ------------
Operating expenses:
Sales, marketing and support 1,023,696 1,166,327
General and administrative 353,943 387,959
Research and development 492,480 310,801
Depreciation and amortization expense 139,370 153,272
------------ ------------
Total operating expenses 2,009,489 2,018,359
------------ ------------
Income from operations 120,456 451,653
Interest expense, net (21,364) (77,039)
Other income, net 3,898 634
------------ ------------
Income before income taxes 102,990 375,248
Income tax expense -- 10,500
------------ ------------
Net income $ 102,990 $ 364,748
============ ============
Net income per common share
Basic $ 0.01 $ 0.03
============ ============
Diluted $ 0.01 $ 0.02
============ ============
Weighted average common shares outstanding
Basic 18,005,090 14,528,419
============ ============
Diluted 18,721,905 15,875,315
============ ============
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<TABLE>
<CAPTION>
FOCUS ENHANCEMENTS, INC.
STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Accumulated Note
Additional Other Receivable
Common Paid-in Accumulated Comprehensive Common Treasury
Stock Capital Deficit Income Stock Stock Total
---------- ----------- ------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance $180,051 $38,913,304 $(35,198,935) $ -- $ (316,418) $(700,130) $2,877,872
----------
Comprehensive income
Net income -- -- 102,990 -- -- -- 102,990
Other comprehensive income, net of tax
unrealized gains on securities -- -- -- 71,138 -- -- 71,138
----------
Comprehensive income -- -- -- -- -- -- 174,128
-------- ----------- ------------ ---------- ---------- --------- ----------
Ending balance $180,051 $38,913,304 $(35,095,945) $ 71,138 $ (316,418) $(700,130) $3,052,000
======== =========== ============ ========== ========== ========= ==========
</TABLE>
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<TABLE>
<CAPTION>
FOCUS ENHANCEMENTS, INC.
STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Accumulated Note
Additional Other Receivable
Common Paid-in Accumulated Comprehensive Common Treasury
Stock Capital Deficit Income Stock Stock Total
---------- ----------- ------------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance $140,102 $27,339,892 $(22,411,611) $ -- $ -- $ -- $5,068,383
----------
Comprehensive income
Net income -- -- 364,748 -- -- -- 364,748
Other comprehensive income, net of tax
unrealized gains on securities -- -- -- 57,097 -- -- 57,097
----------
Comprehensive income -- -- -- -- -- -- 421,845
----------
Common stock issued 15,409 4,075,713 -- -- -- -- 4,091,122
-------- ----------- ------------ ---------- --------- --------- ----------
Ending balance $155,511 $31,415,605 $(22,046,863) $ 57,097 $ -- $ -- $9,581,350
======== =========== ============ ========== ========= ========= ==========
</TABLE>
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<TABLE>
<CAPTION>
FOCUS ENHANCEMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 102,990 $ 364,748
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 139,370 153,272
Changes in operating assets and liabilities, net of the effects of acquisition:
(Increase) decrease in accounts receivable (891,669) (1,297,886)
Decrease (increase) in inventories 212,403 67,154
Decrease (increase) in prepaid expenses and other assets (27,140) 108,844
(Decrease) increase in accounts payable 600,794 (1,455,445)
(Decrease) increase in accrued liabilities (511,787) (205,254)
----------- -----------
Net cash used in operating activities (375,039) (2,264,567)
----------- -----------
Cash flows from investing activities:
Increase in certificates of deposit (4,135) --
Purchase of property and equipment (662,053) (188,452)
Cash paid in acquisitions, net of cash received -- (6,980)
----------- -----------
Net cash used in investing activities (666,188) (195,432)
----------- -----------
Cash flows from financing activities:
Payments on notes payable (702,057) (30,000)
Payments under capital lease obligations (52,243) (40,725)
Payments on long-term debt (68,186) --
Net proceeds from accounts receivable factoring 969,459 --
Net proceeds from private offerings of common stock -- 2,827,355
Net proceeds from exercise of common stock options and warrants -- 148,142
----------- -----------
Net cash provided by financing activities 146,973 2,904,772
----------- -----------
Net increase in cash and cash equivalents (894,254) 444,773
Cash and cash equivalents at beginning of period 1,128,380 719,851
----------- -----------
Cash and cash equivalents at end of period $ 234,126 $ 1,164,624
=========== ===========
Supplemental Cash Flow Information:
Interest paid $ 43,147 $ 77,039
Income taxes paid 50 6,411
</TABLE>
7
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Supplemental schedule of noncash investing and financing activities: On March
31, 1998, the Company purchased certain assets and assumed certain Liabilities
of Digital Vision, Inc. as follows:
Fair value of tangible assets acquired 224,957
Fair value of liabilities assumed (329,953)
-------------
Fair value of net assets acquired (104,996)
Common stock issued (1,115,625)
Cash paid (6,980)
Accrued cash payments (40,000)
-------------
Excess of cost over fair value of net assets acquired $ (1,267,601)
=============
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FOCUS Enhancements, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements of FOCUS Enhancements, Inc. ("the
Company") as of March 31, 1999 and for the three month periods ended March 31,
1999 and 1998 are unaudited and should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1998 included in the Company's Annual Report on Form 10-KSB/A for the year
ended December 31, 1998. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries PC Video Conversion,
Inc., Lapis Technologies, Inc., TView, Inc., and FOCUS Enhancements B.V. (a
Netherlands corporation). On March 31, 1998, the Company acquired certain assets
and assumed certain liabilities of Digital Vision, Inc. in a transaction
accounted for under the purchase method of accounting. On July 29, 1998, the
Company acquired certain assets and assumed certain liabilities of PC Video
Conversion, Inc. in a transaction accounted for under the purchase method of
accounting. All intercompany accounts and transactions have been eliminated upon
consolidation. The results of operations for the three-month period ended March
31, 1999 are not necessarily indicative of the results that may be expected for
any future period.
The results of operations of Digital Vision, Inc. have been included in
the accompanying consolidated financial statements since April 1, 1998. The
results of operations of PC Video Conversion, Inc. have been included in the
accompanying consolidated financial statements since July 29, 1998. The
following unaudited pro forma information presents a summary of the consolidated
results of operations of the Company as if the acquisitions had occurred at the
beginning of the period presented.
Three Months Ended
March 31,
1998
-----------------
Net sales $ 5,689,948
Income from operations 635,613
Net income 470,648
Net income per common share
Basic $ .03
Diluted $ .03
2. NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 - "Earnings
Per Share" which requires earnings per share to be calculated on a basic and
dilutive basis. Basic earnings per share represents income available to common
stock divided by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share reflects additional common shares that
would have been outstanding if dilutive potential common shares had been issued,
as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by the Company relate
solely to outstanding stock options and warrants, and are determined using the
treasury stock method. The assumed conversion of outstanding dilutive stock
options and warrants would increase the shares outstanding but would not require
an adjustment to income as a result of the conversion. For the three- months
ended March 31, 1999 and 1998, options and warrants applicable to 3,361,949
shares and 5,460,505 shares, respectively were anti-dilutive and excluded from
the diluted earnings per share computation.
9
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3. INCOME TAXES
The Company has utilized its net operating loss carryforwards in
estimating its provision for income taxes in the three-month periods ended March
31, 1999 and 1998.
4. INVENTORIES
Inventories consist of the following:
March 31, December 31,
1999 1998
----------- -----------
Finished goods $ 5,569,989 $ 5,718,260
Raw materials 166,232 230,364
----------- -----------
$5,736,221 $ 5,948,624
=========== ===========
5. NOTES PAYABLE
Line of Credit, Bank. As of December 31, 1998, the Company maintained a
revolving line of credit with a bank with outstanding borrowings of $620,000.
Borrowings bear interest at the bank's prime rate plus 1% (8.75% at December 31,
1998), are payable upon demand and are collateralized by all of the assets of
the Company, except as noted below. Under the terms of the line of credit
agreement, the Company was required to comply with certain restrictive covenants
and was in violation of certain of these covenants at December 31, 1998. On
March 31, 1999, the Company repaid all monies owed on this line of credit
totaling approximately $637,000 from proceeds received under a $2,000,000
accounts receivable financing agreement with its commercial bank. The agreement
allows for advances on accounts receivable not to exceed 80% of qualified
invoices. Interest is charged on the outstanding balance at a rate of the prime
lending rate plus 4.5%. Under the terms of this agreement the bank has been
issued warrants to purchase 100,000 shares of the Company's common stock at a
price of $1.70 per share. At March 31, 1999, the Company had borrowings under
this agreement of approximately $969,500.
Long-Term Debt. On July 29, 1998, the Company issued a $1,000,000 note
payable to a related party in conjunction with the acquisition of PC Video
Conversion, Inc. providing for the payment of principal and interest at 3.5 %
over a period of 36 months. The Company computed a discount of $89,915 on this
note based on its incremental borrowing rate. The balance owed on this note
payable, net of discount at March 31, 1999 was $753,591. Maturities of long-term
debt at March 31, 1999 are as follows:
Years End March 31,
-------------------
2000 $ 290,279
2001 320,321
2002 142,991
---------
Total $ 753,591
=========
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6. COMMON STOCK TRANSACTIONS
On February 22, 1999, the Company issued warrants to purchase 30,000
shares of common stock to the principals of an unaffiliated investor relations
firm. The warrants are exercisable until February 22, 2002 at an exercise price
of $1.063 per share.
On February 22, 1999, the Company issued a warrant to purchase 100,000
shares of common stock to an unaffiliated investment advisor. The warrant is
exercisable until September 9, 2002 at an exercise price of $1.063 per share.
On February 22, 1999, the Company issued a warrant to purchase 50,000
shares of common stock pursuant to a debt financing arrangement with an
unrelated individual. The warrant is exercisable until February 22, 2004 at a
conversion price of $1.063.
On March 22, 1999, the Company issued a warrant to purchase 100,000
shares of common stock pursuant to a debt financing arrangement with an
unaffiliated commercial bank. The warrant is exercisable until March 22, 2006 at
a conversion price of $1.70.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following information should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB/A for the year ended December 31, 1998.
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information provided by
the Company or statements made by its employees may contain "forward looking"
information that involve risks and uncertainties. In particular, statements
contained in this Form 10-QSB which are not historical facts constitute forward
looking statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Each forward looking statement should
be read in conjunction with the consolidated financial statements and notes
thereto in Part I, Item 1, of this Quarterly Report and with the information
contained in Item 2, including, but not limited to, "Certain Factors That May
Affect Future Results" contained herein, together with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 1998, including, but not limited to, the section therein entitled
"Certain Factors That May Affect Future Results."
RESULTS OF OPERATIONS
Three-Month Period Ended March 31, 1999 As Compared
With The Three-Month Period Ended March 31, 1998
Net Sales
Net sales for the three-month period ended March 31, 1999 ("Q1 99")
were $5,067,079 as compared with $5,251,948 for the three-month period ended
March 31, 1998 ("Q1 98"), a decrease of $184,869 or 4%. The decrease in sales
is primarily attributed to the discontinuation of sales to non-performing
resellers of the Company's consumer video conversion product line in North
America. In the three-month period ending March 31, 1998, approximately $800,000
of sales were to resellers that the Company discontinued selling to in the
fourth quarter of 1998. There were no sales to these resellers for the
three-month period ended March 31, 1999. This decrease in sales to US resellers
was offset by increased sales to international resellers and OEM/Licensing
customers. Specifically, net sales in Q1 99 to the Company's international
resellers increased 22% to $517,000 from $425,000 in Q1 98. Net sales to
OEM/Licensing customers increased 24% to $677,000 in Q1 99 from $547,000 for the
same quarter in 1998. The increases in international and OEM/Licensing sales
reflect increased acceptance of the Company's video conversion technology
combined with market penetration in international reseller channels.
