As filed with the Securities and Exchange Commission on January 13, 2000
Registration No. 333- _____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FOCUS ENHANCEMENTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-11860 04-3186320
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
600 Research Drive
Wilmington, Massachusetts 01887
(978) 988-5888
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Christopher P. Ricci
Senior Vice President and General Counsel
FOCUS Enhancements, Inc.
600 Research Drive
Wilmington, Massachusetts 01887
(978) 988-5888
(Name, address, including zip code, telephone number,
including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public: From time to
time or at one time after the effective date of the Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Amount to Proposed Maximum Amount of
Title of Each Class of Securities to Be Registered Price to Public (2) Offering Price (2) Registration
be Registered Fee(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per 3,163,333 $6.969 $22,045,267 $5,819.95
share(1)
- --------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The common stock being registered consists of (i) 2,833,333 shares issued in privately negotiated transactions with
several institutional investors, (ii) 275,000 shares issuable upon the exercise of common stock purchase warrants
issued to such investors in connection with such transactions, (iii) 30,000 shares issuable upon the exercise of
common stock purchase warrants issued to the principals of a third-party service provider as additional
consideration for investor relations services provided to the company and (iv) 25,000 shares issuable upon the
exercise of common stock purchase warrants issued to an investment banking firm for its assistance in obtaining
equity financing.
(2) The price to public and proposed maximum offering price referenced are included solely for purposes of calculating
the amount of the registration fee. The registration fee is calculated pursuant to Rule 457(c) of the Securities Act
of 1933 by taking the average of the bid and asked prices of the registrant's common stock, $.01 par value per
share, on January 11, 2000 as reported on the Nasdaq SmallCap Market.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not a solicitation
of an offer to buy these securities in any state where the offer and sale is not
permitted.
Subject to Completion, Dated January 13, 2000
REOFFER
PROSPECTUS
FOCUS ENHANCEMENTS, INC.
3,163,333 Shares of Common Stock
Four existing shareholders of FOCUS Enhancements, Inc. and three
holders of outstanding warrants to purchase shares of our common stock are
offering to sell up to 3,163,333 shares of our common stock under this
prospectus. Throughout this prospectus, we often refer to this group
collectively as the selling shareholders.
The selling shareholders acquired their shares and/or warrants through
privately negotiated purchases or other transactions directly from the company.
The total number of shares that may be sold under this prospectus by
the selling shareholders will be subject to the discretion of each selling
shareholder. The selling shareholders may offer the shares covered by this
prospectus through public transactions executed through one or more
broker-dealers at prevailing market prices, carried out through the NASDAQ
SmallCap Market or one or more stock exchanges (if the shares are listed on an
exchange at any time in the future), or in private transactions directly with
purchasers at privately negotiated prices.
FOCUS stock is listed on the NASDAQ SmallCap Market with the ticker
symbol: "FCSE." On January 12, 2000, the closing price of one share of FOCUS
common stock on the NASDAQ SmallCap Market was $7.125.
Our principal executive offices are located at 600 Research Drive,
Wilmington, Massachusetts, 01887, and our telephone number is (978) 988-5888.
----------------------
Neither the Securities and Exchange Commission, nor any state
securities commission, has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
----------------------
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" AT PAGES 2 - 4.
----------------------
The date of this prospectus is January __, 2000.
<PAGE>
RISK FACTORS
An investment in the shares offered under this prospectus involves a
high degree of risk and should only be purchased by investors who can afford to
lose their entire investment. The following factors should be considered
carefully in evaluating the company and our business.
We Have Been Named As A Defendant In A Law Suit Alleging Violation Of Federal
Securities Laws
The complaint alleges that FOCUS and our chief executive officer
violated federal securities laws in connection with a number of allegedly false
or misleading statements and seeks certification as a class action on behalf of
persons alleged to have purchased our stock from July 17, 1997 to February 19,
1999. We believe that we have consistently complied with the federal securities
laws, and we do not believe at this time that this litigation will result in a
material adverse effect on our financial condition. Nonetheless, the management
time and resources that could be required to respond effectively to this claim
and to defend the company vigorously in this litigation could adversely impact
our management's administrative capabilities.
We Will Need To Raise Additional Capital But Have No Commitments From Anyone To
Provide It
Historically, we have had to meet our short- and long-term cash needs
through debt and the sale of common stock in private placements in that cash
flow from operations has been insufficient. For example, during 1998, we
received $2,827,355 in net proceeds from private offerings of common stock and
$7,003,963 from the exercise of common stock options and warrants. In 1999, we
received $4,482,073 in net proceeds from private offerings of common stock and
$3,033,634 from the exercise of common stock options and warrants. Our future
capital requirements will depend on many factors, including cash flow from
operations, continued progress in our research and development programs,
competing technological and market developments, and our ability to market our
products successfully. If we require additional equity or debt financing in the
future, there can be no assurance that sufficient funds will be raised.
Moreover, any equity financing could result in dilution to our then-existing
stockholders and additional debt financing may result in higher interest
expense. Any financing, if available, may be on terms unfavorable to us. If
adequate funds are not available, we may be required to curtail our activities
significantly.
We Rely On Sales To A Few Major Customers For A Large Part Of Our Revenues
For the nine months ended September 30, 1999, approximately 26% of our
revenues were derived from sales to a major distributor, approximately 14% of
our revenues were derived from sales to two major retailers, and approximately
8% of our revenues were derived from sales to a major consumer electronics
manufacturer. Management expects that sales to these customers will continue to
represent a significant percentage of our future revenues. We do not have
long-term contracts requiring any customer to purchase any minimum amount of
products. There can be no assurance that we will continue to receive orders of
the same magnitude as in the past from existing customers or we will be able to
market our current or proposed products to new customers. Our loss of any major
customer would have a material adverse effect on our business as a whole.
We Have A Long History Of Operating Losses
We have experienced limited profitability since our inception and at
September 30, 1999, had an accumulated deficit of $34,899,894. We incurred net
losses of $12,787,324 and $1,986,079 for the years ended December 31, 1998 and
1997, respectively. We had net income of $299,041 and $1,448,121 for
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the first nine months of 1999 and 1998, respectively. There can be no assurance
that we will be profitable in 1999.
We Rely On A Single Vendor For 90% Of Our Product Components
Approximately 90% of the components for our products are manufactured
by a single vendor on a turnkey basis. This vendor is located overseas. If this
vendor experiences production or shipping problems for any reason, we in turn
could experience delays in the production and shipping of our products.
Our Products May Become Obsolete Very Quickly
The computer peripheral markets are characterized by extensive research
and development and rapid technological change resulting in short product life
cycles. Development by others of new or improved products, processes or
technologies may make our products or proposed products obsolete or less
competitive. We will be required to devote substantial efforts and financial
resources to enhance our existing products and to develop new products. There
can be no assurance that we will succeed with these efforts.
Our Business Is Very Competitive
The computer peripheral markets are extremely competitive. We currently
compete with other developers of video conversion products and with
video-graphic integrated circuit developers. Many of our competitors have
greater market recognition and greater financial, technical, marketing and human
resources than we have. Although we are not currently aware of any announcements
by our competitors that would have a material impact on us or our operations,
there can be no assurance that we will be able to compete successfully against
existing companies or new entrants to the marketplace.
We May Not Make Significant Sales Through Office Super Stores Despite Expensive
Marketing Efforts On Our Part
Sales of our products through office super stores is a sales channel
with which we have had limited success. We have limited our use of this channel
to the best performing stores and are making substantial investments in
marketing and inventory to supply this channel. However, this is an unproven
channel and there can be no assurance that we will be able to compete
successfully in this channel.
We Have Had Component Supply Problems
We purchase all of our parts from outside suppliers and from time to
time experience delays in obtaining some components or peripheral devices. We
attempt to reduce the risk of supply interruption by evaluating and obtaining
alternative sources for various components or peripheral devices. However, there
can be no assurance that supply shortages will not occur in the future which
could significantly increase the cost, or delay shipment of, our products, which
in turn could adversely affect our results of operations.
We May Not Be Able To Protect Our Proprietary Information
Although we have filed eight patent applications with respect to our
PC-to-TV video-graphics products, we currently only have four patents issued. We
treat our technical data as confidential and rely on internal non-disclosure
safeguards, including confidentiality agreements with employees, and on laws
protecting trade secrets to protect our proprietary information. There can be no
assurance that these measures will adequately protect the confidentiality of our
proprietary information or that others will not
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<PAGE>
independently develop products or technology that are equivalent or superior to
ours. While it may be necessary or desirable in the future to obtain licenses
relating to one or more of our products or relating to current or future
technologies, there can be no assurance that we will be able to do so on
commercially reasonable terms.
THE COMPANY
Based on an independent survey published in December of 1997 by Frost &
Sullivan, a leading market research firm, we are an industry leader in the
development and marketing of advanced, proprietary multimedia video scan
conversion products for the rapidly converging, multi-billion dollar computer
and television industries. Our products, which are sold globally through
Original Equipment Manufacturers (OEMs) and resellers, merge computer generated
graphics and television displays for presentations, training, education, video
teleconferencing, internet viewing and home gaming markets. In addition, we are
working to develop a family of products that will enable the current installed
base of televisions, VCRs, and camcorders to remain functional in upcoming HDTV
environments. It is our objective to design, develop, and deliver quality video
conversion products to the global marketplace.
USE OF PROCEEDS
All net proceeds from the sale of the shares being offered under this
prospectus will go to the selling shareholders. Accordingly, we will not receive
any proceeds from sales of these shares. We will pay all of the expenses of
registration of the shares being offered under this prospectus.
We will receive the proceeds of any exercises of the warrants that have
been issued to the selling shareholders. The maximum cash amount that we would
receive if the selling shareholders exercise all of these warrants in full is
approximately $699,000. We would use these proceeds for working capital and
general corporate purposes.
SELLING SHAREHOLDERS
The shares being offered under this prospectus are offered by four
existing shareholders and three additional holders of outstanding warrants. The
existing shareholders are BNC Bach International Ltd., Inc., The Raptor Global
Portfolio Ltd., Roseworth Group, Ltd. and The Altar Rock Fund L.P. All of these
shareholders acquired the shares that they are offering under this prospectus
directly from us in privately negotiated purchases. The three additional holders
of outstanding warrants are R. Jerry Falkner and Richard W. West, who are the
principals of R.J. Falkner & Company, Inc., and Union Atlantic, L.C. Messrs.
Falkner and West acquired their warrants directly from us in connection with
services provided to us by their company. Union Atlantic also acquired its
warrant directly from us in connection with services it has provided to us. The
following table sets forth certain information regarding beneficial ownership of
our common stock as of December 31, 1999 and the number of shares of common
stock which may be offered for the account of each of the selling shareholders
from time to time after the date of this prospectus.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Selling Shareholders(1) Owned Prior to Offering Shares Offered Owned After Offering
- ----------------------- ----------------------- -------------- --------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
BNC Bach International Ltd., Inc. 1,733,333(2) 7.11% 1,733,333(2) 0 *
The Raptor Global Portfolio Ltd. 958,650(3) 3.93 958,650(3) 0 *
Roseworth Group, Ltd. 412,500(4) 1.69 412,500(4) 0 *
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<PAGE>
The Altar Rock Fund L.P. 3,850(5) * 3,850(5) 0 *
Union Atlantic, L.C. 25,000(6) * 25,000 0 *
R. Jerry Falkner 15,000(7) * 15,000(6) 0 *
Richard W. West 15,000(7) * 15,000(6) 0 *
- --------------------
<FN>
* less than one percent
(1) None of the selling shareholders has had any position, office or other material relationship
with us or any of our affiliates within the three years preceding the date of this prospectus,
except that a director of ours, Timothy E. Mahoney, is a principal of Union Atlantic, L.C.,
which has provided investment banking services to us during this period, and Messrs. Falkner
and West are principals of an investor relations firm that has provided services to us within
the past year. To the best of our knowledge, each of the selling shareholders has sole voting
and investing power with respect to all of the shares indicated as beneficially owned by the
selling shareholder, although such voting and investment powers may be deemed to be shared with
various affiliates, which may include entities and natural persons, of the selling shareholders
who may exercise control over, or provide investment advice to, the selling shareholders. With
respect to The Altar Rock Fund L.P. and the Raptor Global Portfolio Ltd., Tudor Investment
Corporation is the sole general partner of The Altar Rock Fund L.P. and provides investment
advisory services to The Raptor Global Portfolio Ltd. and may be deemed to beneficially own the
shares owned directly by these entities. Paul Tudor Jones, II is the controlling shareholder of
Tudor Investment Corporation and may in turn be deemed to beneficially own the shares deemed
beneficially owned by this entity. Both Tudor Investment Corporation and Mr. Jones expressly
disclaim all deemed beneficial ownership pertaining to any of the shares indicated above as
beneficially owned by The Altar Rock Fund, L.P. and The Raptor Global Portfolio Ltd.
(2) Includes 150,000 shares that may be purchased by BNC Bach International Ltd., Inc. upon its
exercise of an outstanding warrant at a purchase price of $1.5375 per share.
(3) Includes 87,150 shares that may be purchased by The Raptor Global Portfolio Ltd. upon its
exercise of an outstanding warrant at a purchase price of $3.1969 per share.
(4) Includes 37,500 shares that may be purchased by Roseworth Group, Ltd. upon its exercise of an
outstanding warrant at a purchase price of $3.1969 per share.
(5) Includes 350 shares that may be purchased by The Altar Rock Fund L.P. upon its exercise of an
outstanding warrant at a purchase price of $3.1969 per share.
(6) These shares may be purchased by Union Atlantic, L.C. upon its exercise of an outstanding
warrant at a purchase price of $1.478125 per share.
(7) These shares may be purchased by Messrs. Falkner and West, respectively, upon their exercise of
outstanding warrants at a purchase price in each case of $1.063 per share.
</FN>
</TABLE>
Any of the selling shareholders identified above may choose to donate
or transfer as a gift some or all of the shares that may otherwise be sold
directly by the selling shareholder or any of them may choose to transfer some
or all of the shares at no value to one or more affiliated persons. If any of
the shares are so transferred by any of the selling shareholders, then any
person who receives any of these shares would constitute an additional selling
shareholder under this prospectus.