As of March 31, 1999, the Company had a sales order backlog of
approximately $500,000.
12
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Cost of Goods Sold
Cost of goods sold were $2,937,134 or 58% of net sales, for the
three-month period ended March 31, 1999, as compared with $2,781,936 or 53% of
net sales, for the three-month period ended March 31, 1998, an increase in
absolute dollars of $155,198 or 6%. The Company's gross profit margins for Q1 99
and Q1 98 were 42% and 47%, respectively. The increase in cost of goods sold in
absolute dollars and as a percentage of sales is due principally to an increase
in OEM sales on which margins are typically lower as compared to consumer
channel sales.
Sales, Marketing and Support Expenses
Sales, marketing and support expenses were $1,023,696 or 20% of net
sales, for the three-month period ended March 31, 1999, as compared with
$1,166,327 or 22% of net sales, for the three-month period ended March 31, 1998,
a decrease of $142,631 or 12%. The decrease in absolute dollars is due primarily
to a reduction in the marketing projects and advertising expenses as compared to
the three-month period March 31, 1998.
General and Administrative Expenses
General and administrative expenses for the three-month period ended
March 31, 1999 were $353,943 or 7% of net sales, as compared with $387,959 or 7%
of net sales for the three-month period ended March 31, 1998, a decrease of
$34,016 or 9%. The decrease in absolute dollars is due primarily to a decrease
in consulting fees of approximately $26,700.
Research and Development Expenses
Research and development expenses for the three-month period ended
March 31, 1999 were $492,480, or 10% of net sales, as compared to $310,801, or
6% of net sales, for three-month period ended March 31, 1998, an increase of
$181,679 or 59%. The increases were due principally to increased staffing and
employee benefits resulting from the acquisition of PC Video Conversion, Inc. in
July 1998.
Interest Expense, Net
Net interest expense for the three-month period ended March 31, 1999
was $21,364, or .4% of net sales, as compared to $77,039, or 1.5% of net sales,
for the three-month period ended March 31, 1998, a decrease of $55,675, or 72%.
The decrease is primarily attributable a decrease in note payable obligations at
March 31, 1999 as compared to March 31, 1998.
Other Income
Other Income for the three-month period ended March 31, 1999 was $3,948
as compared to $634, for the three-month period ended March 31, 1998. Other
income for Q1 99 resulted from the settlement of certain accounts payable
obligations.
Net Income
For the quarter ended March 31, 1999, the Company reported net income
of $102,990, or $0.01 per share, as compared to $364,748, or $0.03 per share,
for the quarter ended March 31, 1998. The
13
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decrease in net income is primarily due to the discontinuation of sales to
non-performing resellers, combined with an increase in R&D investments.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three-month periods ended
March 31, 1999 and 1998 was $375,039 and $2,264,567, respectively. In Q1 99, net
cash used in operating activities consisted primarily of an increase in accounts
receivable of $891,669 and a decrease in accrued liabilities of $511,787. This
was offset by a decrease in inventory of $212,403, an increase in accounts
payable of $600,794, depreciation and amortization (non-cash charge) of
$139,370, and net income of $102,990. As of March 31, 1999 and 1998, accounts
receivable from a major distributor represented approximately 45% and 31%,
respectively, of total accounts receivable. In Q1 99, the Company continued to
record provisions for potential future uncollectable accounts and maintained
reserves for potential product returns.
In the three months ended March 31, 1998, net cash used in operations
consisted primarily of an increase in accounts receivable of $1,297,886 and
decreases in accounts payable and accrued liabilities of $1,455,445 and
$205,254, respectively.
Net cash used in investing activities for the three-month periods ended
March 31, 1999 and 1998 was $666,188 and $195,432 respectively. In Q1 99 and Q1
98, cash used in investing activities was principally for the purchase of
property and equipment.
Net cash provided by financing activities for the three-month periods
ended March 31, 1999 and 1998 was $146,973 and $2,904,772, respectively. In Q1
99, the Company received $969,459 in net proceeds from a debt financing from a
commercial bank. The Company's financing proceeds were offset by payments on
notes payable and capital lease obligations. In the same period in 1998, the
Company received $2,827,355 in net proceeds from private offerings of Common
Stock and $148,142 from the exercise of common stock options and warrants. The
Q1 98 financing proceeds were offset by payments on notes payable and capital
lease obligations.
As of March 31, 1999, the Company had working capital of $953,683, as
compared to $1,434,793 at December 31, 1998, a decrease of $481,110. The
Company's cash position at March 31, 1999 was $234,126, a decrease of $894,254,
over amounts at December 31, 1998.
Although the Company has been successful in the past in raising
sufficient capital to fund its operations, there can be no assurance that the
Company will achieve sustained profitability or obtain sufficient financing in
the future.
Effects of Inflation and Seasonality
The Company believes that inflation has not had a significant impact on
the Company's sales or operating results. The Company's business does not
experience substantial variations in revenues or operating income during the
year due to seasonality.
Environmental Liability
The Company has no known environmental violations or assessments.
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Year 2000
General
The Company's Year 2000 compliance project ("the Project") is
proceeding on schedule. The Project is addressing the issue of computer programs
and embedded computer chips being unable to distinguish between the year 1900
and the year 2000. In early 1999, in order to improve access to business
information and to strengthen its infrastructure through common, integrated
computing systems across the Company, the Company began a business systems
replacement project with systems that use programs from a nationally known
business software company (the "System"). The installation of the new systems,
which are expected to make approximately 90 percent of the Company's business
computer systems Year 2000 compliant, is scheduled for completion by mid-1999.
The System will replace a non-compliant accounting and manufacturing system.
Implementation of the System is on schedule and approximately 70 percent
complete. To facilitate the Project, The Company has retained outside
consultants with expertise in wide area networking ("WAN"), systems integration
and business/contact data management.
The Company has developed a contingency plan to make the programs that
are scheduled to be replaced by the System Year 2000 compliant. The contingency
plan includes contracted on-site support, work-flow modification, and
integration of Year 2000 compliant systems. At the end of first quarter 1999,
management agreed that there was no need to implement the contingency plan at
that time. The decision will be re-evaluated monthly through year-end. Remaining
business software programs are expected to be made Year 2000 compliant through
the Project, including those supplied by vendors, or they will be retired. None
of the Company's other information technology ("IT") projects have been delayed
due to the implementation of the Project.
Project
The Project is being implemented in two phases: Phase I, installation
of the hardware and business applications, preceded the WAN installation and the
integration of various communications systems. Phase I was 75% completed on
March 31, 1999. Phase II is expected to be completed by July 31, 1999.
The Project is divided into two major sections - infrastructure and
applications software (sometimes collectively referred to as "IT Systems") and
third-party suppliers and customers ("External Agents"). The general phases
common to all sections are: (1) inventorying Year 2000 items; (2) assigning
priorities to identified items; (3) assessing the Year 2000 compliance of items
determined to be material to the Company; (4) repairing or replacing material
items that are determined not to be Year 2000 compliant; (5) testing material
items; and (6) designing and implementing contingency and business continuation
plans for each organization and Company location.
At September 30, 1998, the inventory and priority assessment phases of
each section of the Project had been completed. While substantially complete,
the process of assessing Year 2000 compliance of its material items and
repairing or replacing such items continues on an ongoing basis. Material items
are those believed by the Company to have a risk involving the safety of
individuals, or that may cause damage to property or the environment, or that
have a material effect on the Company's revenues. The testing phases of the
Project will be performed by the Company and will be ongoing as hardware or
system software is remedied, upgraded or replaced.
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The infrastructure portion of the IT section consists of hardware and
systems software other than applications software. The Company estimates that
approximately 90 percent of the activities required to achieve infrastructure
Year 2000 compliance had been completed at March 31, 1999. All infrastructure
activities are expected to be completed by July 31, 1999. Contingency planning
for infrastructure is also substantially complete.
The application software portion of the IT section includes both the
conversion of applications software that is not Year 2000 compliant and, where
available from the supplier, the replacement of such software. The Company
estimates that the software conversion phase was approximately 65 percent
complete at March 31, 1999, and the remaining conversions are expected to be
completed by mid-1999.
The testing phase for application software is ongoing and is expected
to be completed by mid-1999. The vendor software replacements and upgrades are
presently behind schedule, although the Company currently believes that
replacements and upgrades will be completed on schedule by mid-1999. Contingency
planning for application software has begun and is scheduled for completion by
mid-1999.
The External Agents section includes the process of identifying and
prioritizing critical suppliers and customers at the direct interface level, and
communicating with them about their plans and progress in addressing their own
Year 2000 issues. Detailed evaluations of the most critical third parties have
been initiated. These evaluations will be followed by the development of
contingency plans, which are scheduled for completion by mid-1999. The Company
estimates that this section was on schedule at April 30, 1999. Follow-up reviews
of External Agents are expected to be undertaken through the remainder of 1999.
Costs
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Project is approximately $300,000. The
total amount expended on the Project through April 30, 1999, was $240,000, of
which approximately $200,000 related to the cost to repair or replace software
and related hardware problems, and approximately $40,000 related to the cost of
identifying and communicating with External Agents. The estimated future cost of
completing the Project is estimated to be approximately $60,000; $45,000 to
repair or replace software and related hardware and $15,000 to identify and
communicate with External Agents. Funds for the Project are provided from a
separate budget of $300,000 for all items other than External Agent costs, which
are included in existing operating budgets. Ancillary costs of implementing the
System are not included in these cost estimates.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material External Agents. The Company believes that, with the implementation of
new business systems and completion of the Project as scheduled, the possibility
of significant interruptions of normal operations should be reduced.
16
<PAGE>
Readers are cautioned that forward-looking statements contained in the
year 2000 Update should be read in conjunction with the Company's disclosures
under the heading: "CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS" herein.
The Company is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 for any forward-looking statement made by, or on behalf of,
the Company. The factors identified in this cautionary statement are important
factors (but not necessarily all important factors) that could cause actual
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or bases to be reasonable and
makes them in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending on the circumstances. Where, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result, or be achieved or accomplished.
Taking into account the foregoing, the following are identified as
important risk factors that could cause actual results with respect to the
Company's Year 2000 compliance to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:
o The dates on which the Company believes the Project will be completed and
the System will be implemented are based on management's best estimates,
which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee
that these estimates will be achieved, or that there will not be a delay
in, or increased costs associated with, the implementation of the Project.
o A delay in the implementation of the System could impact the Company's
readiness for transactions involving the Euro currency in connection with
the Company's European sales activities.
o Other specific factors that might cause differences between the estimates
and actual results include, but are not limited to, the availability and
cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by
third-parties and suppliers, the ability to implement interfaces between
the new systems and the systems not being replaced, and similar
uncertainties.
o Due to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-parties
and the interconnection of global businesses, the Company cannot ensure its
ability to timely and cost-effectively resolve problems associated with the
Year 2000 issue that may materially and adversely affect its operations and
business, or expose it to third-party liability.
17
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial
performance of the Company. However, from time to time, information provided by
the Company or statements made by its employees may contain "forward looking"
information that involve risks and uncertainties. In particular, statements
contained in this Form 10-QSB which are not historical facts (including, but not
limited to, statements concerning international revenues, anticipated operating
expense levels and such expense levels relative to the Company's total revenues)
constitute forward looking statements and are made under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results of operations and financial condition have varied and
may in the future vary significantly from those stated in any forward looking
statements. Factors that may cause such differences include, without limitation,
the availability of capital to fund the Company's future cash needs, reliance on
major customers, history of operating losses, limited availability of capital
under credit arrangements with lenders, market acceptance of the Company's
products, technological obsolescence, competition, component supply problems and
protection of proprietary information, as well as the accuracy of the Company's
internal estimates of revenue and operating expense levels and the Company's
ability to achieve Year 2000 compliance on a timely basis as more fully
described above.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any pending legal proceedings, other than
routine litigation that is incidental to the business, which would have a
material adverse effect on the Company's financial position or results of
operations for the three-month period ended March 31, 1999.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following exhibits are filed herewith:
2.1 Form of Common Stock Purchase Warrant issued to Richard West and
R.J. Faulkner
2.2 Form of Common Stock Purchase Warrant issued to Brian G. Swift and
Edward Price
2.3 Common Stock Purchase Warrant issued to Silicon Valley Bank
10 Accounts Receivable Purchase Agreement dated March 22, 1999
between the Company and Silicon Valley Bank
11. Statement Re: Computation of Per Share Earnings
27. Financial data schedule
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K reports during the
quarter ended March 31, 1999.
19
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOCUS Enhancements, Inc.
May 17, 1999 By: \s\ Thomas L. Massie
Thomas L. Massie
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
May 17, 1999 By: \s\ Gary M. Cebula
Gary M. Cebula
Vice President of Finance
and Administration
(Principal Accounting Officer)
20
Exhibit 2.1
Form of Common Stock Purchase Warrant
For Richard West and R.J. Faulkner
The security represented hereby has not been registered under the
Securities Act of 1933 or applicable state securities laws and may not be sold,
assigned or transferred without an effective registration statement for such
security under the Securities Act of 1933 or applicable state securities laws,
unless the Company has received the written opinion of counsel satisfactory to
the Company that such counsel is of the opinion that such sale, assignment or
transfer does not involve a transaction requiring registration of such security
under the Securities Act of 1933 or applicable state securities laws.
Warrant No.: W99/__ Right to Purchase 15,000
Shares of Common Stock of
February 22, 1998 FOCUS Enhancements, Inc.
VOID UNLESS EXERCISED BEFORE 5:00 P.M., EASTERN STANDARD TIME ON FEBRUARY 22,
2004.
FOCUS Enhancements, Inc.
Common Stock Purchase Warrant
FOCUS Enhancements, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, _____________, or assigns, is
entitled, subject to the terms set forth below, to purchase from the Company,
commencing February 22, 1998, at any time or from time to time before 5:00 p.m.,
Eastern Daylight Time, on or before February 22, 2004, 15,000 fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Company, at an
exercise price per share equal to $1.063. Such exercise price per share as
adjusted from time to time as herein provided is referred to herein as the
"Exercise Price." The number and character of such shares of Common Stock and
the Exercise Price are subject to adjustment as provided herein.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FOCUS Enhancements, Inc., a
Delaware corporation, and any corporation which shall succeed or assume
the obligations of the Company hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.01 par value per share, as authorized, (b) any other capital stock of
any class or classes (however
1
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designated) of the Company, authorized on or after such date, the
holders of which shall have the right, without limitation as to amount,
either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions
on any shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency), (c) any other securities into which or for which any of
the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets or otherwise, or the conversion of promissory notes or other
obligations of the Company.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Warrant at any time
shall be entitled to receive, or shall have received, on the exercise
of the Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or
in replacement of Other Securities pursuant to Sections 3 or 4 or
otherwise.
1. Exercise of Warrant.
1.1. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company, in the amount obtained by multiplying the
number of shares of Common Stock for which this Warrant is then exercisable by
the Exercise Price then in effect.
1.2 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Section 1.1
except that the amount payable by the holder on such partial exercise shall be
the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Exercise Price then in effect. On any such partial exercise, the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
2. Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
sixty (60) days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof, or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled
2
<PAGE>
on such exercise, plus, in lieu of any fractional share to which such holder
would otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation or Merger.
3.1 Reorganization, Consolidation or Merger. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or entity, or (c) transfer all
or substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, the holder of the Warrant, on the exercise hereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as
provided in Sections 4 and 5.
3.2 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and Other
Securities and property receivable on the exercise of the Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant.
4. Adjustments for Stock Dividends and Stock Splits. In the event that
the Company shall (i) issue additional shares of Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then prevailing Exercise Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event (calculated assuming the conversion
or exchange of all outstanding shares of convertible or exchangeable securities
of the Company which are convertible or exchangeable into, or exercisable for,
shares of Common Stock) and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such event (calculated
assuming the conversion or exchange of all outstanding shares of convertible or
exchangeable securities of the Company which are convertible or exchangeable
into, or exercisable for, shares of Common Stock), and the product
3
<PAGE>
so obtained shall thereafter be the Exercise Price then in effect. The Exercise
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The holder
of this Warrant shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this Section 4) be issuable on such exercise, by a fraction of
which (i) the numerator is the Exercise Price which would otherwise (but for the
provisions of this Section 4) be in effect, and (ii) the denominator is the
Exercise Price in effect on the date of such exercise.
5. Adjustment for Dividends in Other Stock, Property and
Reclassifications. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which, in the case
of Common Stock, are provided for in Section 4), then and in each such case the
holder of this Warrant, on the exercise hereof as provided in Section 1, shall
be entitled to receive the amount of other or additional stock and other
securities and property (including cash in the cases referred to in subdivision
(b) of this Section 5) which such holder would hold on the date of such exercise
if on the date of distribution of such other or additional stock or other
securities and property, or on the record date fixed for determining the
shareholders entitled to receive such other or additional stock or other
securities and property, such holder had been the holder of record of the number
of shares of Common Stock called for on the face of this Warrant and had
thereafter, during the period from the date thereof to and including the date of
such exercise, retained such shares and all such other or additional stock and
other securities and property (including cash in the cases referred to in
subdivision (b) of this Section 5) receivable by such holder as aforesaid during
such period, giving effect to all adjustments called for during such period by
Sections 3 and 4.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the holders of any class
or securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, or
4
<PAGE>
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or consolidation
or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date specified in such notice on which any such action is to be taken.
7. Reservation of Stock Issuable on Exercise on Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrant, all shares of Common Stock (or Other Securities)
from time to time issuable on the exercise of the Warrant; the shares of Common
Stock which the holder of this Warrant shall receive upon exercise of the
Warrant will be duly authorized, validly issued, fully paid and non-assessable.
8. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
9. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. Warrantholder Not Deemed Stockholder; Restrictions on Transfer.
This Warrant is issued upon the following terms, to all of which each holder or
owner hereof by the taking hereof consents and agrees:
5
<PAGE>
(a) No holder of this Warrant shall, as such, be deemed the holder of
Common Stock that may at any time be issuable upon exercise of this
Warrant for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon such holder, as such, any of the rights of
a stockholder of the Company until such holder shall have exercised the
Warrant and been issued shares of Common Stock in accordance with the
provisions hereof.
(b) Neither this Warrant nor any shares of Common Stock purchased
pursuant to this Warrant shall be registered under the Securities Act
of 1933 (the "Securities Act") and applicable state securities laws.
Therefore, the Company may require, as a condition of allowing the
transfer or exchange of this Warrant or such shares, that the holder or
transferee of this Warrant or such shares, as the case may be, furnish
to the Company an opinion of counsel acceptable to the Company to the
effect that such transfer or exchange may be made without registration
under the Securities Act and applicable state securities laws. The
certificates evidencing the shares of Common Stock issued on the
exercise of the Warrant shall bear a legend to the effect that the
shares evidenced by such certificates have not been registered under
the Securities Act and applicable state securities laws.
(c) This Warrant is not transferable or assignable to any party without
the prior written consent of the Company and an opinion of counsel
satisfactory to the Company that such transfer is permissible under
applicable law.
11. Notices. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by (i) first class mail, postage
prepaid, (ii) electronic facsimile transmission, or (iii) express overnight
courier service, at such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
12. Registration Rights. The Company hereby grants the following
registration rights with respect to the shares of Common Stock issued or
issuable upon exercise of this Warrant (the "Warrant Shares").
12.1 "Piggy-Back Registrations": If at any time the Company
shall determine to register in a public offering for its own account (and not
the account of selling stockholders) under the Securities Act any of its Common
Stock, it shall send to the Warrantholder written notice of such determination
and, if within 15 days after receipt of such notice, the Warrantholder shall so
request in writing, the Company shall use its best efforts to include in such
registration statement all or any part of the Warrant Shares such holder
requests to be registered. This right shall not apply to a registration of
shares of Common Stock on Form S-4 or Form S-8 (or their then equivalents)
relating to shares of Common Stock to be issued by the Company in connection
with any acquisition of any entity or business, or shares of Common Stock
issuable in connection with any stock option or other employee benefits plan,
respectively.
6
<PAGE>
If, in connection with any offering involving an underwriting of Common
Stock to be issued by the Company for the account of the Company, the managing
underwriter shall impose a limitation on the number of shares of such Common
Stock which may be included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution
of the Common Stock and to maintain a stable market for the securities of the
Company, then the Company shall be obligated to include in such registration
statement only such limited portion (which may be none) of the Warrant Shares
with respect to which the Warrantholder and all other selling stockholders have
requested inclusion thereunder.
12.2 Expenses. In the case of a registration under Sections
12.1, the Company shall bear all costs and expenses of such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission (the "SEC") and NASD filing fees and all
related "Blue Sky" fees and expenses; provided, however, that the Company shall
have no obligation to pay or otherwise bear any portion of the underwriters'
commissions or discounts attributable to the Warrant Shares being offered and
sold by the Warrantholder or the fees and expenses of any counsel for the
Warrantholder in connection with any registration of the Warrant Shares.
12.3 Lock-Up Agreement for Public Offering. In connection with
any public offering of equity securities of the Company, the Warrantholder
agrees not to sell, pledge, transfer or otherwise dispose of, or grant any
option or purchase right with respect to, any shares of capital stock then owned
by him and not otherwise offered in the public offering, or engage in any short
sale, hedging transaction or other derivative security transaction involving the
Common Stock, or other shares of Common Stock of the Company held by him, for
such period of time commencing 30 days prior to the proposed effective date of
such public offering until such period of time following the offering as the
Company and the managing underwriter of such public offering deem necessary in
order to ensure a stable and orderly trading market.
12.4 Expiration of Registration Rights. The obligations of the
Company under this Section 12 to register the Warrant Shares shall expire and
terminate at such time as the Warrantholder shall be entitled to sell such
securities without restriction and without a need for the filing of a
registration statement under the Securities Act, including, without limitation,
for any resales of "Restricted Securities" made pursuant to Rule 144 as
promulgated by the SEC, or a sale made pursuant to Sections 4(1) and/or 4(2)
under the Securities Act. If the Warrantholder desires to exercise the
registration rights provided in this Section 12, the Warrantholder must exercise
this Warrant for cash consideration prior to the effectiveness of any
registration.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant and the shares of Common Stock underlying this Warrant
shall be construed and enforced in accordance with and governed by the laws of
the State of Delaware. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or
7
<PAGE>
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
14. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Eastern Daylight Saving Time, on February 22, 2004.
Dated: February 22, 1998
ATTEST: FOCUS ENHANCEMENTS, INC.
By:________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
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<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO FOCUS Enhancements, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ____________
shares of Common Stock of FOCUS Enhancements, Inc., a Delaware corporation, and
herewith makes payment of $____________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_________________________, whose address is ________________________.
Dated: ______________________________________________________________
(Signature must conform to name of holder as specified on the
face of the Warrant)
______________________________________________________________
______________________________________________________________
(Address)
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<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of FOCUS Enhancements,
Inc., a Delaware corporation, to which the within Warrant relates, and appoints
_________________________ Attorney to transfer such right on the books of FOCUS
Enhancements, Inc., a Delaware corporation, with full power of substitution in
the premises.