SECURITIES PURCHASE AND OTHER AGREEMENTS
On September 17, 1999, we entered into a common stock and warrant
purchase agreement with BNC Bach International Ltd., Inc., pursuant to which we
agreed to issue 1,500,000 shares of our
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<PAGE>
common stock to BNC at a purchase price of $1.00 per share and to issue a
warrant to BNC for its purchase of up to 150,000 additional shares at a purchase
price of $1.5375 per share. This warrant expires unless sooner exercised on
September 17, 2002. Under the terms of this agreement, we initially issued to
BNC 750,000 shares and BNC paid to us an initial $750,000, with the issuance of
the remaining 750,000 shares and the payment of the remaining $750,000 to occur
at the time our registration of BNC's resale of the total number of shares
became effective with the Securities and Exchange Commission. On November 17,
1999, we agreed with BNC to amend the agreement, so that BNC paid the remaining
$750,000 immediately to us in exchange for our issuing at that time a total of
833,333 shares to BNC (that is, BNC agreed to waive the registration requirement
as a condition to its payment of the remaining $750,000 in exchange for our
agreeing to increase the second installment of shares issued to BNC by 83,333
from 750,000 to 833,333).
On November 24, 1999, we entered into a common stock and warrant
purchase agreement with The Raptor Global Portfolio Ltd., Roseworth Group Ltd.
and The Altar Rock Fund L.P. pursuant to which we issued to these investors a
total of 1,250,000 shares of our common stock at a purchase price of $1.60 per
share. Under the terms of this agreement, we also issued to these investors
warrants to purchase up to a total of 125,000 additional shares of our common
stock at a purchase price of $3.1969 per share. These warrants expire unless
sooner exercised on December 1, 2002.
In connection with these private sales of our common stock, we entered
into registration rights agreements with each of BNC, Raptor, Roseworth, Altar
Rock and Asia ITN Ltd. In these agreements, we agreed to register with the
Securities and Exchange Commission their resale of all of the shares purchased
in these transactions, including, with respect to BNC, Raptor, Roseworth and
Altar Rock, the shares issuable pursuant to the warrants we have issued to each
of them, and to keep the applicable registration statement effective until all
of the shares are sold or until this registration is no longer necessary as
described further in the agreements.
On December 12, 1998, we entered into an agreement with Union Atlantic,
L.C., a third-party provider of investment banking services, of which one of our
directors, Timothy E. Mahoney, is a principal, pursuant to which Union Atlantic
agreed to provide to us a variety of investment banking services. On May 7,
1999, we amended this agreement to reduce the commissions otherwise payable to
Union Atlantic in connection with certain equity financing transactions. In
return for this fee reduction, we agreed to issue a warrant to Union Atlantic
for the purchase of up to 25,000 shares of our common stock upon the same terms
as any warrants that may be issued to the investors in such equity financing
transactions. Accordingly, the purchase price under this warrant was set at
$1.478125 per share. This warrant expires unless sooner exercised on June 4,
2004. We also agreed to register with the Securities and Exchange Commission the
resale by Union Atlantic of the shares it may acquire upon its exercise of this
warrant.
On December 22, 1998, we entered into an agreement with R.J. Falkner &
Company, Inc., an unaffiliated, third-party provider of investor relations
services, pursuant to which that company agreed to provide to us a variety of
investor relations services. In addition to the cash fees we agreed to pay to
R.J. Falkner & Company for these services, in February 1999 we also agreed to
issue, as additional consideration for these services, warrants to both Messrs.
Falkner and West, the principals of R.J. Falkner & Company, to purchase in the
aggregate up to 30,000 shares (that is, 15,000 shares each) at a purchase price
of $1.063 per share. These warrants expire unless sooner exercised on February
22, 2004. We also agreed to register with the Securities and Exchange Commission
the resale by Messrs. Falkner and West of the shares they may acquire upon their
respective exercises of these warrants.
Our registration of the shares covered by this prospectus does not
necessarily mean that the selling shareholders will sell all or any of these
shares.
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<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders may offer their shares at various times in one
or more of the following transactions:
o on the NASDAQ SmallCap Market
o on any United States securities exchange where our common
stock may be listed in the future
o in the over-the-counter market
o in privately negotiated transactions directly with purchasers
o in a combination of any of the above transactions
The selling shareholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. The selling shareholders may
use broker-dealers to sell their shares. If this happens, broker-dealers will
either receive discounts or commissions from the selling shareholders, or they
will receive commissions from purchasers of shares for whom they acted as
agents.
The selling shareholders may also pledge shares to a broker-dealer or
other financial institution, and, upon a default, such broker-dealer or other
financial institution may effect sales of the pledged shares pursuant to this
prospectus (as supplemented or amended to reflect such transaction). In
addition, any shares that qualify for sale pursuant to Rule 144 of the
Securities and Exchange Commission may be sold under Rule 144 rather than
pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by any selling
shareholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from a
selling shareholder in amounts to be negotiated prior to the sale. The selling
shareholders and such brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933 in connection with such sales, and any such commissions, discounts
or concessions may be deemed to be underwriting discounts or commissions under
the Securities Act of 1933. The selling shareholders may indemnify any
broker-dealer that participates in transactions involving the sale of the shares
against certain liabilities, including liabilities arising under the Securities
Act of 1933.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
We have advised the selling shareholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of common stock in the market and to the activities of the selling
shareholders and their affiliates. In addition, we will make copies of this
prospectus available to the selling shareholders and have informed them of the
need for delivery of copies of this prospectus to purchasers at or prior to the
time of any sale of the shares offered under this prospectus.
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<PAGE>
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission or other item constituting compensation to any underwriter,
any discount, commission or concession allowed or re-allowed or paid to any
dealer, and the proposed selling price to the public.
RECENT DEVELOPMENTS
On December 31, 1999, we settled a claim that had previously been
brought against us by PAGG Corporation and certain related parties in the
Superior Court for Middlesex County, Commonwealth of Massachusetts. Pursuant to
this action, PAGG had sought money damages against us totaling approximately
$1,800,000 for amounts we allegedly owed to PAGG for inventory manufactured for
us by PAGG and pursuant to an outstanding secured promissory note we had given
to PAGG. The parties entered into a general release effective December 31, 1999,
pursuant to which PAGG and the related plaintiffs have agreed to release us from
all claims that they may have against us, subject to our paying a total of
$1,669,000 in cash, which will be paid in four monthly installments commencing
on January 5, 2000 and ending on April 5, 2000.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Copies of
these materials can be obtained at prescribed rates from the Public Reference
Section of the SEC at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Our SEC filings are also available to the public from
the SEC's Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
o annual report on Form 10-KSB/A for the fiscal year ended
December 31, 1998
o quarterly report on Form 10-QSB/A for the quarter ended
September 30, 1999
o definitive proxy statement dated June 25, 1999, which was
provided to our stockholders in connection with our annual
meeting of stockholders held on July 26, 1999
o description of our common stock contained in our registration
statement on Form SB-2, SEC File No. 33-60248-B, which we
filed with the SEC on March 29, 1993, as amended
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
FOCUS Enhancements, Inc.
600 Research Drive
Wilmington, Massachusetts 01887
Attention: Christopher P. Ricci
(978) 988-5888
8
<PAGE>
This prospectus is part of a registration statement we have filed with
the SEC. You should rely only on the information or representations provided in
this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered under this
prospectus was passed upon for us by Christopher P. Ricci, Esq., our Senior Vice
President and General Counsel.
EXPERTS
The consolidated financial statements of the company incorporated in
this prospectus by reference to our Annual Report on Form 10-KSB/A for the year
ended December 31, 1998, as amended, have been so incorporated in reliance on
the report of Wolf & Company, P.C., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
We do not provide forecasts of our future financial performance.
However, this prospectus may contain "forward looking" information that involves
risks and uncertainties. In particular, statements contained in this prospectus
which are not historical facts (including, for example, statements concerning
our international revenues, anticipated operating expense levels and such
expense levels relative to our total revenues) constitute forward looking
statements and are intended to be made under the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. In addition, any of the words
"believes," "expects," "anticipates" or similar expressions indicate
forward-looking statements of this type. Our 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, for example, the following:
o the availability of capital to fund our future cash needs
o our reliance on major customers
o our history of operating losses
o our reliance on a limited number of vendors for the
manufacturing of our products
o technological obsolescence
o competition
o component supply problems
o protection of proprietary information
o accuracy of our internal estimates of revenue and operating
expense levels
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Delaware General Corporation Law and our certificate of
incorporation and by-laws provide for indemnification of our directors and
officers for liabilities and expenses that they may incur in such capacities.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
10
<PAGE>
You should rely only on the information incorporated by reference or
contained in this prospectus or any supplement. We have not authorized anyone
else to provide you with different or additional information. You should not
assume that the information in this prospectus or any supplement is accurate as
of any date other than the date on the front of this prospectus or any
supplement that may have a later date. The selling shareholders are not making
an offer of our shares in any state where the offer is not permitted.
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TABLE OF CONTENTS
Page
Risk Factors 2
The Company 4
Use of Proceeds 4
Selling Shareholders 4
Securities Purchase and Other Agreements 5
Plan of Distribution 7
Recent Developments 8
Where You Can Find More Information 8
Legal Matters 9
Experts 9
Cautionary Statement Concerning
Forward Looking Statements 9
Disclosure Statement 10
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FOCUS
ENHANCEMENTS, INC.
3,163,333 Shares of
Common Stock
__________________
PROSPECTUS
__________________
JANUARY __, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated amounts of expenses to be borne
by the Company in connection with the offering described in this Registration
Statement:
Registration Fee Under Securities Act $ 5,819.95
Blue Sky Fees and Expenses 2,000.00
Legal Fees and Expenses 5,000.00
Accounting Fees and Expenses 5,000.00
Printing and Mailing Costs 1,000.00
Miscellaneous Fees and Expenses 2,000.00
----------
Total Expenses $20,819.95
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify, subject to the standards therein prescribed, any
person in connection with any action, suit or proceeding brought or threatened
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or was serving as such with respect to another
corporation or other entity at the request of such corporation.
The Delaware General Corporation Law and the Company's certificate of
incorporation and by-laws provide for indemnification of the Company's directors
and officer for liabilities and expenses that they may incur in such capacities.
In general, directors and officers are indemnified with respect to actions taken
in good faith in a manner reasonably believed to be in, or not opposed to, the
best interests of the Company, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to the Company's Second Restated Certificate of
Incorporation, as amended, and Restated By-laws incorporated herein by
reference.
The Company has obtained directors and officers liability insurance for the
benefit of its directors and certain of its officers.
Item 16. Exhibits
The following documents have been previously filed as Exhibits and are
incorporated herein by reference except those exhibits indicated with an
asterisk which are filed herewith:
Exhibit No. Description
----------- -----------
3.1 Second Restated Certificate of Incorporation, as amended,
incorporated by reference to Exhibit No. 3.1 of the Company's
Registration Statement on Form SB-2 [Reg. No. 33-60248-B] and as an
exhibit to the Company's Form 10-QSB dated November 13, 1995.
3.2 Restated By-laws of the Company (1).
4.1 Specimen certificate for Common Stock of the Company (1).
II-1
<PAGE>
4.2 Common Stock and Warrant Purchase Agreement, as amended, with BNC
Bach International Ltd., Inc.*
4.3 Form of Stock Purchase Warrant issued to BNC Bach International
Ltd., Inc. (included as Exhibit A to the Common Stock and Warrant
Purchase Agreement).*
4.4 Form of Registration Rights Agreement with BNC Bach International
Ltd., Inc. (included as Exhibit B to the Common Stock and Warrant
Purchase Agreement).*
4.5 Common Stock and Warrant Purchase Agreement with The Raptor Global
Portfolio Ltd., The Altar Rock Fund L.P. and Roseworth Group, Ltd. *
4.6 Form of Stock Purchase Warrant issued to The Raptor Global Portfolio
Ltd. (for 87,150 shares), The Altar Rock Fund L.P. (for 350 shares)
and Roseworth Group, Ltd. (for 37,500 shares) (included as Exhibit A
to the Common Stock and Warrant Purchase Agreement). *
4.7 Form of Registration Rights Agreement with The Raptor Global
Portfolio Ltd., The Altar Rock Fund L.P. and Roseworth Group, Ltd.
(included as Exhibit B to the Common Stock and Warrant Purchase
Agreement). *
4.8 Contract for services to be rendered to FOCUS Enhancements, Inc. by
R.J. Falkner & Company, Inc. *
4.9 Form of Stock Purchase Warrant issued to each of R. Jerry Falkner
and Richard W. West. *
4.10 Agreement between Union Atlantic, L.C. and FOCUS Enhancements, Inc.
confirming agreement to issue warrant in exchange for fee reduction.*
4.11 Stock Purchase Warrant issued to Union Atlantic, L.C. *
5.1 Opinion of Christopher P. Ricci, Esq. *
23.1 Consent of Wolf & Company, P.C., independent public accountants. *
23.2 Consent of Christopher P. Ricci, Esq. (included in Exhibit 5.1).
24. Power of Attorney (contained in signature page to this registration
statement).
(1) Filed as an exhibit to the Company's Registration Statement on Form
SB-2, No. 33-60248-B, and incorporated herein by reference.
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered), and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) (Section 230.424(b) of 17 C.F.R.) if, in the
aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
II-2
<PAGE>
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in the periodic
reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities and Exchange Act of 1934 that
are incorporated by reference in this registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
Securities offered herein, and the offering of such Securities
at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the Securities being registered that remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes, that for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Company's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in such Act and is, therefore,
unenforceable.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the Town of Wilmington, Commonwealth of Massachusetts, on January
13, 2000.
FOCUS ENHANCEMENTS, INC.
By: /s/ Thomas L. Massie
Thomas L. Massie
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Form S-3 relating to Common Stock of the Registrant has been signed by the
following persons in the capacities and on the dates indicated. Each person
whose signature appears below hereby authorizes Thomas L. Massie and Christopher
P. Ricci, and each of them, to file one or more amendments (including additional
post-effective amendments) to this Registration Statement, which amendments may
make such changes as any of such persons deem appropriate, and each person,
individually and in each capacity stated below, hereby appoints each of such
persons as attorney-in-fact to execute in his name and on his behalf any of such
amendments to the Registration Statement.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Thomas L. Massie President, Chief Executive Officer and January 13, 2000
Thomas L. Massie Director (Principal Executive Officer)
/s/ Gary M. Cebula Vice President of Finance and January 13, 2000
Gary M. Cebula Administration (Principal Financial and
Accounting Officer)
/s/ John C. Cavalier Director January 13, 2000
John C. Cavalier
Director January __, 2000
William B. Coldrick
Director January __, 2000
Timothy E. Mahoney
/s/ Robert C. Eimers Director January 13, 2000
Robert C. Eimers
/s/ William A. Dambrackas Director January 13, 2000
William A. Dambrackas
</TABLE>
Exhibit 4.2
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT
Between
FOCUS Enhancements, Inc.
and
the Investors Signatory Hereto
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT dated as of September 17,
1999 (the "Agreement"), between the Investors signatory hereto (each an
"Investor" and together the "Investors"), and FOCUS Enhancements, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) 1,500,000 shares of
Common Stock (as defined below) and (ii) Warrants (as defined below) to purchase
up to 150,000 shares of the Common Stock (as defined below) at 110% of the
Closing Date Market Price for such Common Stock.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of the
Common Stock and Warrants pursuant to Section 2.1.
Section 1.4. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
<PAGE>
Section 1.5. "Common Stock" shall mean the Company's common stock, $0.01 par
value per share.
Section 1.6. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.7. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.8. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.9. "Escrow Agreement" shall mean the Escrow Agreement in substantially
the form of Exhibit C hereto executed and delivered contemporaneously with this
Agreement.
Section 1.10. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.11. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.12. "Market Price" on any given date shall mean the average of the
closing bid prices on the Principal Market (as reported by Bloomberg L.P.) of
the Common Stock during the five Trading Day period ending on the Trading Day
immediately prior to the Closing Date.
Section 1.13. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, stock price or financial condition of the Company that
is material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise interfere with the ability of the Company to enter into
and perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the or the Warrants in any material respect.
Section 1.14. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.15. "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
Section 1.16. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume.
Section 1.17. "Purchase Price" shall mean $1.00 per share of Common Stock,
adjusted for any splits, reverse splits or Common Stock dividends declared by
the Company between the first Closing and the second Closing.
Section 1.18. "Registrable Securities" shall mean the Shares and the Warrant
Shares until (i) the Registration Statement has been declared effective by the
SEC, and all Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement, (ii) all Shares and Warrant Shares have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
<PAGE>
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Shares and Warrant Shares have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Shares and Warrant Shares may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.19. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investors as of the Closing
Date in the form annexed hereto as Exhibit C.
Section 1.20. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.21. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.22. "SEC" shall mean the Securities and Exchange Commission.
Section 1.23. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.24. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.25. "SEC Documents" shall mean the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.26. "Shares" shall mean the shares of Common Stock purchased pursuant
to this Agreement.
Section 1.27. "Trading Day" shall mean any day during which the Principal Market
shall be open for business.
Section 1.28. "Warrants" shall mean the Warrants substantially in the form of
Exhibit A to be issued to the Investors hereunder.
Section 1.29. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Common Stock and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree to purchase the Shares together
with the Warrants at the Purchase Price on each Closing Date as follows:
<PAGE>
(i) First Closing. Upon execution and delivery of this
Agreement, each Investor shall deliver to the Escrow
Agent immediately available funds in their
proportionate amount of the one half of the Purchase
Price as set forth on the signature pages hereto, and
the Company shall deliver the Common Stock
certificates representing the Shares so purchased and
all of the Warrants to the Escrow Agent, to be held
by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Second Closing. Within five (5) Trading Days of
written notice from the Company to the Investors that
the Registration Statement has been declared
effective, each Investor shall deliver to the Escrow
Agent immediately available funds in their
proportionate amount of one-half of the Purchase
Price as set forth on the signature pages hereto, and
the Company shall deliver the Common Stock
certificates representing the remaining Shares so
purchased to the Escrow Agent, to be held by the
Escrow Agent pursuant to the Escrow Agreement.
(iii) Each Closing. Upon satisfaction of the conditions set
forth in Section 2.1(b), each Closing ("Closing")
shall occur at the offices of the Escrow Agent at
which the Escrow Agent (x) shall release the Shares
purchased and the Warrants (as to the first Closing)
to the Investors and (y) shall release the Purchase
Price (after all fees have been paid as set forth in
the Escrow Agreement), pursuant to the terms of the
Escrow Agreement.
(b) Each Closing is subject to the satisfaction, or waiver by the party
to be benefitted thereby, of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price
of the Common Stock and the Warrants, as applicable
to each Closing, as more fully set forth in the
Escrow Agreement;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Investors'
obligations);
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Common Stock and Warrants, or shall
have the availability of exemptions therefrom;
(vi) the sale and issuance of the Common Stock and the
Warrants hereunder, and the proposed issuance by the
Company to the Investors of the Common Stock
underlying the Warrants upon the exercise thereof
shall be legally permitted by all laws and
regulations to which the Investors and the Company
are subject and there shall be no ruling, judgment or
writ of any court prohibiting the transactions
contemplated by this Agreement;
(vii) delivery of the original fully executed Common Stock
certificates and Warrants certificates (as to the
first Closing) to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of
Sullivan & Worcester LLP, counsel to the Company, in
the form of Exhibit D hereto (as to the first
Closing);
<PAGE>
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit E (as to the first Closing); and
(x) delivery to the Escrow Agent of the Registration
Rights Agreement (as to the first Closing).
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Shares, the Warrants, or Warrant Shares
to or through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold such securities for
any minimum or other specific term and reserves the right to dispose of the
Shares and Warrant Shares at any time in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Common Stock and the Warrants. The
Investor acknowledges that an investment in the Common Stock is speculative and
involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary
<PAGE>
duty owed by Investor to any third party; or (d) require the approval of any
third-party (which has not been obtained) pursuant to any material contract,
agreement, instrument, relationship or legal obligation to which Investor is
subject or to which any of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Shares, the Warrants and the Warrant Shares pursuant
to their respective terms, (ii) the execution, issuance and delivery of this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the Common
Stock certificates and the Warrants by the Company and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Common Stock
certificates representing the Shares, and the Warrants have been duly executed
and delivered by the Company and at each Closing shall constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the exercise of the
Warrants.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock, $0.01 par value per share, of
which 19,205,090 shares are issued and outstanding as of August 31, 1999 and
3,000,000 shares of preferred stock, par value $0.01 per share, none of which
shares are issued and outstanding. Except for (i) outstanding options and
warrants as set forth in the SEC Documents, and (ii) as set forth in the
Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor any
agreements or understandings pursuant to which any Capital Shares Equivalents
may become outstanding. Except as set forth in the SEC Documents or in the
Disclosure Schedule, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or
<PAGE>
debt securities. All of the outstanding shares of Common Stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Shares, the Warrants and the Warrant Shares will not require registration under
the Securities Act and/or any applicable state securities law. When issued and
paid for in accordance with the Warrants, the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the Shares,
the Warrants or the Warrant Shares pursuant to, nor the Company's performance of
its obligations under, this Agreement, the Registration Rights Agreement, the
Escrow Agreement or the Warrants will (i) result in the creation or imposition
by the Company of any liens, charges, claims or other encumbrances upon the
Shares, the Warrants or the Warrant Shares or, except as contemplated herein,
any of the assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe for or acquire the
Capital Shares or other securities of the Company. The Shares, the Warrants and
the Warrant Shares shall not subject the Investors to personal liability to the
Company or its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Shares or
the Warrants, or (ii) made any offers or sales of
<PAGE>
any security or solicited any offers to buy any security under any circumstances
that would require registration of the Shares, the Warrants or the Warrant
Shares under the Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Shares,
the Warrants and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Certificate of Incorporation or By-Laws or (ii)
conflict with, or constitute a material default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument, or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not have, individually or in the
aggregate, a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not have a Material Adverse Effect. The Company is not required under any
Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Shares or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.9. No Material Adverse Change. Since June 30, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since June 30, 1999, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock within the six-month period
next preceding the date hereof, and the Company shall not permit any of its
directors, officers or affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any Person of the Shares
or Warrants), so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to
Investors of the Shares or the Warrants (and the Warrant Shares) as contemplated
by this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which in either case could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been
<PAGE>
issued by or, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company or any other
person selling or offering to sell the Shares or the Warrants in connection with
the transaction contemplated by this Agreement, have not made, at any time, any
oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed
publicly, would reasonably be expected to have a material effect on the price of
the Common Stock or (ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it
is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481(a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
<PAGE>
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property, mineral or water rights, and buildings held under lease by the Company
as tenant are held by it under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made and
intended to be made of such property, mineral or water rights, and buildings by
the Company.
Section 4.18. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution,
<PAGE>
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Shares at the second Closing and the Warrant
Shares pursuant to any exercise of the Warrants. The number of shares so
reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered pursuant to
any exercise of the Warrants and the number of shares so reserved shall be
increased or decreased to reflect potential increases or decreases in the Common
Stock that the Company may thereafter be obligated to issue by reason of
adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to use all
commercially reasonable efforts to maintain the listing and trading of the
Common Stock on a Principal Market, and as soon as reasonably practicable
following the Closing to list the Shares and the Warrant Shares on the Principal
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Shares and the Warrant Shares, and will take such other action as is
necessary or desirable in the opinion of the Investors to cause the Shares and
Warrant Shares to be listed on such other Principal Market as promptly as
possible. The Company will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
<PAGE>
Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use all commercially reasonable efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act until the Investors
have disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement.
Section 6.8. Issuance of Common Stock and Warrant Shares. The sale of the Shares
and the Warrants and the issuance of the Warrant Shares pursuant to exercise of
the Warrants shall be made in accordance with the provisions and requirements of
Section 4(2), 4(6) or Regulation D and any applicable state securities law. The
Company shall make any necessary SEC and "blue sky" filings required to be made
by the Company in connection with the sale of the Securities to the Investors as
required by all applicable laws, and shall provide a copy thereof to the
Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to its then-current
bid price until 90 days after the effective date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been or will be, at the Company's annual meeting of
stockholders held on July 26, 1999, approved by the Company's stockholders, (ii)
pursuant to any compensatory or stock option plan for directors, full-time
employees or key consultants, (iii) pursuant to the exercise of any other
warrants or options which are issued and outstanding on the date hereof (and
which are not exercisable for more than 300,000 shares of Common Stock in the
aggregate) or (iv) with the prior approval of a majority in interest of the
Investors, which will not be unreasonably withheld, in connection with a
strategic partnership or other business transaction, the principal purpose of
which is not simply to raise money.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it
<PAGE>
under the provisions of this Agreement, irrespective of any investigation made
by or on behalf of such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any
of the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company
pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of
them, by any stockholder of the Company who is not an Affiliate of an
Investor, with respect to any of the transactions contemplated by this
Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to
indemnify and hold harmless the Company, its Affiliates and their respective
officers, directors, partners and members (collectively, the "Company
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Company Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact, or breach of any
of the Investor's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Investor
pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement or any instrument, certificate or agreement
entered into or delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-
<PAGE>
pocket costs and expenses of such separate legal counsel to the Indemnified
Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such
fees, out-of-pocket costs and expenses, (y) the Indemnified Party reasonably
shall have concluded that representation of the Indemnified Party and the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnifying Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), and any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any amendment or supplement
thereto or any blue sky, Nasdaq or other filing, all SEC Documents and other
filings with the SEC, and all other publicly available corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such publicly available information reasonably requested by the Investors or any
such representative, advisor or underwriter in connection with the Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
<PAGE>
Company may, as a condition to disclosing any non-public information hereunder,
require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit E hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and
<PAGE>
no instructions or "stop transfer orders," "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's transfer agent
with respect thereto other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the Company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available.
ARTICLE XI
Assignment
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Shares or Warrants purchased or acquired by any Investor hereunder with respect
to the Shares or Warrants held by such person, and (b) upon the prior written
consent of the Company, which consent shall not unreasonably be withheld or
delayed, each Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity (including any Affiliate of
the Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the terms of this Agreement.
ARTICLE XII
<PAGE>
Notices
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: 600 Research Drive
Wilmington, MA 01887
Attention: Christopher Ricci
Telephone: (978) 988-5888
Facsimile: (978) 661-0160
with a copy to (shall not constitute
notice): Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Stephen J. Coukos
Telephone: (617) 338-2800
Facsimile: (617) 338-2880
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an
<PAGE>
original instrument which shall be enforceable against the parties actually
executing such counterparts and all of which together shall constitute one and
the same instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Warrants, the Escrow
Agreement, and the Registration Rights Agreement, set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Shares or Warrants or any Warrant
Shares and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form to the Company (which shall not include the posting of any
bond) or (iii) in the case of any such mutilation, on surrender and cancellation
of such certificate, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
Epstein Becker & Green, P.C., counsel to the Investors, in an amount equal to
$10,000 all as set forth in the Escrow Agreement.
Section 13.9. Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party except for
JWGenesis Securities, Inc., whose fee shall be paid by the Company. The Company
on the one hand, and the Investors, on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
person claiming brokerage commissions or finder's fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
<PAGE>
Section 13.10. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then it may do so without the prior consent of the Investors,
although it shall be required to provide prior notice (which may be by
telephone) to the Investors that it intends to issue such press release or
public announcement. No release shall name the Investors without their express
consent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
FOCUS Enhancements, Inc.
By: /s/ Thomas L. Massie
Name: Thomas L. Massie
Title: President & CEO
Address: c/o Ultra Finanz AG BNC Bach International Ltd., Inc..