Dated: ______________________________________________________________
(Signature must conform to name of holder as specified on the
face of the Warrant)
______________________________________________________________
______________________________________________________________
(Address)
Signed in the presence of:
Witness: __________________________________________
10
Exhibit 2.2
Form of Common Stock Purchase Warrant
For Brian G. Swift and Edward Price
Swift: 100,000 shares; expires 9/9/02
Price: 50,000 shares; expires 2/22/04
The security represented hereby has not been registered under the
Securities Act of 1933 or applicable state securities laws and may not be sold,
assigned or transferred without an effective registration statement for such
security under the Securities Act of 1933 or applicable state securities laws,
unless the Company has received the written opinion of counsel satisfactory to
the Company that such counsel is of the opinion that such sale, assignment or
transfer does not involve a transaction requiring registration of such security
under the Securities Act of 1933 or applicable state securities laws.
Warrant No.: W99/__ Right to Purchase ________
Shares of Common Stock of
February 22, 1998 FOCUS Enhancements, Inc.
VOID UNLESS EXERCISED BEFORE 5:00 P.M., EASTERN STANDARD TIME ON ___________.
FOCUS Enhancements, Inc.
Common Stock Purchase Warrant
FOCUS Enhancements, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, ______________, or assigns, is
entitled, subject to the terms set forth below, to purchase from the Company,
commencing February 22, 1998, at any time or from time to time before 5:00 p.m.,
Eastern Daylight Time, on or before _________________, _______ fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Company, at an
exercise price per share equal to $1.063. Such exercise price per share as
adjusted from time to time as herein provided is referred to herein as the
"Exercise Price." The number and character of such shares of Common Stock and
the Exercise Price are subject to adjustment as provided herein.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FOCUS Enhancements, Inc., a
Delaware corporation, and any corporation which shall succeed or assume
the obligations of the Company hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.01 par value per share, as authorized, (b) any other capital stock of
any class or classes (however
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designated) of the Company, authorized on or after such date, the
holders of which shall have the right, without limitation as to amount,
either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions
on any shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency), (c) any other securities into which or for which any of
the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets or otherwise, or the conversion of promissory notes or other
obligations of the Company.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Warrant at any time
shall be entitled to receive, or shall have received, on the exercise
of the Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or
in replacement of Other Securities pursuant to Sections 3 or 4 or
otherwise.
1. Exercise of Warrant.
1.1. Full Exercise. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company, in the amount obtained by multiplying the
number of shares of Common Stock for which this Warrant is then exercisable by
the Exercise Price then in effect.
1.2 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Section 1.1
except that the amount payable by the holder on such partial exercise shall be
the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Exercise Price then in effect. On any such partial exercise, the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
2. Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
sixty (60) days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof, or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled
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on such exercise, plus, in lieu of any fractional share to which such holder
would otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation or Merger.
3.1 Reorganization, Consolidation or Merger. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or entity, or (c) transfer all
or substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, the holder of the Warrant, on the exercise hereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as
provided in Sections 4 and 5.
3.2 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and Other
Securities and property receivable on the exercise of the Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant.
4. Adjustments for Stock Dividends and Stock Splits. In the event that
the Company shall (i) issue additional shares of Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then prevailing Exercise Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event (calculated assuming the conversion
or exchange of all outstanding shares of convertible or exchangeable securities
of the Company which are convertible or exchangeable into, or exercisable for,
shares of Common Stock) and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such event (calculated
assuming the conversion or exchange of all outstanding shares of convertible or
exchangeable securities of the Company which are convertible or exchangeable
into, or exercisable for, shares of Common Stock), and the product
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so obtained shall thereafter be the Exercise Price then in effect. The Exercise
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The holder
of this Warrant shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this Section 4) be issuable on such exercise, by a fraction of
which (i) the numerator is the Exercise Price which would otherwise (but for the
provisions of this Section 4) be in effect, and (ii) the denominator is the
Exercise Price in effect on the date of such exercise.
5. Adjustment for Dividends in Other Stock, Property and
Reclassifications. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which, in the case
of Common Stock, are provided for in Section 4), then and in each such case the
holder of this Warrant, on the exercise hereof as provided in Section 1, shall
be entitled to receive the amount of other or additional stock and other
securities and property (including cash in the cases referred to in subdivision
(b) of this Section 5) which such holder would hold on the date of such exercise
if on the date of distribution of such other or additional stock or other
securities and property, or on the record date fixed for determining the
shareholders entitled to receive such other or additional stock or other
securities and property, such holder had been the holder of record of the number
of shares of Common Stock called for on the face of this Warrant and had
thereafter, during the period from the date thereof to and including the date of
such exercise, retained such shares and all such other or additional stock and
other securities and property (including cash in the cases referred to in
subdivision (b) of this Section 5) receivable by such holder as aforesaid during
such period, giving effect to all adjustments called for during such period by
Sections 3 and 4.
6. Notices of Record Date. In the event of
(a) any taking by the Company of a record of the holders of any class
or securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, or
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(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or consolidation
or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date specified in such notice on which any such action is to be taken.
7. Reservation of Stock Issuable on Exercise on Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrant, all shares of Common Stock (or Other Securities)
from time to time issuable on the exercise of the Warrant; the shares of Common
Stock which the holder of this Warrant shall receive upon exercise of the
Warrant will be duly authorized, validly issued, fully paid and non-assessable.
8. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
9. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. Warrantholder Not Deemed Stockholder; Restrictions on Transfer.
This Warrant is issued upon the following terms, to all of which each holder or
owner hereof by the taking hereof consents and agrees:
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(a) No holder of this Warrant shall, as such, be deemed the holder of
Common Stock that may at any time be issuable upon exercise of this
Warrant for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon such holder, as such, any of the rights of
a stockholder of the Company until such holder shall have exercised the
Warrant and been issued shares of Common Stock in accordance with the
provisions hereof.
(b) Neither this Warrant nor any shares of Common Stock purchased
pursuant to this Warrant shall be registered under the Securities Act
of 1933 (the "Securities Act") and applicable state securities laws.
Therefore, the Company may require, as a condition of allowing the
transfer or exchange of this Warrant or such shares, that the holder or
transferee of this Warrant or such shares, as the case may be, furnish
to the Company an opinion of counsel acceptable to the Company to the
effect that such transfer or exchange may be made without registration
under the Securities Act and applicable state securities laws. The
certificates evidencing the shares of Common Stock issued on the
exercise of the Warrant shall bear a legend to the effect that the
shares evidenced by such certificates have not been registered under
the Securities Act and applicable state securities laws.
(c) This Warrant is not transferable or assignable to any party without
the prior written consent of the Company and an opinion of counsel
satisfactory to the Company that such transfer is permissible under
applicable law.
11. Notices. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by (i) first class mail, postage
prepaid, (ii) electronic facsimile transmission, or (iii) express overnight
courier service, at such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.
12. Registration Rights. The Company hereby grants the following
registration rights with respect to the shares of Common Stock issued or
issuable upon exercise of this Warrant (the "Warrant Shares").
12.1 "Piggy-Back Registrations": If at any time the Company
shall determine to register in a public offering for its own account (and not
the account of selling stockholders) under the Securities Act any of its Common
Stock, it shall send to the Warrantholder written notice of such determination
and, if within 15 days after receipt of such notice, the Warrantholder shall so
request in writing, the Company shall use its best efforts to include in such
registration statement all or any part of the Warrant Shares such holder
requests to be registered. This right shall not apply to a registration of
shares of Common Stock on Form S-4 or Form S-8 (or their then equivalents)
relating to shares of Common Stock to be issued by the Company in connection
with any acquisition of any entity or business, or shares of Common Stock
issuable in connection with any stock option or other employee benefits plan,
respectively.
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If, in connection with any offering involving an underwriting of Common
Stock to be issued by the Company for the account of the Company, the managing
underwriter shall impose a limitation on the number of shares of such Common
Stock which may be included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution
of the Common Stock and to maintain a stable market for the securities of the
Company, then the Company shall be obligated to include in such registration
statement only such limited portion (which may be none) of the Warrant Shares
with respect to which the Warrantholder and all other selling stockholders have
requested inclusion thereunder.
12.2 Expenses. In the case of a registration under Sections
12.1, the Company shall bear all costs and expenses of such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission (the "SEC") and NASD filing fees and all
related "Blue Sky" fees and expenses; provided, however, that the Company shall
have no obligation to pay or otherwise bear any portion of the underwriters'
commissions or discounts attributable to the Warrant Shares being offered and
sold by the Warrantholder or the fees and expenses of any counsel for the
Warrantholder in connection with any registration of the Warrant Shares.
12.3 Lock-Up Agreement for Public Offering. In connection with
any public offering of equity securities of the Company, the Warrantholder
agrees not to sell, pledge, transfer or otherwise dispose of, or grant any
option or purchase right with respect to, any shares of capital stock then owned
by him and not otherwise offered in the public offering, or engage in any short
sale, hedging transaction or other derivative security transaction involving the
Common Stock, or other shares of Common Stock of the Company held by him, for
such period of time commencing 30 days prior to the proposed effective date of
such public offering until such period of time following the offering as the
Company and the managing underwriter of such public offering deem necessary in
order to ensure a stable and orderly trading market.
12.4 Expiration of Registration Rights. The obligations of the
Company under this Section 12 to register the Warrant Shares shall expire and
terminate at such time as the Warrantholder shall be entitled to sell such
securities without restriction and without a need for the filing of a
registration statement under the Securities Act, including, without limitation,
for any resales of "Restricted Securities" made pursuant to Rule 144 as
promulgated by the SEC, or a sale made pursuant to Sections 4(1) and/or 4(2)
under the Securities Act. If the Warrantholder desires to exercise the
registration rights provided in this Section 12, the Warrantholder must exercise
this Warrant for cash consideration prior to the effectiveness of any
registration.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant and the shares of Common Stock underlying this Warrant
shall be construed and enforced in accordance with and governed by the laws of
the State of Delaware. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or
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unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
14. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Eastern Daylight Saving Time, on _________________.
Dated: February 22, 1998
ATTEST: FOCUS ENHANCEMENTS, INC.
By:________________________________ By:_________________________________
Title:_______________________________ Title:______________________________
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FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO FOCUS Enhancements, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ____________
shares of Common Stock of FOCUS Enhancements, Inc., a Delaware corporation, and
herewith makes payment of $____________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_________________________, whose address is _________________________.
Dated: _______________________________________________________________
(Signature must conform to name of holder as specified on the
face of the Warrant)
_______________________________________________________________
_______________________________________________________________
(Address)
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FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of FOCUS Enhancements,
Inc., a Delaware corporation, to which the within Warrant relates, and appoints
_________________________ Attorney to transfer such right on the books of FOCUS
Enhancements, Inc., a Delaware corporation, with full power of substitution in
the premises.
Dated: _______________________________________________________________
(Signature must conform to name of holder as specified on the
face of the Warrant)
_______________________________________________________________
_______________________________________________________________
(Address)
Signed in the presence of:
Witness: __________________________________________
10
Exhibit 2.3
The security represented hereby has not been registered under the
Securities Act of 1933 or applicable state securities laws and may not be sold,
assigned or transferred without an effective registration statement for such
security under the Securities Act of 1933 or applicable state securities laws,
unless the Company has received the written opinion of counsel satisfactory to
the Company that such counsel is of the opinion that such sale, assignment or
transfer does not involve a transaction requiring registration of such security
under the Securities Act of 1933 or applicable state securities laws.
Warrant No.: W99/2 Right to Purchase 100,000
Shares of Common Stock of
March 22, 1999 FOCUS Enhancements, Inc.
VOID UNLESS EXERCISED BEFORE 5:00 P.M., EASTERN STANDARD TIME ON MARCH
22, 2006.
FOCUS Enhancements, Inc.