Grossmunsterplatz 6
Zurich, CH-8022
Switzerland
Fax: 011-411-262-5515 By: /s/ H. U. Bachofen
Amount subscribed for: Name: H. U. Bachofen, Director
$1,500,000
<PAGE>
AMENDMENT NO. 1 TO
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT
This Amendment No. 1 ("Amendment") is entered in to between BNC Bach
International Ltd., Inc. ("Investor") and FOCUS Enhancements, Inc. (the
"Company") as of November 17, 1999 to amend that certain Common Stock and
Warrants Purchase Agreement dated as of September 17, 1999 and exhibits thereto
(the "Agreement") as set forth herein and to confirm and ratify the Agreement
except as amended by this Amendment. All capitalized terms used but not defined
herein shall have the meanings set forth in the Agreement. In consideration of
the mutual undertakings contained herein, the parties agree as follows:
1. The Investor hereby waives the condition precedent to the second
Closing that the Registration Statement shall have been declared effective.
2. The Company hereby reduces the price per share of the Common Stock
to be purchased by the Investor at the second Closing to ninety cents ($0.90)
from $1.00.
3. The Agreement is otherwise ratified and confirmed.
FOCUS Enhancements, Inc. BNC Bach International Ltd., Inc.
By: /s/ Thomas Massie By: /s/ H. U. Bachofen
Thomas Massie H. U. Bachofen
President Director
<PAGE>
EXHIBIT A
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 150,000 Shares of Common Stock of
FOCUS ENHANCEMENTS, INC.
THIS CERTIFIES that, for value received, BNC Bach international, Ltd.,
Inc. (the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after September 17, 1999 (the "Initial
Exercise Date") and on or prior to the close of business on September 17, 2002
(the "Termination Date") but not thereafter, to subscribe for and purchase from
FOCUS Enhancements, Inc., a Delaware corporation (the "Company"), up to One
Hundred Fifty Thousand (150,000) shares (the "Warrant Shares") of Common Stock,
$.01 par value, of the Company (the "Common Stock"). The purchase price of one
share of Common Stock (the "Exercise Price") under this Warrant shall be $______
(100% of the average of the closing bid prices of the Common Stock on the Nasdaq
SmallCap Market on the five Trading Days ending on September 17, 1999). The
Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. In the event of any conflict
between the terms of this Warrant and the Common Stock and Warrants Purchase
Agreement dated September 17, 1999 pursuant to which this Warrant has been
issued (the "Purchase Agreement"), the Purchase Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase Agreement.
<PAGE>
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. Certificates
for shares purchased hereunder shall be delivered to the holder hereof within
three (3) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise Price and
all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to
the issuance of such shares, have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate
or certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be
2
<PAGE>
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
6. Closing of Books. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the Company
to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. Upon such surrender and, if required, such payment,
the Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be exercised by a
new holder for the purchase of shares of Common Stock without having a new
Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably
3
<PAGE>
satisfactory to it (which shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the kind
and number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the holder of this Warrant shall thereafter be entitled
to purchase the number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of
4
<PAGE>
shares of Common Stock for which this Warrant is exercisable immediately prior
to such event. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of Directors
of the Company) in order to provide for adjustments of shares of Common Stock
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 11. For purposes of
this Section 11, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 11 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
12. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such notice, in the absence
of manifest error, shall be conclusive evidence of the correctness of such
adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
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<PAGE>
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 30
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 16(d).
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use all commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
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Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing the
current Exercise Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Exercise Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of New York without regard to its conflict of law principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company willfully fails to comply with any material provision of
this Warrant, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the
absence of affirmative action by Holder to purchase shares of Common Stock, and
no enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or as
a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
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(f) Remedies. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
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(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: September 17, 1999
FOCUS Enhancements, Inc.
By:_________________________________________________
Christopher Ricci, Senior Vice President
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NOTICE OF EXERCISE
To: FOCUS Enhancements, Inc.
(1)______The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of FOCUS Enhancements, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
(2)______Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
________________________________________
(Name)
________________________________________
(Address)
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 17,
1999 between the investor or investors signatory hereto (each an "Investor" and
together the "Investors"), and FOCUS Enhancements, Inc., a Delaware corporation
(the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Investor is purchasing from the Company, pursuant to a
Common Stock and Warrants Purchase Agreement dated the date hereof (the
"Purchase Agreement"), 1,500,000 shares of Common Stock and Warrants to purchase
up to 150,000 shares of the Company's Common Stock (terms not defined herein
shall have the meanings ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the
registration rights set forth herein with respect to the Shares purchased
pursuant to the Purchase Agreement and shares of Common Stock issuable upon
exercise of the Warrants (hereinafter referred to as the "Stock" or "Securities"
of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) the Registration Statement
has been declared effective by the Commission, and all Securities have been
disposed of pursuant to the Registration Statement, (ii) all Securities have
been sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Securities have been otherwise transferred to
holders who may trade such Securities without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such Securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Securities may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
Section 2. Restrictions on Transfer. Each Investor
acknowledges and understands that prior to the registration of the Securities as
provided herein, the Securities are "restricted securities" as defined in Rule
144 promulgated under the Act. Each Investor understands that no disposition or
transfer of the Securities may be made by Investor in the absence of (i) an
opinion of counsel to the Investor, in form and substance reasonably
satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.
<PAGE>
With a view to making available to the Investors the
benefits of Rule 144 under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of
Rule 144; and
(b) file with the Commission in a timely manner all
reports and other documents required to be filed with the Commission pursuant to
Section 13 or 15(d) under the Exchange Act by companies subject to either of
such sections, irrespective of whether the Company is then subject to such
reporting requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file
with the Securities and Exchange Commission ("Commission"), within thirty (30)
days after the Closing Date a registration statement (on Form S-3, or, subject
to the Company's right to repurchase the Securities in lieu of such filing as
set forth in Section 3(e), other appropriate registration statement form) under
the Securities Act (the "Registration Statement"), at the sole expense of the
Company (except as provided in Section 3(c) hereof), in respect of the
Investors, so as to permit a public offering and resale of all of the Securities
under the Act by the Investors as selling stockholders and not as underwriters.
The Company shall use all commercially reasonable
efforts to cause such Registration Statement to become effective within ninety
(90) days from the Closing Date (or, if the Registration Statement receives a
"full review" from the Commission, 120 days from the Closing Date) or, if
earlier, within five (5) days of SEC clearance to request acceleration of
effectiveness. The Company will notify the Investors of the effectiveness of the
Registration Statement within one Trading Day of such event. In the event that
the number of shares so registered shall for any reason prove to be insufficient
to register the resale of all of the Securities, then the Company shall be
obligated to file, within thirty (30) days of notice from any Investor, a
further Registration Statement registering such remaining shares and shall use
all commercially reasonable efforts to prosecute such additional Registration
Statement to effectiveness within ninety (90) days (or, if the Registration
Statement receives a "full review" from the Commission, 120 days) of the date of
such notice.
(b) The Company will maintain the Registration
Statement or post-effective amendment filed under this Section 3 effective under
the Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the date that all of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Investors receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investors, that the Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all Securities have been otherwise
transferred to persons who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership
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for such securities not bearing a restrictive legend, or (v) all Securities may
be sold without any time, volume or manner limitations pursuant to Rule 144(k)
or any similar provision then in effect under the Securities Act in the opinion
of counsel to the Company, which counsel shall be reasonably acceptable to the
Investor (the "Effectiveness Period").
(c) All fees, disbursements and out-of-pocket
expenses and costs incurred by the Company in connection with the preparation
and filing of the Registration Statement under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees of the Company) shall be borne by the Company.
The Investors shall bear the cost of underwriting and/or brokerage discounts,
fees and commissions, if any, applicable to the Securities being registered and
the fees and expenses of their counsel. The Investors and their counsel shall
have a reasonable period, not to exceed five (5) Trading Days, to review the
proposed Registration Statement or any amendment thereto, prior to filing with
the Commission, and the Company shall provide each Investor with copies of any
comment letters received from the Commission with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall qualify any of the securities
for sale in such states as any Investor reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers, or which will
require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The Company
at its expense will supply the Investors with copies of the applicable
Registration Statement and the prospectus included therein and other related
documents in such quantities as may be reasonably requested by the Investors.
(d) The Company shall not be required by this Section
3 to include an Investor's Securities in any Registration Statement which is to
be filed if, in the opinion of counsel for both the Investor and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Investor and the Company)
the proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws and would
result in all purchasers or transferees obtaining securities which are not
"restricted securities", as defined in Rule 144 under the Securities Act.
(e) In the event that (i) the Registration Statement
to be filed by the Company pursuant to Section 3(a) above is not filed with the
Commission within thirty (30) days from the Closing Date, (ii) such Registration
Statement is not declared effective by the Commission within the earlier of
ninety (90) days from the Closing Date (or, if the Registration Statement
receives a "full review" from the Commission, 120 days from the Closing Date)
(unless such failure to register is due in whole or in part to the Commission's
request that the Investors be named as underwriters in the prospectus included
in the Registration Statement) or five (5) days of clearance by the Commission
to request effectiveness, (iii) if the Securities have been registered as
contemplated by clause (ii), such Registration Statement is not maintained as
effective by the Company for the period set forth in Section 3(b) above or (iv)
the additional Registration Statement referred to in Section 3(a) is not filed
within thirty (30) days or declared effective within ninety (90) days as set
forth therein (or, if such additional Registration Statement
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<PAGE>
receives a "full review" from the Commission, 120 days) (unless such failure to
register is due in whole or in part to the Commission's request that the
Investors be named as underwriters in the prospectus included in the
Registration Statement) (each a "Registration Default") then the Company will
pay Investor (pro rated on a daily basis), as liquidated damages for such
failure and not as a penalty one percent (1%) of the aggregate market value as
of the Closing Date of shares of Common Stock purchased from the Company and
still held by the Investor for the first two months of such Registration Default
and two percent (2%) for every month thereafter until such Registration
Statement has been filed, and in the event of late effectiveness (in case of
clause (ii) above) or lapsed effectiveness (in the case of clause (iii) above),
one percent (1%) of the aggregate market value as of the Closing Date of shares
of Common Stock purchased from the Company and still held by the Investor for
the first two months of such Registration Default and two percent (2%) for every
month thereafter (regardless of whether one or more such Registration Defaults
are then in existence) until such Registration Statement has been declared
effective. Payment of the liquidated damages shall be made to the Investors in
cash, within five (5) calendar days of demand, provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section. The market
value of the Common Stock for this purpose shall be the closing price (or last
trade, if so reported) on the Principal Market for each day during such
Registration Default. Notwithstanding anything to the contrary contained herein,
a failure to maintain the effectiveness of an filed Registration Statement or
the ability of an Investor to use an otherwise effective Registration Statement
to effect resales of Securities during the period after 45 days and within 90
days from the end of the Company's fiscal year resulting solely from the need to
update the Company's financial statements contained or incorporated by reference
in such Registration Statement shall not constitute a Registration Default and
shall not trigger the accrual of liquidated damages hereunder.
If the Company does not remit the payment to the
Investors as set forth above, the Company will pay the Investors reasonable
costs of collection, including attorneys' fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit the Investors' other rights or remedies as set forth in this
Agreement.
(f) No provision contained herein shall preclude the
Company from selling securities pursuant to any Registration Statement in which
it is required to include Securities pursuant to this Section 3.
(g) If at any time or from time to time after the
effective date of any Registration Statement, the Company notifies the Investors
in writing of the existence of a Potential Material Event (as defined in Section
3(h) below), the Investors shall not offer or sell any Securities or engage in
any other transaction involving or relating to Securities, from the time of the
giving of notice with respect to a Potential Material Event until the Investors
receive written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that the Company may not so suspend the right
to such holders of Securities for more than thirty (30) days in the aggregate
during any twelve month period during the period the Registration Statement is
required to be in effect, and if such period is exceeded, such event shall be a
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Registration Default. If a Potential Material Event shall occur prior to the
date a Registration Statement is required to be filed, then the Company's
obligation to file such Registration Statement shall be delayed without penalty
for not more than twenty (20) days, and such delay or delays shall not
constitute a Registration Default. The Company must, if lawful, give the
Investors notice in writing at least two (2) Trading Days prior to the first day
of the blackout period.
(h) "Potential Material Event" means any of the
following: (a) the possession by the Company of material information not ripe
for disclosure in a registration statement, as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company that disclosure
of such information in a Registration Statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or activity
by the Company which would, in the good faith determination of the Chief
Executive Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Chief
Executive Officer or the Board of Directors of the Company that the applicable
Registration Statement would be materially misleading absent the inclusion of
such information.
Section 4. Cooperation with Company. The Investors will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all information reasonably requested by the Company
(which shall include all information regarding the Investors and proposed manner
of sale of the Registrable Securities required to be disclosed in any
Registration Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the Registrable
Securities and entering into and performing their obligations under any
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering. Nothing in this Agreement shall obligate any Investor to
consent to be named as an underwriter in any Registration Statement. The
obligation of the Company to register the Registrable Securities shall be
absolute and unconditional as and to the extent provided in this Agreement as to
those Securities which the Commission will permit to be registered without
naming the Investors as underwriters. Any delay or delays caused by the
Investors by failure to cooperate as required hereunder shall not constitute a
Registration Default.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Investors' assistance and cooperation as reasonably
required with respect to each Registration Statement:
(a) (i) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
whenever the Investors shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in
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connection with a registration statement pursuant to Rule 415 promulgated under
the Act) and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and (B) the
prospectus forming part of the Registration Statement, and any amendment or
supplement thereto, does not at any time during the Registration Period include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(b) (i) prior to the filing with the Commission of
any Registration Statement (including any amendments thereto) and the
distribution or delivery of any prospectus (including any supplements thereto),
provide draft copies thereof to the Investors as required by Section 3(c) and
reflect in such documents all such comments as the Investors (and their counsel)
reasonably may propose respecting the Selling Shareholders and Plan of
Distribution sections (or equivalents) and (ii) furnish to each Investor such
numbers of copies of a prospectus including a preliminary prospectus or any
amendment or supplement to any prospectus, as applicable, in conformity with the
requirements of the Act, and such other documents, as such Investor may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Investor;
(c) register and qualify the Registrable Securities
covered by the Registration Statement under such other securities or blue sky
laws of such jurisdictions as the Investors shall reasonably request (subject to
the limitations set forth in Section 3(c) above), and do any and all other acts
and things which may be necessary or advisable to enable each Investor to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Investor;
(d) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then permitted under
the rules of such Principal Market;
(e) notify each Investor at any time when a
prospectus relating thereto covered by the Registration Statement is required to
be delivered under the Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware
of such event, notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
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(g) cooperate with the Investors to facilitate the
timely preparation and delivery of certificates for the Registrable Securities
to be offered pursuant to the Registration Statement and enable such
certificates for the Registrable Securities to be in such denominations or
amounts, as the case may be, as the Investors reasonably may request and
registered in such names as the Investors may request; and, within three (3)
Trading Days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors) an appropriate instruction
and, to the extent necessary, an opinion of such counsel;
(h) take all such other lawful actions reasonably
necessary to expedite and facilitate the disposition by the Investors of their
Registrable Securities in accordance with the intended methods therefor provided
in the prospectus which are customary for issuers to perform under the
circumstances;
(i) in the event of an underwritten offering,
promptly include or incorporate in a prospectus supplement or post-effective
amendment to the Registration Statement such information as the managers
reasonably agree should be included therein and to which the Company does not
reasonably object and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such Prospectus supplement or
post-effective amendment; and
(j) maintain a transfer agent and registrar for its
Common Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the
Company agrees to indemnify and hold harmless the Investors and each person, if
any, who controls an Investor within the meaning of the Securities Act (each a
"Distributing Investor") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses), to which the Distributing Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
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(b) To the maximum extent permitted by law, each
Distributing Investor agrees that it will indemnify and hold harmless the
Company, and each officer and director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, or any related final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Investor may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action against such
indemnified party, such indemnified party will, if a claim in respect thereof is
to be made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party except to the extent
the failure of the indemnified party to provide such written notification
actually prejudices the ability of the indemnifying party to defend such action.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties as a group
shall have the right to employ one separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party unless (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by its counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the indemnified party or any other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party, it
being
8
<PAGE>
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for the indemnified party, which firm shall be designated in writing
by the indemnified party). No settlement of any action against an indemnified
party shall be made without the prior written consent of the indemnified party,
which consent shall not be unreasonably withheld so long as such settlement
includes a full release of claims against the indemnified party.
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any indemnified party,
then the Company and the applicable Distributing Investor shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), in either such case (after contribution from
others) on the basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable
Distributing Investor on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Investor agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to undertake liability to any person under this Section 7
for any amounts in excess of the dollar amount of the proceeds received by such
Investor from the sale of such Investor's Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) pursuant to
any Registration Statement under which such Registrable Securities are
registered under the Securities Act and (ii) underwriter be required to
undertake liability to any person hereunder for any amounts in excess of the
aggregate discount, commission or other compensation payable to such underwriter
with respect to the Registrable Securities underwritten by it and distributed
pursuant to such Registration Statement.
9
<PAGE>
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) hand delivered,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth in the
Purchase Agreement or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the first business day following the date of sending
by reputable courier service, fully prepaid, addressed to such address, or (c)
upon actual receipt of such mailing, if mailed. Either party hereto may from
time to time change its address or facsimile number for notices under this
Section 8 by giving at least ten (10) days' prior written notice of such changed
address or facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. The rights granted the Investors under this
Agreement may be assigned to any purchaser of substantially all of the
Registrable Securities (or the rights thereto) from an Investor, as otherwise
permitted by the Purchase Agreement.
Section 10. Additional Covenants of the Company. The Company
agrees that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable Securities, it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action within its reasonable control so as to maintain such eligibility for the
use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but all of which, when together shall constitute but one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each party hereto and delivered to the other parties. In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original.
Section 12. Remedies. The remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative
10
<PAGE>
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise prevents the Company from complying with all of its
obligations hereunder.
Section 14. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York applicable to contracts made in New York by persons domiciled in New York
City and without regard to its principles of conflicts of laws. Any dispute
under this Agreement shall be submitted to arbitration under the American
Arbitration Association (the "AAA") in New York City, New York, and shall be
finally and conclusively determined by the decision of a board of arbitration
consisting of three (3) members (hereinafter referred to as the "Board of
Arbitration") selected as according to the rules governing the AAA. The Board of
Arbitration shall meet on consecutive business days in New York City, New York,
and shall reach and render a decision in writing (concurred in by a majority of
the members of the Board of Arbitration) with respect to the amount, if any,
which the losing party is required to pay to the other party in respect of a
claim filed. In connection with rendering its decisions, the Board of
Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and
11
<PAGE>
is hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorneys' fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
FOCUS Enhancements, Inc.
By:___________________________________________
BNC Bach International, Ltd., Inc.
By:___________________________________________
H.U. Bachofen, Director
12
Exhibit 4.5
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT
Between
FOCUS Enhancements, Inc.
and
the Investors Signatory Hereto
COMMON STOCK AND WARRANTS PURCHASE AGREEMENT dated as of November 24,
1999 (the "Agreement"), between the Investors signatory hereto (each an
"Investor" and together the "Investors"), and FOCUS Enhancements, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) 1,250,000 shares of
Common Stock (as defined below) and (ii) Warrants (as defined below) to purchase
up to 125,000 shares of the Common Stock (as defined below) at 110% of the
Closing Date Market Price for such Common Stock.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
<PAGE>
.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of the
Common Stock and Warrants pursuant to Section 2.1.
Section 1.4. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.5. "Common Stock" shall mean the Company's common stock, $0.01 par
value per share.
Section 1.6. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.7. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.8. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.9. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.10. "Market Price" on any given date shall mean the average of the
closing bid prices on the Principal Market (as reported by Bloomberg L.P.) of
the Common Stock during the five Trading Day period ending on the Trading Day
immediately prior to the Closing Date.
Section 1.11. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, stock price or financial condition of the Company that
is material and adverse to the Company and its subsidiaries and affiliates,
taken as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise interfere with the ability of the Company to enter into
and perform any of its obligations under this Agreement, the Registration Rights
Agreement, or the Warrants in any material respect.
Section 1.12. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.13. "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
Section 1.14. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, or the NASDAQ SmallCap Market,
whichever
<PAGE>
is at the time the principal trading exchange or market for the Common Stock,
based upon share volume.
Section 1.15. "Purchase Price" shall mean $1.60 per share of Common Stock.
Section 1.16. "Registrable Securities" shall mean the Shares and the Warrant
Shares until (i) the Registration Statement has been declared effective by the
SEC, and all Shares and Warrant Shares have been disposed of pursuant to the
Registration Statement, (ii) all Shares and Warrant Shares have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Shares and Warrant Shares have been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, and the
Company has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Shares and Warrant Shares may be sold without any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.17. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investors as of the Closing
Date in the form annexed hereto as Exhibit B.
Section 1.18. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.19. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.20. "SEC" shall mean the Securities and Exchange Commission.
Section 1.21. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.22. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.23. "SEC Documents" shall mean the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.24. "Shares" shall mean the shares of Common Stock purchased pursuant
to this Agreement.
<PAGE>
Section 1.25. "Trading Day" shall mean any day during which the Principal Market
shall be open for business.
Section 1.26. "Warrants" shall mean the Warrants substantially in the form of
Exhibit A to be issued to the Investors hereunder.
Section 1.27. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
Purchase and Sale of Common Stock and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree to purchase the Shares together
with the Warrants at the Purchase Price on the Closing Date as follows:
(i) Closing. Upon execution and delivery of this
Agreement, each Investor shall deliver to the Company
immediately available funds in their proportionate
amount of the Purchase Price as set forth on the
signature pages hereto, and the Company shall deliver
the Common Stock certificates representing the Shares
so purchased and all of the Warrants to each Investor
in their proportionate amount.
(ii) Closing Location. Upon satisfaction of the conditions
set forth in Section 2.1(b), the closing ("Closing")
shall occur at the offices of the Company.
(b) The Closing is subject to the satisfaction of the following
conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery to Company by each Investor of immediately
available funds in the amount of the Purchase Price
of the Common Stock and the Warrants;
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of
the Closing Date (as a condition to the Investors'
obligations);
<PAGE>
(v) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Common Stock and Warrants, or shall
have the availability of exemptions therefrom;
(vi) the sale and issuance of the Common Stock and the
Warrants hereunder, and the proposed issuance by the
Company to the Investors of the Common Stock
underlying the Warrants upon the exercise thereof
shall be legally permitted by all laws and
regulations to which the Investors and the Company
are subject and there shall be no ruling, judgment or
writ of any court prohibiting the transactions
contemplated by this Agreement;
(vii) delivery of the original fully executed Common Stock
certificates and Warrants certificates to each
Investor;
(viii) delivery to the Investors of the Irrevocable
Instructions to Transfer Agent in the form attached
hereto as Exhibit C; and
(ix) delivery to the Investors of the Registration Rights
Agreement.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration Rights Agreement shall constitute
liquidated damages and not penalties. The parties further acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to precisely estimate, (b) the amounts specified in such Sections bear a
reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Shares, the Warrants, or Warrant Shares
to or through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold such securities for
any minimum or other specific term and reserves the right to dispose of the
Shares and Warrant Shares at any time in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the
<PAGE>
capacity to protect its own interests in connection with this transaction and is
capable of evaluating the merits and risks of an investment in the Common Stock
and the Warrants. The Investor acknowledges that an investment in the Common
Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject. Investor
further agrees that to the extent that this Agreement and each agreement which
is attached as an Exhibit hereto and executed by the Investor in connection
herewith conflicts with or requires the consent of the Investor due to previous
agreements with the Company, consummation hereof shall be deemed to waive such
conflicts and be an express consent to execution of this Agreement.
Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
ARTICLE IV
Representations and Warranties of the Company
<PAGE>
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, and the Warrants and to issue the
Shares, the Warrants and the Warrant Shares pursuant to their respective terms,
(ii) the execution, issuance and delivery of this Agreement, the Registration
Rights Agreement, the Common Stock certificates and the Warrants by the Company
and the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Common Stock certificates representing the Shares, and the Warrants have been
duly executed and delivered by the Company and at each Closing shall constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the exercise of the Warrants.
Section 4.3. Capitalization.The authorized capital stock of the Company consists
of 30,000,000 shares of Common Stock, $0.01 par value per share, of which
21,012,701 shares are issued and outstanding as of November 23, 1999 and
3,000,000 shares of preferred stock, par value $0.01 per share, none of which
shares are issued and outstanding. Except for (i) outstanding options and
warrants as set forth in the SEC Documents, and (ii) as set forth in the
Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor any
agreements or understandings pursuant to which any Capital Shares Equivalents
may become outstanding. Except as set forth in the SEC Documents or in the
Disclosure Schedule, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently
<PAGE>
listed or quoted on, the Principal Market. As of the date hereof, the Principal
Market is the Nasdaq SmallCap Market and the Company has not received any notice
regarding, and to its knowledge there is no threat, of the termination or
discontinuance of the eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
<PAGE>
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Shares, the Warrants and the Warrant Shares will not require registration under
the Securities Act and/or any applicable state securities law. When issued and
paid for in accordance with the Warrants, the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the Shares,
the Warrants or the Warrant Shares pursuant to, nor the Company's performance of
its obligations under, this Agreement, the Registration Rights Agreement or the
Warrants will (i) result in the creation or imposition by the Company of any
liens, charges, claims or other encumbrances upon the Shares, the Warrants or
the Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Shares, the Warrants and the Warrant Shares shall
not subject the Investors to personal liability to the Company or its creditors
by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Shares or
the Warrants, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Shares, the Warrants or the Warrant Shares under the
Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Shares,
the Warrants and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Certificate of Incorporation or By-Laws or (ii)
conflict with, or constitute a material default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument, or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not have, individually or in the
aggregate, a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not have a Material Adverse Effect. The Company is not required under any
Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Shares or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
Closing, any registration statement that may be filed pursuant hereto, and any
shareholder approval required by the rules applicable to companies whose common
stock trades on the Principal Market); provided that, for purposes of the
representation made in
<PAGE>
this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Since September 30, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since September 30, 1999,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock within the six-month period
next preceding the date hereof, and the Company shall not permit any of its
directors, officers or affiliates directly or indirectly to take, any action
(including, without limitation, any offering or sale to any Person of the Shares
or Warrants), so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to
Investors of the Shares or the Warrants (and the Warrant Shares) as contemplated
by this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which in either case could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been issued by or, to the
knowledge of the Company, requested of any court, arbitrator or governmental
agency which could result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company or any other
person selling or offering to sell the Shares or the Warrants in connection with
the transaction contemplated by this Agreement, have not made, at any time, any
oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any material non-public information that (i) if disclosed
publicly, would reasonably be expected to have a material effect on the price of
the Common Stock or (ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date hereof but which
has not been so disclosed.
<PAGE>
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it
is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company or any subsidiary
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to ss. 481(a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any
<PAGE>
payments, is obligated to make payments or is a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise,
profits, sales or use, transfer, registration, excise,
utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation,
deficiencies, penalties, additions to tax, and interest
attributable thereto) whether disputed or not.
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached
thereto and including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property, mineral or water rights, and buildings held under lease by the Company
as tenant are held by it under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the use made and
intended to be made of such property, mineral or water rights, and buildings by
the Company.
Section 4.18. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound
<PAGE>
are recorded as necessary to permit preparation of the financial statements of
the Company in accordance with U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of the
Company contained in this Agreement, any schedule, annex or exhibit hereto and
any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Shares at the second Closing and the Warrant
Shares pursuant to any exercise of the Warrants. The number of shares so
reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered pursuant to
any exercise of the Warrants and the number of shares so reserved shall be
increased or decreased to
<PAGE>
reflect potential increases or decreases in the Common Stock that the Company
may thereafter be obligated to issue by reason of adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to use all
commercially reasonable efforts to maintain the listing and trading of the
Common Stock on a Principal Market, and as soon as reasonably practicable
following the Closing to list the Shares and the Warrant Shares on the Principal
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Principal Market, it will include in such application
the Shares and the Warrant Shares, and will take such other action as is
necessary or desirable in the opinion of the Investors to cause the Shares and
Warrant Shares to be listed on such other Principal Market as promptly as
possible. The Company will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities.
Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use all commercially reasonable efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act until the Investors
have disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement.
Section 6.8. Issuance of Common Stock and Warrant Shares. The sale of the Shares
and the Warrants and the issuance of the Warrant Shares pursuant to exercise of
the Warrants shall be made in accordance with the provisions and requirements of
Section 4(2), 4(6) or Regulation D and any applicable state securities law. The
Company shall make any necessary SEC and "blue sky" filings required to be made
by the Company in connection with the sale of the Securities to
<PAGE>
the Investors as required by all applicable laws, and shall provide a copy
thereof to the Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to its then-current
bid price until 90 days after the effective date of the Registration Statement
except for any sales (i) pursuant to any presently existing employee benefit
plan which plan has been approved by the Company's stockholders, (ii) pursuant
to any compensatory or stock option plan for directors, full-time employees or
key consultants, (iii) pursuant to the exercise of any other warrants or options
which are issued and outstanding on the date hereof (and which are not
exercisable for more than 300,000 shares of Common Stock in the aggregate) or
(iv) with the prior approval of a majority in interest of the Investors, which
will not be unreasonably withheld, in connection with a strategic partnership or
other business transaction, the principal purpose of which is not simply to
raise money.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes, schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation available to it under
the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement
or certificate entered into or delivered by the Company pursuant to
this Agreement; or
(ii) any failure by the Company to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in
this Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of them, by any
stockholder of the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify and
hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact, or breach of any
of the Investor's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Investor
pursuant to this Agreement; or
(ii) any failure by the Investor to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement or any instrument, certificate or agreement
entered into or delivered by the Investor pursuant to this Agreement.
<PAGE>
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying
<PAGE>
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnifying Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), and any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any amendment or supplement
thereto or any blue sky, Nasdaq or other filing, all SEC Documents and other
filings with the SEC, and all other publicly available corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such publicly available information reasonably requested by the Investors or any
such representative, advisor or underwriter in connection with the Registration
Statement (including, without limitation, in response to all questions and other
inquiries reasonably made or submitted by any of them), prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial
and ongoing due diligence with respect to the Company and the accuracy of the
Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to
the Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. Other than disclosure of any comment letters
received from the SEC staff with respect to the Registration Statement, the
Company may, as a condition
<PAGE>
to disclosing any non-public information hereunder, require the Investors'
advisors and representatives to enter into a confidentiality agreement in form
and content reasonably satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information as set forth in Section 8.2(a)) may not obtain
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that based on
such due diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
<PAGE>
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit C hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect in any
way each Investor's obligations to comply with all applicable securities laws
upon resale of the Common Stock.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of Massachusetts applicable
to contracts made in Massachusetts by persons domiciled in Boston and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in Boston, Massachusetts, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in Boston, Massachusetts, and shall reach and render a
decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of Massachusetts unless the matter at issue is the
corporation law of the Company's state of incorporation, in which event the
corporation law of such jurisdiction shall govern such issue. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the
<PAGE>
expenses of the prevailing party, including reasonable attorney's fees, in
connection with such arbitration. Any party shall be entitled to obtain
injunctive relief from a court in any case where such relief is available and
the prevailing party shall likewise be entitled to be paid their expenses,
including reasonable attorney's fees.
ARTICLE XI
Assignment
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Shares or Warrants purchased or acquired by any Investor hereunder with respect
to the Shares or Warrants held by such person, and (b) upon the prior written
consent of the Company, which consent shall not unreasonably be withheld or
delayed, each Investor's interest in this Agreement may be assigned at any time,
in whole or in part, to any other person or entity (including any Affiliate of
the Investor) who agrees to make the representations and warranties contained in
Article III and who agrees to be bound by the terms of this Agreement.
ARTICLE XII
Notices
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
<PAGE>
If to the Company: 600 Research Drive
Wilmington, MA 01887
Attention: Chris Ricci
Telephone: (978) 988-5888
Facsimile: (978) 661-0160
with a copy to (shall not constitute
notice): Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Stephen J. Coukos
Telephone: (617) 338-2800
Facsimile: (617) 338-2880
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Warrants, and the
Registration Rights Agreement, set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings
<PAGE>
between the parties, both oral and written relating to the subject matter
hereof. The terms and conditions of all Exhibits to this Agreement are
incorporated herein by this reference and shall constitute part of this
Agreement as is fully set forth herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Shares or Warrants or any Warrant
Shares and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form to the Company (which shall not include the posting of any
bond) or (iii) in the case of any such mutilation, on surrender and cancellation
of such certificate, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder.
Section 13.9. Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party except for
JWGenesis Securities, Inc., whose fee shall be paid by the Company only to the
extent that JWGenesis Securities, Inc. has introduced one or more of the
Investors and then, only to the extent of that Investor's participation in this
Agreement. The Company on the one hand, and the Investors, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.10. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
<PAGE>
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then it may do so without the prior consent of the Investors,
although it shall be required to provide prior notice (which may be by
telephone) to the Investors that it intends to issue such press release or
public announcement. No release shall name the Investors without their express
consent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
FOCUS Enhancements, Inc.
By: /s/ Thomas L. Massie
Thomas L. Massie, President & CEO
Address: Raptor Global Portfolio Ltd. - $1,394,400
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, MA 02110
Fax: (617) 737-1169 By: /s/ William T. Flaherty
Name: William T. Flaherty
Vice President, Tudor Investment Corporation
As Investment Adviser
Raptor Global Portfolio Ltd.
Address: Altar Rock Fund L.P. - $5,600
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, MA 02110
Fax: (617) 737-1169 By: /s/ William T. Flaherty
Name: William T. Flaherty
Vice President, Tudor Investment Corporation
As General Partner
Altar Rock Fund L.P.
Address: Roseworth Group, Ltd. - $600,000
c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74, Postfach 86
FL-9490 Vaduz, Liechtenstein
Fax: 011-075-236-0405 By: /s/ Hans Gassner
Name: Hans Gassner
<PAGE>
EXHIBIT A
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase _______ Shares of Common Stock of
FOCUS ENHANCEMENTS, INC.
THIS CERTIFIES that, for value received, __________________ (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after December 1, 1999 (the "Initial Exercise
Date") and on or prior to the close of business on December 1, 2004 (the
"Termination Date") but not thereafter, to subscribe for and purchase from FOCUS
Enhancements, Inc., a corporation incorporated in Delaware (the "Company"), up
to _________________________________ (_________) shares (the "Warrant Shares")
of Common Stock, $.01 par value, of the Company (the "Common Stock"). The
purchase price of one share of Common Stock (the "Exercise Price") under this
Warrant shall be [(110% of the Market Price on the Closing Date of the Common
Stock and Warrants Purchase Agreement dated as of November 24, 1999] pursuant to
which this Warrant has been issued (the "Purchase Agreement")). The Exercise
Price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. In the event of any conflict between
the terms of this Warrant and the Purchase Agreement, the Purchase Agreement
shall control. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth for such terms in the Purchase Agreement.
<PAGE>
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. Certificates
for shares purchased hereunder shall be delivered to the holder hereof within
three (3) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise Price and
all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to
the issuance of such shares, have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate
or certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant. If there is no registration in effect permitting
the resale by the Holder of the Warrant Shares at any time from and after one
year from the issuance date of this Warrant, then the Holder shall have the
right to a "cashless exercise" in which the Holder shall be entitled to receive
a certificate for the number of shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:
(A) = the average of the high and low trading prices per share of
Common Stock on the Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrant; and
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<PAGE>
(X) = the number of shares issuable upon exercise of the Warrant in
accordance with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the Company
to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. Upon such surrender and, if required, such payment,
the Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be exercised by a
new holder for the purchase of shares of Common Stock without having a new
Warrant issued.
(b) This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or attorney.
Subject to compliance with Section 7(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
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<PAGE>
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid office,
books for the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the kind
and number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the holder of this Warrant shall thereafter be entitled
to purchase the number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment
4
<PAGE>
made pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(a) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
12. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts
5
<PAGE>
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in the absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 30
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 16(d).
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<PAGE>
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use all commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of New York
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without regard to its conflict of law principles or rules, and be subject to
arbitration pursuant to the terms set forth in the Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company willfully fails to comply with any material provision of
this Warrant, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the
absence of affirmative action by Holder to purchase shares of Common Stock, and
no enumeration herein of the rights or privileges of Holder hereof, shall give
rise to any liability of Holder for the purchase price of any Common Stock or as
a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or
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<PAGE>
disbursements are found in a judgment by a court to have resulted from Holder's
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
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(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: November 24, 1999
FOCUS ENHANCEMENTS, INC.
By:_________________________________________________
Thomas L. Massie, President & CEO
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NOTICE OF EXERCISE
To: FOCUS ENHANCEMENTS, INC.
(1)______The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of FOCUS Enhancements, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
(2)______Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
________________________________________
(Name)
________________________________________
(Address)
Dated:
______________________________
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _______________________________
Holder's Address: _______________________________
_______________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 24,
1999 between the investor or investors signatory hereto (each an "Investor" and
together the "Investors"), and FOCUS Enhancements, Inc., a Delaware corporation
(the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, the Investor is purchasing from the Company, pursuant to a
Common Stock and Warrants Purchase Agreement dated the date hereof (the
"Purchase Agreement"), 1,250,000 shares of Common Stock and Warrants to purchase
up to 125,000 shares of the Company's Common Stock (terms not defined herein
shall have the meanings ascribed to them in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the
registration rights set forth herein with respect to the Shares purchased
pursuant to the Purchase Agreement and shares of Common Stock issuable upon
exercise of the Warrants (hereinafter referred to as the "Stock" or "Securities"
of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) the Registration Statement
has been declared effective by the Commission, and all Securities have been
disposed of pursuant to the Registration Statement, (ii) all Securities have
been sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Securities have been otherwise transferred to
holders who may trade such Securities without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such Securities not bearing a restrictive legend or (iv) such time
as, in the opinion of counsel to the Company, all Securities may be sold without
any time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act. The term "Registrable
Securities" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be deemed to be made
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Agreement.
Section 2. Restrictions on Transfer. Each Investor
acknowledges and understands that prior to the registration of the Securities as
provided herein, the Securities are "restricted securities" as defined in Rule
144 promulgated under the Act. Each Investor understands that no disposition or
transfer of the Securities may be made by Investor in the absence of (i) an
opinion of counsel to the Investor, in form and substance reasonably
<PAGE>
satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.
With a view to making available to the Investors the
benefits of Rule 144 under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of
Rule 144; and
(b) file with the Commission in a timely manner all
reports and other documents required to be filed with the Commission pursuant to
Section 13 or 15(d) under the Exchange Act by companies subject to either of
such sections, irrespective of whether the Company is then subject to such
reporting requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file
with the Securities and Exchange Commission ("Commission"), within thirty (30)
days after the Closing Date a registration statement (on Form S-3, or, subject
to the Company's right to repurchase the Securities in lieu of such filing as
set forth in Section 3(e), other appropriate registration statement form) under
the Securities Act (the "Registration Statement"), at the sole expense and
discretion of the Company (except as provided in Section 3(c) hereof), in
respect of the Investors, so as to permit a public offering and resale of all of
the Securities under the Act by the Investors as selling stockholders and not as
underwriters.
The Company shall use all commercially reasonable
efforts to cause such Registration Statement to become effective within one
hundred fifty (120) days from the Closing Date (or, if the Registration
Statement receives a "full review" from the Commission, 150 days from the
Closing Date) or, if earlier, within five (5) days of SEC clearance to request
acceleration of effectiveness. The Company will notify the Investors of the
effectiveness of the Registration Statement within one Trading Day of such
event. In the event that the number of shares so registered shall for any reason
prove to be insufficient to register the resale of all of the Securities, then
the Company shall be obligated to file, within thirty (30) days of notice from
any Investor, a further Registration Statement registering such remaining shares
and shall use all commercially reasonable efforts to prosecute such additional
Registration Statement to effectiveness within ninety (120) days (or, if the
Registration Statement receives a "full review" from the Commission, 150 days)
of the date of such notice.
(b) The Company will maintain the Registration
Statement or post-effective amendment filed under this Section 3 effective under
the Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the date that all of the Securities have been sold pursuant to such
Registration Statement, (iii) the date the Investors receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investors, that the Securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all Securities have
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<PAGE>
been otherwise transferred to persons who may trade such shares without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a
restrictive legend, or (v) all Securities may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) or any similar provision then in
effect under the Securities Act in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Investor (the "Effectiveness
Period").
(c) All fees, disbursements and out-of-pocket
expenses and costs incurred by the Company in connection with the preparation
and filing of the Registration Statement under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees of the Company) shall be borne by the Company.
The Investors shall bear the cost of underwriting and/or brokerage discounts,
fees and commissions, if any, applicable to the Securities being registered and
the fees and expenses of their counsel. The Investors and their counsel shall
have a reasonable period, not to exceed five (5) Trading Days, to review the
proposed Registration Statement or any amendment thereto, prior to filing with
the Commission, and the Company shall provide each Investor with copies of any
comment letters received from the Commission with respect thereto within two (2)
Trading Days of receipt thereof. The Company shall qualify any of the securities
for sale in such states as any Investor reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers, or which will
require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The Company
at its expense will supply the Investors with copies of the applicable
Registration Statement and the prospectus included therein and other related
documents in such quantities as may be reasonably requested by the Investors.
(d) The Company shall not be required by this Section
3 to include an Investor's Securities in any Registration Statement which is to
be filed if, in the opinion of counsel for both the Investor and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Investor and the Company)
the proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws and would
result in all purchasers or transferees obtaining securities which are not
"restricted securities", as defined in Rule 144 under the Securities Act.