Common Stock Purchase Warrant
FOCUS Enhancements, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, Silicon Valley Bank, or assigns, is
entitled, subject to the terms set forth below, to purchase from the Company,
commencing March 22, 1999, at any time or from time to time before 5:00 p.m.,
Eastern Daylight Time, on or before March 22, 2006, one hundred thousand
(100,000) fully paid and nonassessable shares of Common Stock, $.01 par value,
of the Company, at an exercise price per share equal to one dollar seventy cents
($1.70). Such exercise price per share as adjusted from time to time as herein
provided is referred to herein as the "Exercise Price." The number and character
of such shares of Common Stock and the Exercise Price are subject to adjustment
as provided herein.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include FOCUS Enhancements, Inc.,
a Delaware corporation, and any corporation which shall succeed or
assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $.01 par value per share, as authorized, (b) any other capital
stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of
the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference, and the holders of which shall ordinarily, in the absence
of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even though the right so to vote has been
suspended by the happening of such a contingency), (c) any other
securities into which or for which any of the securities described in
(a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise,
or the conversion of promissory notes or other obligations of the
Company.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of the Warrant, in lieu of or in addition to Common Stock, or
<PAGE>
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Other Securities pursuant to Sections
3 or 4 or otherwise.
1. Exercise of Warrant.
1.1. Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Exercise Price then in effect.
1.2. Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Section 1.1
except that the amount payable by the holder on such partial exercise shall be
the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Exercise Price then in effect. On any such partial exercise, the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
1.3. Conversion Right. In lieu of exercising this Warrant as specified
above, Warrantholder may from time to time convert this Warrant, in whole or in
part, into a number of shares of Common Stock (the "Shares") determined by
dividing (a) the aggregate fair market value of the Shares or other securities
otherwise issuable upon exercise of this Warrant minus the aggregate Exercise
Price of such Shares by (b) the fair market value of one Share. The fair market
value of the Shares shall be the closing price of the Shares (or the closing
price of the Company's stock into which the Shares are convertible) reported for
the business day immediately before Warrantholder delivers its Form of
Subscription to the Company.
2. Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
sixty (60) days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof, or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be entitled,
cash equal to such fraction multiplied by the then current market value of one
full share, together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation or Merger.
3.1. Reorganization, Consolidation or Merger. In case at any time or
from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or entity, or (c) transfer all
or substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, the holder of the Warrant, on the exercise hereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other
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Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Sections 4 and 5.
3.2. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and Other Securities and
property receivable on the exercise of the Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant.
4. Adjustments for Stock Dividends and Stock Splits. In the event that
the Company shall (i) issue additional shares of Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock, or (iii) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then prevailing Exercise Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event (calculated assuming the conversion
or exchange of all outstanding shares of convertible or exchangeable securities
of the Company which are convertible or exchangeable into, or exercisable for,
shares of Common Stock) and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such event (calculated
assuming the conversion or exchange of all outstanding shares of convertible or
exchangeable securities of the Company which are convertible or exchangeable
into, or exercisable for, shares of Common Stock), and the product so obtained
shall thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 4. The holder of
this Warrant shall thereafter, on the exercise hereof as provided in Section 1,
be entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this Section 4) be issuable on such exercise, by a fraction of
which (i) the numerator is the Exercise Price which would otherwise (but for the
provisions of this Section 4) be in effect, and (ii) the denominator is the
Exercise Price in effect on the date of such exercise.
5. Adjustment for Dividends in Other Stock, Property and
Reclassifications. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(2) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which, in the case
of Common Stock, are provided for
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in Section 4), then and in each such case the holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of other or additional stock and other securities and property (including
cash in the cases referred to in subdivision (b) of this Section 5) which such
holder would hold on the date of such exercise if on the date of distribution of
such other or additional stock or other securities and property, or on the
record date fixed for determining the shareholders entitled to receive such
other or additional stock or other securities and property, such holder had been
the holder of record of the number of shares of Common Stock called for on the
face of this Warrant and had thereafter, during the period from the date thereof
to and including the date of such exercise, retained such shares and all such
other or additional stock and other securities and property (including cash in
the cases referred to in subdivision (b) of this Section 5) receivable by such
holder as aforesaid during such period, giving effect to all adjustments called
for during such period by Sections 3 and 4.
6. Notices of Record Date. In the event of
(1) any taking by the Company of a record of the holders of
any class or securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(2) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date specified in such notice on which any such action is to be taken.
7. Reservation of Stock Issuable on Exercise on Warrant. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrant, all shares of Common Stock (or Other Securities)
from time to time issuable on the exercise of the Warrant; the shares of Common
Stock which the holder of this Warrant shall receive upon exercise of the
Warrant will be duly authorized, validly issued, fully paid and non-assessable.
8. Exchange of Warrant. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
4
<PAGE>
9. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. Warrantholder Not Deemed Stockholder; Restrictions on Transfer.
This Warrant is issued upon the following terms, to all of which each holder or
owner hereof by the taking hereof consents and agrees:
(1) No holder of this Warrant shall, as such, be deemed the
holder of Common Stock that may at any time be issuable upon exercise
of this Warrant for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon such holder, as such, any
of the rights of a stockholder of the Company until such holder shall
have exercised the Warrant and been issued shares of Common Stock in
accordance with the provisions hereof.
(2) Neither this Warrant nor any shares of Common Stock
purchased pursuant to this Warrant shall be registered under the
Securities Act of 1933 (the "Securities Act") and applicable state
securities laws. Therefore, the Company may require, as a condition of
allowing the transfer or exchange of this Warrant or such shares, that
the holder or transferee of this Warrant or such shares, as the case
may be, furnish to the Company an opinion of counsel acceptable to the
Company to the effect that such transfer or exchange may be made
without registration under the Securities Act and applicable state
securities laws. The Company shall not require Warrantholder to provide
an opinion of counsel if the transfer is to an affiliate of Warrant
Holder (including Silicon Valley Bancshares and Silicon Valley Bank
Foundation "Permitted Transferees"), or if there is no material
question as to the availability of current information as referenced in
Rule 144(c), Warrantholder represents that it has complied with Rule
144(d) and (e) in reasonable detail, the selling broker represents that
it has complied with Rule 144(f), and the Company is provided a copy of
Warrantholder's proposed sale. The certificates evidencing the shares
of Common Stock issued on the exercise of the Warrant shall bear a
legend to the effect that the shares evidenced by such certificates
have not been registered under the Securities Act and applicable state
securities laws.
(3) This Warrant or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may be
transferred at any time to the Permitted Transferees, by giving the
Company notice of the portion of the Warrant being transferred setting
forth the name, address and taxpayer identification number of the
transferee and surrendering this Warrant to the Company for reissuance
to the transferee(s) (and holder if applicable).
(4) Other than as set forth above in 10(b) and (c), this
Warrant is not transferable or assignable to any party without the
prior written consent of the Company and an opinion of counsel
satisfactory to the Company that such transfer is permissible under
applicable law.
11. Notices. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by (i) first class mail, postage
prepaid, (ii) electronic facsimile transmission, or (iii) express overnight
courier service, at such address as may have been furnished to the Company in
writing by such holder or, until any such holder furnishes to the
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Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
12. Registration Rights. The Company hereby grants the following
registration rights with respect to the shares of Common Stock issued or
issuable upon exercise of this Warrant (the "Warrant Shares").
12.1. The Company will within thirty (30) days of the date of this
Warrant file pursuant to the Securities Act a registration statement on Form S-3
or equivalent form with respect to the Warrant Shares and the Company will use
its best efforts to cause such registration to become and remain effective
(including taking of such steps as are necessary to obtain the removal of any
stop order), provided that the undersigned shall furnish the Company with
appropriate information in connection therewith as the Company may reasonably
request in writing. The Company shall supply prospectuses, and such other
documents as the undersigned may request in order to facilitate the public sale
or other disposition of the Warrant Shares and use its best efforts to register
and qualify any of the Warrant Shares for sale in such states as the undersigned
designates.
12.2. "Piggy-Back Registrations": If at any time the Company shall
determine to register in a public offering for its own account (and not the
account of selling stockholders) under the Securities Act any of its Common
Stock, it shall send to the Warrantholder written notice of such determination
and, if within 15 days after receipt of such notice, the Warrantholder shall so
request in writing, the Company shall use its best efforts to include in such
registration statement all or any part of the Warrant Shares such holder
requests to be registered. This right shall not apply to a registration of
shares of Common Stock on Form S-4 or Form S-8 (or their then equivalents)
relating to shares of Common Stock to be issued by the Company in connection
with any acquisition of any entity or business, or shares of Common Stock
issuable in connection with any stock option or other employee benefits plan,
respectively.
In connection with any offering involving an underwriting of Common
Stock to be issued by the Company for the account of the Company, if the
managing underwriter shall advise the Company that marketing factors require a
limitation on the number of securities to be underwritten, the underwriter may
exclude from such registration and underwriting some or all of the shares of
Common Stock which would otherwise be underwritten pursuant hereto. The Company
shall so advise Warrantholder and the number of Warrant Shares that are entitled
to be included in the registration and underwriting shall be allowed first to
the holders of securities of the Company with registration rights as of the date
of this Warrant, including Warrantholder, in proportion, as nearly as practical,
to the respective amounts of securities which they had requested to be included
in such registration at the time of filing the registration statement, and
second to all other holders of securities of the Company with registration
rights.
12.3. Expenses. In the case of a registration under Sections 12.1 and
12.2, the Company shall bear all costs and expenses of such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission (the "SEC") and NASD filing fees and all
related "Blue Sky" fees and expenses; provided, however, that the Company shall
have no obligation to pay or otherwise bear any portion of the underwriters'
commissions or discounts attributable to the Warrant Shares being offered and
sold by the Warrantholder or the fees and expenses of any counsel for the
Warrantholder in connection with any registration of the Warrant Shares.
12.4. Lock-Up Agreement for Public Offering. In connection with any
public offering of equity securities of the Company, the Warrantholder agrees
not to sell, pledge, transfer or otherwise dispose of, or grant any option or
purchase right with respect to, any shares of capital
6
<PAGE>
stock then owned by him and not otherwise offered in the public offering, or
engage in any short sale, hedging transaction or other derivative security
transaction involving the Common Stock, or other shares of Common Stock of the
Company held by him, for such period of time commencing 30 days prior to the
proposed effective date of such public offering until such period of time
following the offering, which shall in no event exceed 90 days, as the Company
and the managing underwriter of such public offering deem necessary in order to
ensure a stable and orderly trading market, and provided all directors and
officers of the Company enter into similar or identical Lock-Up agreement.
12.5. Expiration of Registration Rights. The obligations of the Company
under this Section 12 to register the Warrant Shares shall expire and terminate
at such time as the Warrantholder sells such securities (other than to a
Permitted Transferee) without restriction and without a need for the filing of a
registration statement under the Securities Act, including, without limitation,
for any resales of "Restricted Securities" made pursuant to Rule 144 as
promulgated by the SEC, or a sale made pursuant to Sections 4(1) and/or 4(2)
under the Securities Act. If the Warrantholder desires to exercise the
registration rights provided in this Section 12, the Warrantholder must exercise
this Warrant for cash consideration prior to the effectiveness of any
registration.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant and the shares of Common Stock underlying this Warrant
shall be construed and enforced in accordance with and governed by the laws of
the State of Delaware. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
14. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Eastern Daylight Saving Time, on March 22, 2006.
Dated: March 22, 1999
ATTEST: FOCUS ENHANCEMENTS, INC.
By:/s/ Christopher P. Ricci By:/s/ Thomas L. Massie
Christopher P. Ricci Thomas L. Massie
Title: Sr. Vice President & General Counsel Title: President & CEO
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FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO FOCUS Enhancements, Inc.
1. The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
____________ shares of Common Stock of FOCUS Enhancements, Inc., a Delaware
corporation, and herewith makes payment of $____________ therefor.
1 The undersigned hereby elects to convert the attached Warrant into
Common Stock in the manner specified in Section 1.3 of the attached Warrant.
This conversion is exercised with respect to _____________________ of shares of
the Common Stock of FOCUS Enhancements, Inc., a Delaware corporation.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates for such shares be issued
in the name of, and delivered to _________________________, whose address is
_________________________.
Dated: ______________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
____________________________________
____________________________________
(Address)
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FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of FOCUS Enhancements,
Inc., a Delaware corporation, to which the within Warrant relates, and appoints
_________________________ Attorney to transfer such right on the books of FOCUS
Enhancements, Inc., a Delaware corporation, with full power of substitution in
the premises.
Dated: ______________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
____________________________________
____________________________________
(Address)
Signed in the presence of:
Witness: _____________________________
9
Exhibit 10
Silicon Valley Financial Services
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
This Accounts Receivable Purchase Agreement (the "Agreement") is made
on this 22nd day of March, 1999 by and between Silicon Valley Bank ("Buyer")
having a place of business at the address specified above and Focus
Enhancements, Inc., a Delaware corporation, ("Borrower") having its principal
place of business and chief executive office at 600 Research Drive, Wilmington,
Massachusetts.
1. Definitions. When used herein, the following terms shall have the
following meanings.
1.1. "Account Balance" shall mean, on any given day, the gross amount
of all Purchased Receivables unpaid on that day.
1.2. "Account Debtor" shall have the meaning set forth in the
Massachusetts Uniform Commercial Code and shall include any person liable on any
Purchased Receivable, including without limitation, any guarantor of the
Purchased Receivable and any issuer of a letter of credit or banker's
acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns,
disputes, counterclaims, offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted by or on behalf of any
Account Debtor with respect to any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as set forth in
Section 3.3 hereof.
1.5. "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8 hereof.
1.7. "Collections" shall mean all good funds received by Buyer from or
on behalf of an Account Debtor with respect to Purchased Receivables.
1.8. "Compliance Certificate" shall mean a certificate, in a form
provided by Buyer to Seller, which contains the certification of the chief
financial officer of Seller that, among other things, the representations and
warranties set forth in this Agreement are true and correct as of the date such
certificate is delivered.
1.9. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.10. "Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.11. "Invoice Transmittal" shall mean a writing signed by an
authorized representative of Seller which accurately identifies the receivables
which Buyer, at its election, may purchase, and includes for each such
receivable the correct amount owed by the Account Debtor, the name and address
of the Account Debtor, the invoice number, the invoice date and the account
code.
<PAGE>
1.12. "Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or payable by
Seller to Buyer of any kind or nature, present or future, arising under or in
connection with this Agreement or under any other document, instrument or
agreement, whether or not evidenced by any note, guarantee or other instrument,
whether arising on account or by overdraft, whether direct or indirect
(including those acquired by assignment) absolute or contingent, primary or
secondary, due or to become due, now owing or hereafter arising, and however
acquired; including, without limitation, all Advances, Finance Charges,
Administrative Fees, interest, Repurchase Amounts, fees, expenses, professional
fees and attorneys' fees and any other sums chargeable to Seller hereunder or
otherwise.
1.13. "Prime Rate" shall mean the rate announced from time to time by
Silicon Valley Bank as its Prime Rate.
1.14. "Purchased Receivables" shall mean all those accounts,
receivables, chattel paper, instruments, contract rights, documents, general
intangibles, letters of credit, drafts, bankers acceptances, and rights to
payment, and all proceeds thereof (all of the foregoing being referred to as
"receivables"), arising out of the invoices and other agreements identified on
or delivered with any Invoice Transmittal delivered by Seller to Buyer which
Buyer elects to purchase and for which Buyer makes an Advance.
1.15. "Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.16. "Reconciliation Period" shall mean each calendar month of every
year.
1.17. "Refund" shall have the meaning set forth in Section 3.6 hereof.
1.18. "Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.19. "Repurchase Amount" shall have the meaning set forth in Section
4.2 hereof.
2. Purchase and Sale of Receivables.
2.1. Offer to Sell Receivables. During the term hereof, and provided
that there does not then exist any Event of Default or any event that with
notice, lapse of time or otherwise would constitute an Event of Default, Seller
may request that Buyer purchase receivables and Buyer may, in its sole
discretion, elect to purchase receivables provided further that the Seller is in
compliance with all of the terms and conditions herein, including, without
limitation, Section 2.2 below. Seller shall deliver to Buyer an Invoice
Transmittal with respect to any receivable for which a request for purchase is
made. An authorized representative of Seller shall sign each Invoice Transmittal
delivered to Buyer. Buyer shall be entitled to rely on all the information
provided by Seller to Buyer on or with the Invoice Transmittal and to rely on
the signature on any Invoice Transmittal as an authorized signature of Seller.
2.2. Acceptance of Receivables. Buyer shall have no obligation to
purchase any receivable listed on an Invoice Transmittal. Buyer may exercise its
sole discretion in approving the credit of each Account Debtor before buying any
receivable. Upon acceptance by Buyer of all or any of the receivables described
on any Invoice Transmittal, Buyer shall pay to Seller a percentage, to be
established by Buyer in its sole and absolute discretion, and agreed to by
Seller, of the face amount of each receivable Buyer desires to purchase. The
acceptance by the Seller of an Advance shall be deemed to be acceptance by
Seller of the terms and conditions established by the Buyer relating to such
Advance. Such payment shall be the "Advance" with respect to such receivable.
Buyer may, from time to time, in its sole discretion, change the percentage of
the Advance. Upon Buyer's acceptance of the receivable and payment to Seller of
the Advance, the receivable shall become a "Purchased Receivable." It shall be a
condition to each Advance that: (i) all of the representations and warranties
set forth in Section 6 of this Agreement be true and correct on and as of the
date of the related Invoice Transmittal and on and as of the date of such
Advance as though made at and as of each such date, and (ii) no Event of Default
or any event or condition that with notice, lapse of time or otherwise would
constitute an Event of Default shall have occurred and be continuing, or would
result from such Advance. In no event shall the aggregate amount of all Advances
outstanding at any time exceed Three Million Six Hundred Thousand Dollars
($3,600,000.00). Notwithstanding the foregoing, until agreed to by the Buyer in
writing, after the date hereof, the maximum aggregate amount of all Advances
outstanding at any time shall not exceed Two Million Dollars ($2,000,000.00).
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2.3. Effectiveness of Sale to Buyer. Effective upon Buyer's payment of
an Advance, and for and in consideration therefor and in consideration of the
covenants of this Agreement, Seller hereby absolutely sells, transfers and
assigns to Buyer, all of Seller's right, title and interest in and to each
Purchased Receivable and all monies due or which may become due on or with
respect to such Purchased Receivable. Buyer shall be the absolute owner of each
Purchased Receivable. Buyer shall have, with respect to any goods related to the
Purchased Receivable, all the rights and remedies of an unpaid seller under the
Massachusetts Uniform Commercial Code and other applicable law, including the
rights of replevin, claim and delivery, reclamation and stoppage in transit.
2.4. Establishment of a Reserve. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall be the
amount by which the face amount of the Purchased Receivable exceeds the Advance
on that Purchased Receivable (the "Reserve"); provided, the Reserve with respect
to all Purchased Receivables outstanding at any one time shall be an amount not
less than Twenty Percent (20.0) of the Account Balance at that time and may be
set at a higher percentage at Buyer's sole discretion. The reserve shall be a
book balance maintained on the records of Buyer and shall not be a segregated
fund.
3. Collections, Charges and Remittances.
3.1. Collections. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a daily basis;
provided, that if Seller is in default under this Agreement and only until such
default is cured to the satisfaction of Buyer, Buyer shall apply all Collections
to Seller's Obligations hereunder in such order and manner as Buyer may
determine. If an item of collection is not honored or Buyer does not receive
good funds for any reason, the amount shall be included in the Account Balance
as if the Collections had not been received and Finance Charges under Section
3.2 shall accrue thereon.
3.2. Finance Charges. On each Reconciliation Date Seller shall pay to
Buyer a finance charge in an amount equal to a per annum rate equal to the
aggregate of the Bank's Prime Rate, plus four percent (4.0%), multiplied by the
average daily Account Balance outstanding during the applicable Reconciliation
Period (the "Finance Charges"). Buyer shall deduct the accrued Finance Charges
from the Reserve as set forth in Section 3.6 below.
3.3. Administrative Fee. On each Reconciliation Date Seller shall pay
to Buyer an Administrative Fee equal to 0.78125% of the amounts Advanced with
respect to each Purchased Receivable first purchased during that Reconciliation
Period (the "Administrative Fee"). Buyer shall deduct the Administrative Fee
from the Reserve as set forth in Section 3.6 below.
3.4. Commitment Fee. The Borrower has paid a commitment fee of
$5,000.00 to the Bank. In the event any Obligations are outstanding on the
ninetieth day following the date of execution of this Agreement, the Borrower
shall pay to the Bank an additional commitment fee of $5,000.00. All commitment
fees shall be deemed fully earned and non-refundable.
3.5. Accounting. Buyer shall prepare and send to Seller after the close
of business for each Reconciliation Period, an accounting of the transactions
for that Reconciliation Period, including the amount of all Purchased
Receivables, all Collections, Adjustments, Finance Charges, and the
Administrative Fee. The accounting shall be deemed correct and conclusive unless
Seller makes written objection to Buyer within thirty (30) days after the Buyer
mails the accounting to Seller. In addition, Buyer shall provide to Seller
copies of all checks, drafts, wire transfers and other forms of payment received
by Buyer for account of Seller.
3.6. Refund to Seller. Provided that there does not then exist an Event
of Default or any event or condition that with notice, lapse of time or
otherwise would constitute an Event of Default, Buyer shall refund to Seller by
check after the Reconciliation Date, the amount, if any, which Buyer owes to
Seller at the end of the Reconciliation Period according to the accounting
prepared by Buyer for that Reconciliation Period (the "Refund"). The Refund
shall be an amount equal to:
(A) (1) The Reserve as of the beginning of that
Reconciliation Period, plus
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(2) the Reserve created for each Purchased Receivable
purchased during that Reconciliation Period, minus
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has
agreed to accept payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the
first day of the following Reconciliation Period in the
minimum percentage set forth in Section 2.4 hereof; and
(6) all amounts due, including professional fees and
expenses, as set forth in Section 12 for which oral or written
demand has been made by Buyer to Seller during that
Reconciliation Period to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund.
In the event the formula set forth in this Section 3.6 results in an amount due
to Buyer from Seller, Seller shall make such payment in the same manner as set
forth in Section 4.3 hereof for repurchases. If the formula set forth in this
Section 3.6 results in an amount due to Seller from Buyer, Buyer shall make such
payment by check, subject to Buyer's rights under Section 4.3 and Buyer's rights
of offset and recoupment.
4. Recourse and Repurchase Obligations.
4.1. Recourse. Buyer's acquisition of Purchased Receivables from Seller
shall be with full recourse against Seller. In the event the Obligations exceed
the amount of Purchased Receivables and Collateral, Seller shall be liable for
any deficiency.
4.2. Seller's Agreement to Repurchase. Seller agrees to pay to Buyer on
demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid ninety (90) calendar days after the
invoice date; or
(B) which is owed by any Account Debtor who has filed, or has
had filed against it, any bankruptcy case, assignment for the benefit
of creditors, receivership, or insolvency proceeding or who has become
insolvent (as defined in the United States Bankruptcy Code) or who is
generally not paying its debts as such debts become due; or
(C) with respect to which there has been any breach of
warranty or representation set forth in Section 6 hereof or any breach
of any covenant contained in this Agreement; or
(D) with respect to which the Account Debtor asserts any
discount, allowance, return, dispute, counterclaim, offset, defense,
right of recoupment, right of return, warranty claim, or short payment;
together with all reasonable attorneys' and professional fees and expenses and
all court costs incurred by Buyer in collecting such Purchased Receivable and/or
enforcing its rights under, or collecting amounts owed by Seller in connection
with, this Agreement (collectively, the "Repurchase Amount").