(e) In the event that (i) the Registration Statement
to be filed by the Company pursuant to Section 3(a) above is not filed with the
Commission within thirty (30) days from the Closing Date, (ii) such Registration
Statement is not declared effective by the Commission within the earlier of one
hundred twenty (120) days from the Closing Date (or, if the Registration
Statement receives a "full review" from the Commission, 150 days from the
Closing Date) (unless such failure to register is due in whole or in part to the
Commission's request that the Investors be named as underwriters in the
prospectus included in the Registration Statement) or five (5) days of clearance
by the Commission to request effectiveness, (iii) if the Securities have been
registered as contemplated by clause (ii), such Registration Statement is not
maintained as effective by the Company for the period set forth in Section 3(b)
above or (iv)
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<PAGE>
the additional Registration Statement referred to in Section 3(a) is not filed
within thirty (30) days or declared effective within one hundred twenty (120)
days as set forth therein (or, if such additional Registration Statement
receives a "full review" from the Commission, 150 days) (unless such failure to
register is due in whole or in part to the Commission's request that the
Investors be named as underwriters in the prospectus included in the
Registration Statement) (each a "Registration Default") then the Company will,
at its election, either (A) repurchase the Common Stock from the Investor at
their original purchase price (and Investor hereby agrees to permit such
Securities to be so repurchased) or (B) pay Investor (pro rated on a daily
basis), as liquidated damages for such failure and not as a penalty one percent
(1%) of the aggregate market value as of the Closing Date of shares of Common
Stock purchased from the Company and still held by the Investor for the first
two months and two percent (2%) for every month thereafter until such
Registration Statement has been filed, and in the event of late effectiveness
(in case of clause (ii) above) or lapsed effectiveness (in the case of clause
(iii) above), one percent (1%) of the aggregate market value as of the Closing
Date of shares of Common Stock purchased from the Company and still held by the
Investor for the first two months and two percent (2%) for every month
thereafter (regardless of whether one or more such Registration Defaults are
then in existence) until such Registration Statement has been declared
effective. The election to repurchase the Securities shall be made to the
Investors in writing within five (5) Trading Days of the date on which
liquidated damages would otherwise begin to accrue, and payment shall be made
within five (5) Trading Days of such notice, or else the Company's election
shall be void and of no further effect. Payment of the liquidated damages shall
be made to the Investors in cash, within five (5) calendar days of demand,
provided, however, that the payment of such liquidated damages shall not relieve
the Company from its obligations to register the Securities pursuant to this
Section. The market value of the Common Stock for this purpose shall be the
closing price (or last trade, if so reported) on the Principal Market for each
day during such Registration Default. Notwithstanding anything to the contrary
contained herein, a failure to maintain the effectiveness of an filed
Registration Statement or the ability of an Investor to use an otherwise
effective Registration Statement to effect resales of Securities during the
period after 45 days and within 90 days from the end of the Company's fiscal
year resulting solely from the need to update the Company's financial statements
contained or incorporated by reference in such Registration Statement shall not
constitute a Registration Default and shall not trigger the accrual of
liquidated damages hereunder.
If the Company does not remit the payment to the
Investors as set forth above, the Company will pay the Investors reasonable
costs of collection, including attorneys' fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit the Investors' other rights or remedies as set forth in this
Agreement.
(f) No provision contained herein shall preclude the
Company from selling securities pursuant to any Registration Statement in which
it is required to include Securities pursuant to this Section 3.
(g) If at any time or from time to time after the
effective date of any Registration Statement, the Company notifies the Investors
in writing of the existence of a Potential Material Event (as defined in Section
3(h) below), the Investors shall not offer or sell
4
<PAGE>
any Securities or engage in any other transaction involving or relating to
Securities, from the time of the giving of notice with respect to a Potential
Material Event until the Investors receive written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Securities for more than
thirty (30) days in the aggregate during any twelve month period during the
period the Registration Statement is required to be in effect, and if such
period is exceeded, such event shall be a Registration Default. If a Potential
Material Event shall occur prior to the date a Registration Statement is
required to be filed, then the Company's obligation to file such Registration
Statement shall be delayed without penalty for not more than twenty (20) days,
and such delay or delays shall not constitute a Registration Default. The
Company must, if lawful, give the Investors notice in writing at least two (2)
Trading Days prior to the first day of the blackout period.
(h) "Potential Material Event" means any of the
following: (a) the possession by the Company of material information not ripe
for disclosure in a registration statement, as determined in good faith by the
Chief Executive Officer or the Board of Directors of the Company that disclosure
of such information in a Registration Statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or activity
by the Company which would, in the good faith determination of the Chief
Executive Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Chief
Executive Officer or the Board of Directors of the Company that the applicable
Registration Statement would be materially misleading absent the inclusion of
such information.
Section 4. Cooperation with Company. The Investors will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all information reasonably requested by the Company
(which shall include all information regarding the Investors and proposed manner
of sale of the Registrable Securities required to be disclosed in any
Registration Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the Registrable
Securities and entering into and performing their obligations under any
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering. Nothing in this Agreement shall obligate any Investor to
consent to be named as an underwriter in any Registration Statement. The
obligation of the Company to register the Registrable Securities shall be
absolute and unconditional as and to the extent provided in this Agreement as to
those Securities which the Commission will permit to be registered without
naming the Investors as underwriters. Any delay or delays caused by the
Investors by failure to cooperate as required hereunder shall not constitute a
Registration Default.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Investors' assistance and cooperation as reasonably
required with respect to each Registration Statement:
5
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(a) (i) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
whenever the Investors shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in connection with a registration statement pursuant to Rule 415
promulgated under the Act) and (ii) take all lawful action such that each of (A)
the Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (B) the prospectus forming part of the Registration Statement,
and any amendment or supplement thereto, does not at any time during the
Registration Period include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(b) (i) prior to the filing with the Commission of
any Registration Statement (including any amendments thereto) and the
distribution or delivery of any prospectus (including any supplements thereto),
provide draft copies thereof to the Investors as required by Section 3(c) and
reflect in such documents all such comments as the Investors (and their counsel)
reasonably may propose respecting the Selling Shareholders and Plan of
Distribution sections (or equivalents) and (ii) furnish to each Investor such
numbers of copies of a prospectus including a preliminary prospectus or any
amendment or supplement to any prospectus, as applicable, in conformity with the
requirements of the Act, and such other documents, as such Investor may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Investor;
(c) register and qualify the Registrable Securities
covered by the Registration Statement under such other securities or blue sky
laws of such jurisdictions as the Investors shall reasonably request (subject to
the limitations set forth in Section 3(c) above), and do any and all other acts
and things which may be necessary or advisable to enable each Investor to
consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Investor;
(d) list such Registrable Securities on the Principal
Market, if the listing of such Registrable Securities is then permitted under
the rules of such Principal Market;
(e) notify each Investor at any time when a
prospectus relating thereto covered by the Registration Statement is required to
be delivered under the Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;
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(f) as promptly as practicable after becoming aware
of such event, notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) cooperate with the Investors to facilitate the
timely preparation and delivery of certificates for the Registrable Securities
to be offered pursuant to the Registration Statement and enable such
certificates for the Registrable Securities to be in such denominations or
amounts, as the case may be, as the Investors reasonably may request and
registered in such names as the Investors may request; and, within three (3)
Trading Days after a Registration Statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors) an appropriate instruction
and, to the extent necessary, an opinion of such counsel;
(h) take all such other lawful actions reasonably
necessary to expedite and facilitate the disposition by the Investors of their
Registrable Securities in accordance with the intended methods therefor provided
in the prospectus which are customary for issuers to perform under the
circumstances;
(i) in the event of an underwritten offering,
promptly include or incorporate in a prospectus supplement or post-effective
amendment to the Registration Statement such information as the managers
reasonably agree should be included therein and to which the Company does not
reasonably object and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after it is notified of the
matters to be included or incorporated in such Prospectus supplement or
post-effective amendment; and
(j) maintain a transfer agent and registrar for its
Common Stock.
Section 6. Indemnification.
(a) To the maximum extent permitted by law, the
Company agrees to indemnify and hold harmless the Investors and each person, if
any, who controls an Investor within the meaning of the Securities Act (each a
"Distributing Investor") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses), to which the Distributing Investor may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability
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arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Distributing Investor, its counsel, affiliates or any underwriter,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each
Distributing Investor agrees that it will indemnify and hold harmless the
Company, and each officer and director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement, or any related final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by such
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Distributing Investor may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action against such
indemnified party, such indemnified party will, if a claim in respect thereof is
to be made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any indemnified party except to the extent
the failure of the indemnified party to provide such written notification
actually prejudices the ability of the indemnifying party to defend such action.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties as a group
shall have the right to employ one separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party unless (i) the
8
<PAGE>
employment of such counsel has been specifically authorized in writing by the
indemnifying party, or (ii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying party
and the indemnified party shall have been advised by its counsel that there may
be one or more legal defenses available to the indemnifying party different from
or in conflict with any legal defenses which may be available to the indemnified
party or any other indemnified party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party). No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld so long as such settlement includes a full release of claims against
the indemnified party.
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any indemnified party,
then the Company and the applicable Distributing Investor shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), in either such case (after contribution from
others) on the basis of relative fault as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the applicable
Distributing Investor on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Investor agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to undertake liability to any person under this Section 7
for any amounts in excess of the
9
<PAGE>
dollar amount of the proceeds received by such Investor from the sale of such
Investor's Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Registration Statement under
which such Registrable Securities are registered under the Securities Act and
(ii) underwriter be required to undertake liability to any person hereunder for
any amounts in excess of the aggregate discount, commission or other
compensation payable to such underwriter with respect to the Registrable
Securities underwritten by it and distributed pursuant to such Registration
Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) hand delivered,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth in the
Purchase Agreement or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the first business day following the date of sending
by reputable courier service, fully prepaid, addressed to such address, or (c)
upon actual receipt of such mailing, if mailed. Either party hereto may from
time to time change its address or facsimile number for notices under this
Section 8 by giving at least ten (10) days' prior written notice of such changed
address or facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. The rights granted the Investors under this
Agreement may be assigned to any purchaser of substantially all of the
Registrable Securities (or the rights thereto) from an Investor, as otherwise
permitted by the Purchase Agreement.
Section 10. Additional Covenants of the Company. The Company
agrees that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable Securities, it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action within its reasonable control so as to maintain such eligibility for the
use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but all of which, when together shall constitute but one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each party hereto and delivered to the other parties. In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original.
10
<PAGE>
Section 12. Remedies. The remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise prevents the Company from complying with all of its
obligations hereunder.
Section 14. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 15. Governing Law, Arbitration. This Agreement shall
be governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts applicable to contracts made in Massachusetts by persons domiciled
in Boston, Massachusetts and without regard to its principles of conflicts of
laws. Any dispute under this Agreement shall be submitted to arbitration under
the American Arbitration Association (the "AAA") in Boston, Massachusetts, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in Boston,
Massachusetts, and shall reach and render a decision in writing (concurred in by
a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of Massachusetts. To
the extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorneys' fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available and the prevailing party shall
likewise be entitled to be paid their expenses, including reasonable attorney's
fees.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
FOCUS Enhancements, Inc.
By: __________________________________
Thomas L. Massie, President & CEO
Address: Raptor Global Portfolio Ltd. - $1,394,400
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, MA 02110
Fax: (617) 737-1169 By:__________________________________
Name: William T. Flaherty
Vice President, Tudor Investment Corporation
As Investment Adviser
Raptor Global Portfolio Ltd.
Address: Altar Rock Fund L.P. - $5,600
c/o Tudor Investment Corporation
40 Rowes Wharf, 2nd Floor
Boston, MA 02110
Fax: (617) 737-1169 By:__________________________________
Name: William T. Flaherty
Vice President, Tudor Investment Corporation
As General Partner
Altar Rock Fund L.P.
Address: Roseworth Group, Ltd. - $600,000
c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74, Postfach 86
FL-9490 Vaduz, Liechtenstein
Fax: 011-075-236-0405 By:__________________________________
Name: Hans Gassner
12
EXHIBIT 4.8
CONTRACT
Customer: FOCUS Enhancements, Inc.
Date: December 22, 1998
Term of Contract: One Year
Contract Begins: January 1, 1999
******************************************************************************
The undersigned, acting on behalf of FOCUS Enhancements, Inc. ("the customer"),
hereby contracts with R. J. Falkner & Company, Inc., ("Falkner") for a period of
not less than one year, for the provision of consulting services to include the
following:
(1) The preparation of at least two "Research Profile" reports during the next
twelve months, and one each six months thereafter;
(2) Distribution of such reports to the brokerage community, money managers,
mutual funds, and individual investors, upon request, or as instructed by the
customer, along with exposure of such reports on the StreetNet investor
information site on the Internet and on the R. J. Falkner & Company, Inc.
website (www.rjfalkner.com);
(3) Assistance in the writing and editing of shareholder communiques, annual
reports, etc., in order to optimize their effectiveness in conveying the
messages desired by management;
(4) The handling of all logistics involving the release of news to the financial
media and to the investment community, including "blast fax" exposure to brokers
and money managers;
(5) Interfacing with Nasdaq StockWatch to assure that new releases are
distributed in accordance with appropriate regulations, and that Nasdaq is
notified in advance of pending news releases;
(6) Distribution of such communiques to the brokerage community, institutional
and individual investors, and research analysts at over 5,000 firms throughout
the U. S., Europe, and Canada;
(7) Telephone and personal meetings with individual investor groups,
regional/national brokerage firms, and/or institutional investors, when
appropriate;
(8) Arrangement of management presentations to stockbroker groups, research
analysts, and/or portfolio managers, on a selective basis, in various cities
around the U. S. and Canada; and
(9) Any other services involving investor relations, upon request (at an hourly
rate, when appropriate).
A cash retainer fee for these services will be payable at the rate of $3,000 per
month, in advance. In addition to such monthly retainer, the customer will be
invoiced for reimbursement of expenses directly incurred in the provision of
these services on a monthly basis. Such expenses will primarily involve
publishing, printing and postage costs
<PAGE>
related to the distribution of "Research Profile" reports and shareholder
communiques; telephone calls placed on the customer's behalf; and travel
expenses required to visit the customer and/or for trips to visit brokerage
firms/investor groups/institutions on behalf of the customer (such trip expenses
are pro-rated among several customers). Documentation of these expenses will be
provided on each monthly invoice, and the customer agrees to reimburse R. J.