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4.3. Seller's Payment of the Repurchase Amount or Other Amounts Due
Buyer. When any Repurchase Amount or other amount owing to Buyer becomes due,
Buyer shall inform Seller of the manner of payment which may be any one or more
of the following in Buyer's sole discretion: (a) in cash immediately upon demand
therefor; (b) by delivery of substitute invoices and an Invoice Transmittal
acceptable to Buyer which shall thereupon become Purchased Receivables; (c) by
adjustment to the Reserve pursuant to Section 3.6 hereof; (d) by deduction from
or offset against the Refund that would otherwise be due and payable to Seller;
(e) by deduction from or offset against the amount that otherwise would be
forwarded to Seller in respect of any further Advances that may be made by
Buyer; or (f) by any combination of the foregoing as Buyer may from time to time
choose.
4.4. Seller's Agreement to Repurchase All Purchased Receivables. Upon
and after the occurrence of an Event of Default, Seller shall, upon Buyer's
demand (or, in the case of an Event of Default under Section 9(B), immediately
without notice or demand from Buyer) repurchase all the Purchased Receivables
then outstanding, or such portion thereof as Buyer may demand. Such demand may,
at Buyer's option, include and Seller shall pay to Buyer immediately upon
demand, cash in an amount equal to the Advance with respect to each Purchased
Receivable then outstanding together with all accrued Finance Charges,
Adjustments, Administrative Fees, attorney's and professional fees, court costs
and expenses as provided for herein, and any other Obligations. Upon receipt of
payment in full of the Obligations, Buyer shall immediately instruct Account
Debtors to pay Seller directly, and return to Seller any Refund due to Seller.
For the purpose of calculating any Refund due under this Section only, the
Reconciliation Date shall be deemed to be the date Buyer receives payment in
good funds of all the Obligations as provided in this Section 4.4. The foregoing
notwithstanding, Seller may at Seller's sole discretion repurchase any or all
Purchased Receivables from Buyer. Further, if Seller repurchases the Purchased
Receivables on or before April 15, 1999, the applicable Administrative Fee shall
be limited to one quarter of one percent (0.25%). The Seller shall remain
responsible for all other amounts due hereunder upon the repurchase by the
Seller of any Purchased Receivable.
5. Power of Attorney. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and hereby
authorizes Buyer, regardless of whether there has been an Event of Default, (a)
to sell, assign, transfer, pledge, compromise, or discharge the whole or any
part of the Purchased Receivables; (b) to demand, collect, receive, sue, and
give releases to any Account Debtor for the monies due or which may become due
upon or with respect to the Purchased Receivables and to compromise, prosecute,
or defend any action, claim, case or proceeding relating to the Purchased
Receivables, including the filing of a claim or the voting of such claims in any
bankruptcy case, all in Buyer's name or Seller's name, as Buyer may choose; (c)
to prepare, file and sign Seller's name on any notice, claim, assignment,
demand, draft, or notice of or satisfaction of lien or mechanics' lien or
similar document with respect to Purchased Receivables; (d) to notify all
Account Debtors with respect to the Purchased Receivables to pay Buyer directly;
(e) to receive, open, and dispose of all mail addressed to Seller for the
purpose of collecting the Purchased Receivables, provided, however, that copies
of same shall be forwarded to Seller; (f) to endorse Seller's name on any checks
or other forms of payment on the Purchased Receivables; (g) to execute on behalf
of Seller any and all instruments, documents, financing statements and the like
to perfect Buyer's interests in the Purchased Receivables and Collateral; and
(h) to do all acts and things necessary or expedient, in furtherance of any such
purposes. If Buyer receives a check or item which is payment for both a
Purchased Receivable and another receivable, the funds shall first be applied to
the Purchased Receivable and, so long as there does not exist an Event of
Default or an event that with notice, lapse of time or otherwise would
constitute an Event of Default, the excess shall be remitted to Seller. Upon the
occurrence and continuation of an Event of Default, all of the power of attorney
rights granted by Seller to Buyer hereunder shall be applicable with respect to
all Purchased Receivables and all Collateral.
6. Representations, Warranties and Covenants.
6.1. Receivables' Warranties, Representations and Covenants. To induce
Buyer to buy receivables and to render its services to Seller, and with full
knowledge that the truth and accuracy of the following are being relied upon by
the Buyer in determining whether to accept receivables as Purchased Receivables,
Seller represents, warrants, covenants and agrees, with respect to each Invoice
Transmittal delivered to Buyer and each receivable described therein, that:
-5-
<PAGE>
(A) Seller is the absolute owner of each receivable set forth
in the Invoice Transmittal and has full legal right to sell, transfer
and assign such receivables;
(B) The correct amount of each receivable is as set forth in
the Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any and
all obligations required of the Seller have been fulfilled as of the
date of the Invoice Transmittal;
(D) Each receivable set forth on the Invoice Transmittal is
based on an actual sale and delivery of goods and/or services actually
rendered, is presently due and owing to Seller, is not past due or in
default, has not been previously sold, assigned, transferred, or
pledged, and is free of any and all liens, security interests and
encumbrances other than liens, security interests or encumbrances in
favor of Buyer or any other division or affiliate of Silicon Valley
Bank;
(E) There are no defenses, offsets, or counterclaims against
any of the receivables, and no agreement has been made under which the
Account Debtor may claim any deduction or discount, except as otherwise
stated in the Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the
Buyer and shall be collected by Buyer, but if for any reason it should
be paid to Seller, Seller shall promptly notify Buyer of such payment,
shall hold any checks, drafts, or monies so received in trust for the
benefit of Buyer, and shall promptly transfer and deliver the same to
the Buyer;
(G) Buyer shall have the right of endorsement, and also the
right to require endorsement by Seller, on all payments received in
connection with each Purchased Receivable and any proceeds of
Collateral;
(H) Seller, and to Seller's best knowledge, each Account
Debtor set forth in the Invoice Transmittal, are and shall remain
solvent as that term is defined in the United States Bankruptcy Code
and the Massachusetts Uniform Commercial Code, and no such Account
Debtor has filed or had filed against it a voluntary or involuntary
petition for relief under the United States Bankruptcy Code;
(I) Each Account Debtor named on the Invoice Transmittal will
not object to the payment for, or the quality or the quantity of the
subject matter of, the receivable and is liable for the amount set
forth on the Invoice Transmittal;
(J) Each Account Debtor shall promptly be notified, after
acceptance by Buyer, that the Purchased Receivable has been transferred
to and is payable to Buyer, and Seller shall not take or permit any
action to countermand such notification; and
(K) All receivables forwarded to and accepted by Buyer after
the date hereof, and thereby becoming Purchased Receivables, shall
comply with each and every one of the foregoing representations,
warranties, covenants and agreements referred to above in this Section
6.1.
6.2. Additional Warranties, Representations and Covenants. In addition
to the foregoing warranties, representations and covenants, to induce Buyer to
buy receivables and to render its services to Seller, Seller hereby represents,
warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant , or
permit any lien or security interest in any Purchased Receivables or
Collateral to or in favor of any other party, without Buyer's prior
written consent;
-6-
<PAGE>
(B) The Seller's name, form of organization, chief executive
office, and the place where the records concerning all Purchased
Receivables and Collateral are kept is set forth at the beginning of
this Agreement, Collateral is located only at the location set forth in
the beginning of this Agreement, or, if located at any additional
location, as set forth on a schedule attached to this Agreement, and
Seller will give Buyer at least thirty (30) days prior written notice
if such name, organization, chief executive office or other locations
of Collateral or records concerning Purchased Receivables or Collateral
is changed or added and shall execute any documents necessary to
perfect Buyer's interest in the Purchased Receivables and the
Collateral;
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due, including
without limitation all payroll and withholding taxes and state sales
taxes; (ii) deliver at any time and from time to time at Buyer's
request, evidence satisfactory to Buyer that all such amounts have been
paid to the proper taxing authorities; and (iii) if requested by Buyer,
pay its payroll and related taxes through a bank or an independent
payroll service acceptable to Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an
Invoice Transmittal, or as of the time Seller accepts any Advance from
Buyer, filed a voluntary petition for relief under the United States
Bankruptcy Code or had filed against it an involuntary petition for
relief;
(E) If Seller owns, holds or has any interest in, any
copyrights (whether registered, or unregistered), patents or
trademarks, and licenses of any of the foregoing, such interest has
been disclosed to Buyer and is specifically listed and identified on a
schedule to this Agreement, and Seller shall immediately notify Buyer
if Seller hereafter obtains any interest in any additional copyrights,
patents, trademarks or licenses that are significant in value or are
material to the conduct of its business; and
(F) Seller shall provide Buyer with a Compliance Certificate
(i) on a quarterly basis to be received by Buyer no later than the
fifth calendar day following each calendar quarter, and; (ii) on a more
frequent or other basis if and as requested by Buyer.
7. Adjustments. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall promptly
advise Buyer and shall, subject to the Buyer's approval, resolve such disputes
and advise Buyer of any adjustments. Unless the disputed Purchased Receivable is
repurchased by Seller and the full Repurchase Amount is paid, Buyer shall remain
the absolute owner of any Purchased Receivable which is subject to Adjustment or
repurchase under Section 4.2 hereof, and any rejected, returned, or recovered
personal property, with the right to take possession thereof at any time. If
such possession is not taken by Buyer, Seller is to resell it for Buyer's
account at Seller's expense with the proceeds made payable to Buyer. While
Seller retains possession of said returned goods, Seller shall segregate said
goods and mark them "property of Silicon Valley Financial Services."
8. Security Interest. To secure the prompt payment and performance to Buyer of
all of the Obligations, Seller hereby grants to Buyer a continuing lien upon and
security interest in all of Seller's now existing or hereafter arising rights
and interest in the following, whether now owned or existing or hereafter
created, acquired, or arising, and wherever located (collectively, the
"Collateral"):
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances, drafts,
checks, cash, securities, and general intangibles (including, without
limitation, all claims, causes of action, deposit accounts, guaranties,
rights in and claims under insurance policies (including rights to
premium refunds), rights to tax refunds, copyrights, patents,
trademarks, rights in and under license agreements, and all other
intellectual property);
(B) All inventory, including Seller's rights to any returned
or rejected goods, with respect to which Buyer shall have all the
rights of any unpaid seller, including the rights of replevin, claim
and delivery, reclamation, and stoppage in transit;
-7-
<PAGE>
(C) All monies, refunds and other amounts due Seller,
including, without limitation, amounts due Seller under this Agreement
(including Seller's right of offset and recoupment);
(D) Investment Property;
(E) All equipment, machinery, furniture, furnishings,
fixtures, tools, supplies and motor vehicles (the "Equipment");
(F) All farm products, crops, timber, minerals and the like
(including oil and gas);
(G) All accessions to, substitutions for, and replacements of,
all of the foregoing;
(H) All books and records pertaining to all of the foregoing;
and
(I) All proceeds of the foregoing, whether due to voluntary or
involuntary disposition, including insurance proceeds.
Seller is not authorized to sell, assign, transfer or otherwise convey any
Collateral without Buyer's prior written consent, except for the sale of
finished inventory in the Seller's usual course of business. Seller agrees to
sign UCC financing statements, in a form acceptable to Buyer, and any other
instruments and documents requested by Buyer to evidence , perfect, or protect
the interests of Buyer in the Collateral. Seller agrees to deliver to Buyer the
originals of all instruments, chattel paper and documents evidencing or related
to Purchased Receivables and Collateral.