Falkner & Company, Inc. for such expenses within 30 days following receipt of
such invoices. Such reimbursable expenses shall not exceed $500 per month,
unless pre-approved by an officer of FOCUS Enhancements, Inc.
In addition to the cash compensation outlined above, R. Jerry Falkner (as an
individual) and Richard W. West will each be granted a 5-year option to purchase
15,000 shares of FOCUS Enhancements, Inc. common stock (after taking into
account a planned reverse stock split), with such option to be issued no later
than January 15, 1999. The exercise price on the option will be equivalent to
the market price of the common stock on the closing transaction price, as
reported by Nasdaq, on December 31, 1998. Customer hereby agrees to register the
shares underlying this option whenever any other option shares are registered
with the SEC, or within twelve months of the "start date" of this contract,
whichever occurs sooner.
This contract may be cancelled by the Customer after twelve months, upon written
notice to be received by R. J. Falkner & Company prior to January 1, 2000. If
such notice is not forthcoming, the services of R. J. Falkner & Company, Inc.
will continue on a month-to-month basis. At any time after completion of the
initial one-year term of the contract's starting date, either party may cancel
the services of R. J. Falkner & Company, Inc. upon 30 days' written notice. If
the customer chooses to terminate the services of R. J. Falkner & Company, Inc.
prior to January 1, 2000, customer agrees to pay R. J. Falkner & Company, Inc.
all advance retainer fees for the months remaining in the initial twelve-month
term of the contract, plus unreimbursed expenses.
Falkner represents, warrants, and covenants that: (i) all work performed
hereunder will be performed with care, skill, and diligence, in accordance with
the highest applicable professional standards recognized by Falkner's
profession; (ii) it is responsible for the professional quality, technical
accuracy, completeness and coordination of all reports, designs, drawings,
plans, information, specifications, and other services furnished under this
Agreement; (iii) it shall comply with all applicable federal, state and local
laws, ordinances, codes and regulations in performing its services; (iv) that
all work shall be performed to Customer's reasonable satisfaction of Customer;
(v) that it has the right to disclose all information transmitted to Customer
under this Agreement and that it has all rights and title necessary to provide
the services and deliverables outlined herein; (vi) that all work and services
hereunder will be performed by fully trained, experienced and qualified
personnel; (vii) that it has not and will not enter into any agreements or
arrangements which preclude compliance with the provisions of this Agreement;
and (ix) that its invoice charges under this Agreement will not exceed
comparable rates it charges other customers in substantially similar
transactions.
Falkner will keep the Proprietary Information of the Customer in strict
confidence and shall not, without the prior written approval of the Customer (a)
disclose any Proprietary Information to a third party, (b) use Proprietary
Information in any way for the benefit of any third party, and/or (c) use
Proprietary Information in any way other than for the purposes of this
Agreement. The Falkner will limit access to Proprietary Information to only
those employees who have an absolute need to know of such Proprietary
Information in order to accomplish the purposes of this Agreement and who are
aware of and have agreed to respect the relevant provisions of this Agreement.
Third party access to Proprietary Information shall be restricted to those third
parties who have first executed a confidentiality agreement protecting against
disclosure of such Proprietary Information and naming Customer as a third party
beneficiary of the confidentiality agreement so that Customer can enforce the
provisions of the confidentiality agreement in Customer's own name. Further,
prior to entering a confidentiality agreement with a third party, Falkner shall
obtain approval to communicate or transfer Proprietary Information under the
confidentiality agreement, such approval being given at the sole discretion of
Customer. For the purposes of this Agreement, "Proprietary Information" means
technical and/or business information which is disclosed to Falkner by Customer,
whether orally, or in written or other tangible form. This Agreement and the
terms hereof shall be considered Proprietary Information. Proprietary
Information does not include, and no obligation is imposed on, information which
(i) is already in or subsequently enters the public domain through no fault of
Falkner; (ii) is supplied by Customer to another party without a duty of
confidentiality to Customer; (iii) is disclosed pursuant to the order or
requirements of a governmental administrative agency or other governmental body
provided that such disclosure is pursuant to a protective order and Customer has
been notified of such a disclosure request in advance.
<PAGE>
Falkner agrees that for the term of this Agreement, the terms and conditions of
this Confidentiality provision shall survive termination of this Agreement.
Falkner shall, at its expense, defend any claim or action brought against
Customer, and Customer's subsidiaries, affiliates, directors, officers,
employees, agents and independent contractors, to the extent it is based upon a
claim that the Falkner acted negligently, willfully disseminated misinformation
or otherwise acted with willful misconduct. Customer shall have the right to
employ separate counsel and participate in the defense of any claim or action.
Falkner shall reimburse Customer upon demand for any payments made or loss
suffered by it at any time after the date hereof, based upon the final
adjudication of of any judgement by a court of competent jurisdiction, or
pursuant to a bona fide compromise or settlement of claims, demands, or actions,
in respect to any damages related to any claim or action. Falkner would only be
liable for damages which the court determined were the result of negligence
and/or misconduct on the part of Falkner. Falkner may not settle any claim or
action under this Section on Customer's behalf without first obtaining
Customer's written permission, which permission will not be unreasonably
withheld. In the event Customer and Falkner agree to settle a claim or action,
Falkner agrees not to publicize the settlement without first obtaining
Customer's written permission, which permission will not be unreasonably
withheld.
Falkner agrees that it is strictly an independent contractor and shall so
represent itself to all third parties. Neither party has the right to bind the
other in any manner whatsoever and nothing in this Agreement shall be
interpreted to make either party the agent or legal representative of the other
or to make the parties joint venturers. In no event shall Falkner be deemed in
any way to be an employee of Customer. Falkner acknowledges and agrees that this
consulting arrangement shall not give or extend to Falkner any rights with
respect to contributions by the Customer to any deferred compensation plan,
bonus plans, or fringe benefits (including, but in no way limited to holiday
pay, medical or life insurance benefits, sick pay or paid vacation) except as
otherwise provided herein, and further agrees to hold the Customer harmless from
any employment, income or other taxes or any other damages which may be assessed
in connection with payments to Falkner or which may be suffered by Customer due
to any breach of the foregoing warranties.
Falkner convents and agrees that it has, in full force and effect, Workers'
Compensation, Public Liability and Property Damage insurance, and that Falkner
further indemnifies Customer against loss resulting from injury to Falkner
during the course of performance of service work under this Agreement. Falkner
further assumes full responsibility for any acts of damage or destruction,
including personal injury, caused directly or indirectly by the Falkner during
the course of such work.
All notices under this Agreement shall be made in writing and shall be deemed
properly delivered when (i) delivered personally, or (ii) by the mailing of such
notice to the parties entitled thereto, registered or certified mail, postage
prepaid to the parties at the addresses set forth above, and in the case of
Customer, to the attention of Thomas Massie, Chief Executive Officer, cc.
General Counsel.
Falkner shall not subcontract or assign the Agreement, or otherwise dispose of
its right, title, or interest therein or any part thereof to any third party,
without obtaining the prior written consent of the Customer. The hiring or use
of outside services, subcontractors by Falkner in connection with this Agreement
shall not be permitted without the prior written approval of Customer.
This Agreement contains the entire agreement between the parties hereto and
supersedes all prior and contemporaneous agreements, arrangements, negotiations
and understandings between the parties hereto, relating to the subject matter
hereof. There are no other understandings, statements, promises or inducements,
oral or otherwise, contrary to the terms of this Agreement. No waiver of any
term, provision, or condition of this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or shall
constitute, a waiver of any other provision hereof, whether or not similar, nor
shall such waiver constitute a continuing waiver, and no waiver shall be binding
unless executed in writing by the party making the waiver.
No supplement, modification or amendment of any term, provision or condition of
this Agreement shall be binding or enforceable unless executed in writing by the
parties hereto. The subject headings of the articles, paragraphs and
subparagraphs of this Agreement are included solely for purposes of convenience
and reference only, and shall not be deemed to explain, modify, limit, amplify
or aid in the meaning, construction or interpretation of any of the
<PAGE>
provisions of this Agreement. Should any part, term or provision of this
Agreement or any document required herein to be executed be declared invalid,
void or unenforceable, all remaining parts, terms and provisions hereof shall
remain in full force and effect and shall in no way be invalidated, impaired or
affected thereby.
The parties acknowledge that this contract is entered into in the state of
Colorado and that performance of the contract will be accomplished in the states
of Colorado and Massachusetts.
This contract cannot be assigned without the agreement of both parties.
Signed:
/s/ Thomas L. Massie
Thomas L. Massie
Chairman and Chief Executive Officer
FOCUS ENHANCEMENTS, INC.
/s/ R. Jerry Falkner, CFA
R. Jerry Falkner, CFA
President
R. J. Falkner & Company, Inc.
Date:
Note: Please retain one original copy of this contract for your records, and
return one original copy to R. J. Falkner & Company, Inc.
EXHIBIT 4.9
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, 1999 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, 1999, 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
<PAGE>
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
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<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:
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<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.
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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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<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, 1999
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 4.10
May 7, 1999
Attn: Christopher Ricci
Focus Enhancements, Inc.
600 North Road
Wilmington, MA 01887
Re: Union Atlantic LC ("Union Atlantic")/Focus Enhancements, Inc. ("Focus")
Agreement
Dear Chris:
Per your request, I am writing to document our understanding with
respect to the above-captioned agreement dated December 12, 1998, as
subsequently amended (the "Agreement"). The terms of the Agreement require Union
Atlantic to have an exclusive relationship with Focus for six months, or until
June 12, 1999, solely with respect to the sale of substantially all of the stock
or assets of Focus. With respect to a minority equity investment in Focus, the
relationship is non-exclusive.
With particular regard to Focus' relationship with JW Genesis
Securities, Inc. ("JWG"), it is agreed that the commissions described in the
Agreement shall be waived for any placement through JWG. Union Atlantic will
seek cash compensation for any such transaction directly from JWG.
Notwithstanding the foregoing, upon closing of an equity placement through JWG,
Focus shall issue to Union Atlantic a purchase warrant for 25,000 shares of
Focus common stock at a per share exercise price not to exceed the per share
exercise price of the warrants granted to JWG/or the equity investor with
respect to the subject equity investment.
Should you have any question, please don't hesitate to call.
Respectfully,
/s/ Leonard Sokolow
Leonard Sokolow
Partner
EXHIBIT 4.11
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.: W99/5 Right to Purchase 25,000
Shares of Common Stock of
June 4, 1999 FOCUS Enhancements, Inc.
VOID UNLESS EXERCISED BEFORE 5:00 P.M., EASTERN STANDARD TIME ON JUNE 4, 2004.
FOCUS Enhancements, Inc.
Common Stock Purchase Warrant
FOCUS Enhancements, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Union Atlantic, L.C., or assigns, is
entitled, subject to the terms set forth below, to purchase from the Company,
commencing June 4, 1999, at any time or from time to time before 5:00 p.m.,
Eastern Daylight Time, on or before June 4, 2004, 25,000 fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Company, at an
exercise price per share equal to $1.478125. 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
<PAGE>
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 on such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be
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<PAGE>
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 so obtained
shall thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted,
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<PAGE>
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:
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<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.
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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 June 4, 2004.
Dated: June 4, 1999
ATTEST: FOCUS ENHANCEMENTS, INC.
By:____________________________ By: /s/ Chris Ricci
Print:_________________________ Print: Chris Ricci
Title:_________________________ Title: Sr. Vice President & General Counsel
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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 5.1
January 13, 2000
Board of Directors
FOCUS Enhancements, Inc.
600 Research Drive
Wilmington, Massachusetts 01887
Re: Registration Statement on Form S-3 of 3,163,333 shares of Common Stock,
par value $0.01 per share
Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Act"), by FOCUS Enhancements, Inc., a Delaware corporation (the
"Company"), of 3,163,333 shares (the "Registered Shares") of its Common Stock,
par value $.01 per share ("Common Stock"), all of which Registered Shares are to
be offered for the accounts of selling stockholders of the Company, the
following opinion is furnished to you to be filed with the Securities and
Exchange Commission (the "Commission") as Exhibit 5.1 to the Company's
registration statement on Form S-3 (the "Registration Statement") under the
Act.
To the extent that certain of the Registered Shares have not yet been
issued, I assume that at the time of the issuance of such Registered Shares,
there will exist, under the Company's Certificate of Incorporation, as amended
(the "Certificate"), the requisite number of authorized shares of Common Stock
for such issuance which are unissued, or held as treasury shares, and are not
otherwise reserved for issuance.
I am General Counsel and Secretary of the Company and I have examined
originals or copies, certified or otherwise identified to my satisfaction, of
the Registration Statement, the Certificate and the By-laws of the Company and
such other corporate records, certificates and statements of officers and
accountants of the Company and of public officials and other documents as I have
considered necessary or appropriate in order to furnish the opinion hereinafter
set forth.
This opinion is limited to federal law, the laws of the Commonwealth of
Massachusetts and the Delaware General Corporation Law, and I express no opinion
with respect to the law of any other jurisdiction.
Based upon and subject to the foregoing, I hereby advise you that, in
my opinion, (i) those Registered Shares that have been issued as of the date
hereof were duly authorized and have been validly issued and are fully paid and
nonassessable and (ii)
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-2-
those Registered Shares that may be issued after the date hereof shall be, upon
such issuance, duly authorized and validly issued and shall be fully paid and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, I do not hereby admit that I
come within the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Commission promulgated thereunder.
This opinion may not be referred to or used for any other purpose or in any
other context or otherwise relied upon by any other person or entity without my
express written consent.
Respectfully,
/s/ Christopher P. Ricci
Christopher P. Ricci
Senior Vice President and General Counsel
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
FOCUS Enhancements, Inc. on Form S-3 of our report, dated April 9, 1999 on the
consolidated financial statements of FOCUS Enhancements, Inc., appearing in the
Annual Report on Form 10-KSB/A of FOCUS Enhancements, Inc. for the year ended
December 31, 1998. We also consent to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ WOLF & COMPANY, P.C.
WOLF & COMPANY, P.C.
Boston, Massachusetts
January 13, 2000