9. Default. The occurrence of any one or more of the following shall constitute
an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when
due;
(B) There shall be commenced by or against Seller any
voluntary or involuntary case under the United States Bankruptcy Code,
or any assignment for the benefit of creditors, or appointment of a
receiver or custodian for any of its assets;
(C) Seller shall become insolvent in that its debts are
greater than the fair value of its assets, or Seller is generally not
paying its debts as they become due;
(D) Any involuntary lien, garnishment, attachment or the like,
in excess of $25,000.00 in the aggregate is issued against or attaches
to the Purchased Receivables or any Collateral, which is not removed
within thirty (30) days;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Buyer's
satisfaction within ten (10) days after Buyer has given Seller oral or
written notice thereof; provided, that if such breach is incapable of
being cured it shall constitute an immediate default hereunder;
(F) Seller is not in compliance with, or otherwise is in
default under, any term of any document, instrument or agreement
evidencing a debt, obligation or liability of any kind or character of
Seller, now or hereafter existing, in favor of Buyer or any division or
affiliate of Silicon Valley Bank, regardless of whether such debt,
obligation or liability is direct or indirect, primary or secondary,
joint, several or joint and several, or fixed or contingent, together
with any and all renewals and extensions of such debts, obligations and
liabilities, or any part thereof;
-8-
<PAGE>
(G) An event of default shall occur under any guaranty
executed by any guarantor of the Obligations of Seller to Buyer under
this Agreement, or any material provision of any such guaranty shall
for any reason cease to be valid or enforceable or any such guaranty
shall be repudiated or terminated, including by operation of law;
(H) A default or event of default shall occur under any
agreement between Seller and any creditor of Seller that has entered
into a subordination agreement with Buyer; or
(I) Any creditor that has entered into a subordination
agreement with Buyer shall breach any of the terms of or not comply
with such subordination agreement.
10. Remedies Upon Default. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller; (2) all or a
portion of the Obligations shall be, at the option of and upon demand by Buyer,
or with respect to an Event of Default described in Section 9(B), automatically
and without notice or demand, due and payable in full; and (3) Buyer shall have
and may exercise all the rights and remedies under this Agreement and under
applicable law, including the rights and remedies of a secured party under the
Massachusetts Uniform Commercial Code, all the power of attorney rights
described in Section 5 with respect to all Collateral, and the right to collect,
dispose of, sell, lease, use, and realize upon all Purchased Receivables and all
Collateral in any commercial reasonable manner. Seller and Buyer agree that any
notice of sale required to be given to Seller shall be deemed to be reasonable
if given five (5) days prior to the date on or after which the sale may be held.
In the event that the Obligations are accelerated hereunder, Seller shall
repurchase all of the Purchased Receivables as set forth in Section 4.4.
11. Accrual of Interest. If any amount owed by Seller hereunder is not paid when
due, including, without limitation, amounts due under Section 3.6, Repurchase
Amounts, amounts due under Section 12, and any other Obligations, such amounts
shall bear interest at a per annum rate equal to the per annum rate of the
Finance Charges until the earlier of (i) payment in good funds or (ii) entry of
a final judgment thereof, at which time the principal amount of any money
judgment remaining unsatisfied shall accrue interest at the highest rate allowed
by applicable law.
12. Fees, Costs and Expenses; Indemnification. The Seller will pay to Buyer
immediately upon demand all fees, costs and expenses (including fees of
attorneys and professionals and their costs and expenses ) that Buyer incurs or
may from time to time impose in connection with any of the following: (a)
preparing, negotiating , administering, and enforcing this Agreement or any
other agreement executed in connection herewith, including any amendments,
waivers or consents in connection with any of the foregoing, (b) any litigation
or dispute (whether instituted by Buyer, Seller or any other person) in any way
relating to the Purchased Receivables, the Collateral, this Agreement or any
other agreement executed in connection herewith or therewith, (d) enforcing any
rights against Seller or any guarantor, or any Account Debtor, (e) protecting or
enforcing its interest in the Purchased Receivables or the Collateral, (f)
collecting the Purchased Receivables and the Obligations, and (g) the
representation of Buyer in connection with any bankruptcy case or insolvency
proceeding involving Seller, any Purchased Receivable, the Collateral, any
Account Debtor, or any guarantor. Seller shall indemnify and hold Buyer harmless
from and against any and all claims, actions, damages, costs, expenses, and
liabilities of any nature whatsoever arising in connection with any of the
foregoing.
13. Severability, Waiver, and Choice of Law. In the event that any provision of
this Agreement is deemed invalid by reason of law, this Agreement will be
construed as not containing such provision and the remainder of the Agreement
shall remain in full force and effect. Buyer retains all of its rights, even if
it makes an Advance after a default. If Buyer waives a default, it may enforce a
later default. Any consent or waiver under, or amendment of, this Agreement must
be in writing. Nothing contained herein, or any action taken or not taken by
Buyer at any time, shall be construed at any time to be indicative of any
obligation or willingness on the part of Buyer to amend this Agreement or to
grant to Seller any waivers or consents. This Agreement has been transmitted by
Seller to Buyer at Buyer's office in the Wellesley, Massachusetts and has been
executed and accepted by Buyer in the State of Massachusetts. This Agreement
shall be governed by and interpreted in accordance with the internal laws of the
Commonwealth of Massachusetts.
-9-
<PAGE>
14. Account Collection Services. Certain Account Debtors may require or prefer
that all of Seller's receivables be paid to the same address and/or party, or
Seller and Buyer may agree that all receivables with respect to certain Account
Debtors be paid to one party. In such event Buyer and Seller may agree that
Buyer shall collect all receivables whether owned by Seller or Buyer and
(provided that there does not then exist an Event of Default or event that with
notice, lapse or time or otherwise would constitute an Event of Default, and
subject to Buyer's rights in the Collateral) Buyer agrees to remit to Seller the
amount of the receivables collections it receives with respect to receivables
other than Purchased Receivables. It is understood and agreed by Seller that
this Section does not impose any affirmative duty on Buyer to do any act other
than to turn over such amounts. All such receivables and collections are
Collateral and in the event of Seller's default hereunder, Buyer shall have no
duty to remit collections of Collateral and may apply such collections to the
obligations hereunder and Buyer shall have the rights of a secured party under
the Massachusetts Uniform Commercial Code.
15. Notices. All notices shall be given to Buyer and Seller at the addresses or
faxes set forth on the first page of this Agreement and shall be deemed to have
been delivered and received: (a) if mailed, three (3) calendar days after
deposited in the United States mail, first class, postage pre-paid, (b) one (1)
calendar day after deposit with an overnight mail or messenger service; or (c)
on the same date of confirmed transmission if sent by hand delivery, telecopy,
telefax or telex.
16. Jury Trial. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING WAIVER CONSTITUTES
A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT; AND (c) REPRESENT AND
WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED FOR ITSELF THE
NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND KNOWINGLY AND
VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
17. Term and Termination. The term of this Agreement shall be for one (1) year
from the date hereof, and from year to year thereafter unless terminated in
writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer's security interest in the
Collateral and Buyer's ownership of the Purchased Receivables, and this
Agreement shall continue to be effective, and Buyer's rights and remedies
hereunder shall survive such termination, until all transactions entered into
and Obligations incurred hereunder or in connection herewith have been completed
and satisfied in full.
18. Titles and Section Headings. The titles and section headings used herein are
for convenience only and shall not be used in interpreting this Agreement.
-10-
<PAGE>
19. Other Agreements. The terms and provisions of this Agreement shall not
adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The terms
of such other documents, instruments and agreements shall remain in full force
and effect notwithstanding the execution of this Agreement. In the event of a
conflict between any provision of this Agreement and any provision of any other
document, instrument or agreement between Seller on the one hand, and Buyer or
any other division or affiliate of Silicon Valley Bank on the other hand, Buyer
shall determine in its sole discretion which provision shall apply. Seller
acknowledges specifically that any security agreements, liens and/or security
interests currently securing payment of any obligations of Seller owing to Buyer
or any other division or affiliate of Silicon Valley Bank also secure Seller's
obligations under this Agreement, and are valid and subsisting and are not
adversely affected by execution of this Agreement. Seller further acknowledges
that (a) any collateral under other outstanding security agreements or other
documents between Seller and Buyer or any other division or affiliate of Silicon
Valley Bank secures the obligations of Seller under this Agreement and (b) a
default by Seller under this Agreement constitutes a default under other
outstanding agreements between Seller and Buyer or any other division or
affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as an
instrument under seal under the laws of the Commonwealth of Massachusetts as of
the day and year above written.
SELLER: FOCUS ENHANCEMENTS, INC.
By: /s/ Thomas L. Massie
Title: President & CEO
BUYER: SILICON VALLEY BANK
By: /s/ Lee Shodiss
Title: Vice President
-11-
<PAGE>
EXHIBIT "A"
TO FINANCING STATEMENT AND SECURITY AGREEMENT
This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or
items of property (in addition to, and without limiting the types of property
set forth on page 1 hereof):
A) All accounts, receivables, contract rights, chattel paper, instruments,
documents, letters of credit, bankers acceptances, drafts, checks,
cash, securities, deposit accounts, and general intangibles (including,
without limitation, all claims, causes of action, guaranties, rights in
and claims under insurance policies (including rights to premium
refunds), rights to tax refunds, copyrights, patents, trademarks,
rights in and under license agreements, and all other intellectual
property);
B) All inventory, including Seller's rights to any returned or rejected
goods, with respect to which Buyer shall have all the rights of any
unpaid seller, including the rights of replevin, claim and delivery,
reclamation, and stoppage in transit;
C) All monies, refunds and other amounts due Seller, including, without
limitation, amounts due Seller under this Agreement (including Seller's
right of offset and recoupment);
D) All equipment, machinery, furniture, furnishings, fixtures, tools,
supplies and motor vehicles;
E) All farm products, crops, timber, minerals and the like (including oil
and gas);
F) All accessions to, substitutions for, and replacements of, all of the
foregoing;
G) All books and records pertaining to all of the foregoing; and
H) All proceeds of the foregoing, whether due to voluntary or involuntary
disposition, including insurance proceeds.
-12-
<TABLE>
<CAPTION>
EXHIBIT 11
FOCUS ENHANCEMENTS, INC.
STATEMENT OF COMPUTATION OF INCOME PER SHARE
Three months ended
March 31, March 31,
1999 1998
------------- -----------
<S> <C> <C>
Net income $ 102,990 $ 364,748
=========== ===========
Basic:
Weighted average number of common shares outstanding 18,005,090 14,528,419
=========== ===========
Diluted:
Weighted average number of common shares outstanding 18,005,090 14,528,419
----------- -----------
Weighted average common equivalent shares 716,815 1,346,896
Weighted average number of common and common equivalent
shares outstanding used to calculate per share data 18,721,905 15,875,315
=========== ===========
Net income per share
Basic $ 0.01 $ 0.03
----------- -----------
Diluted $ 0.01 $ 0.02
----------- -----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 234,126
<SECURITIES> 320,120
<RECEIVABLES> 4,107,283
<ALLOWANCES> 662,475
<INVENTORY> 5,736,221
<CURRENT-ASSETS> 10,236,709
<PP&E> 2,327,740
<DEPRECIATION> (484,600)
<TOTAL-ASSETS> 13,147,041
<CURRENT-LIABILITIES> 9,283,026
<BONDS> 727,803
0
0
<COMMON> 180,051
<OTHER-SE> 2,871,949
<TOTAL-LIABILITY-AND-EQUITY> 13,147,041
<SALES> 5,067,079
<TOTAL-REVENUES> 5,067,079
<CGS> 2,937,134
<TOTAL-COSTS> 2,009,489
<OTHER-EXPENSES> 3,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,364
<INCOME-PRETAX> 102,990
<INCOME-TAX> 0
<INCOME-CONTINUING> 102,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,990
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
