As filed with the Securities and Exchange Commission on February 10, 2000
Registration No. 333-94621
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO 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
Total Amount Additional Amount Amount of
Title of Each Class of Securities to Be to Be Registered Price to Proposed Maximum Registration
to be Registered Registered by Amendment Public(2) Offering Price(2) Fee(2)
- ------------------------------------ -------------- ------------------- --------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
Common Stock, par value $.01 per 3,263,333 100,000 $7.1875 $718,750 $189.75
share(1)
- ------------------------------------ -------------- ------------------- --------------- -------------------- ----------------
<FN>
(1) The total number of shares of 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, (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, and (v) 100,000 shares issued as full settlement of
outstanding balances on trade payables. A total of 3,163,333 shares,
which are the shares described in clauses (i)-(iv) of the preceding
sentence, were previously included in the original registration
statement as filed on January 13, 2000, at which time the required
registration fee with respect to such shares, totaling $5,819.95, was
paid. The additional shares described in clause (v) of the first
sentence of this footnote are first being registered pursuant to this
amendment no. 1 to the original registration statement.
(2) The price to public and proposed maximum offering price referenced are
included solely for purposes of calculating the amount of the
registration fee required with respect to the additional 100,000 shares
being registered hereby. 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 February 9, 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>
Subject to Completion, Dated February 7, 2000
REOFFER
PROSPECTUS
FOCUS ENHANCEMENTS, INC.
3,263,333 Shares of Common Stock
Five 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 3,263,333 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 February 9, 2000, the closing price of one share of FOCUS
common stock on the NASDAQ SmallCap Market was $7.25.
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.
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The date of this prospectus is February __, 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 production of our products, at least on a short-term
basis.
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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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 five
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., The Altar Rock Fund L.P. and Asia ITN
Ltd. 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>
Asia ITN Ltd. 100,000 * 100,000 0 *
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.
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<PAGE>
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 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 19, 1999, we entered into an agreement with Asia ITN Ltd.,
pursuant to which we issued a total of 100,000 shares of our common stock at a
purchase price of $2.34 per share in consideration for Asia ITN Ltd.'s delivery
of a full release of our obligation to pay an outstanding trade payables balance
of $323,259.56.
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
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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.
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.
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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.
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
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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
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
9
<PAGE>
o protection of proprietary information
o accuracy of our internal estimates of revenue and operating expense
levels
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.
- -----------------------------------------------------------
TABLE OF CONTENTS
Page
Risk Factors 2
The Company 4
Use of Proceeds 4
Selling Shareholders 4
Securities Purchase and Other Agreements 6
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
- -----------------------------------------------------------
FOCUS
ENHANCEMENTS, INC.
3,263,333 Shares of
Common Stock
__________________
PROSPECTUS
__________________
FEBRUARY __, 2000
11
<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 $ 6,009.70
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 $21,009.70
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).
II-1
<PAGE>
4.1 Specimen certificate for Common Stock of the Company (1).
4.2 Common Stock and Warrant Purchase Agreement, as amended, with
BNC Bach International Ltd., Inc. (2)
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). (2)
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). (2)
4.5 Common Stock and Warrant Purchase Agreement with The Raptor
Global Portfolio Ltd., The Altar Rock Fund L.P. and Roseworth
Group, Ltd. (2)
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). (2)
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). (2)
4.8 Contract for services to be rendered to FOCUS Enhancements,
Inc. by R.J. Falkner & Company, Inc. (2)
4.9 Form of Stock Purchase Warrant issued to each of R. Jerry
Falkner and Richard W. West. (2)
4.10 Agreement between Union Atlantic, L.C. and FOCUS Enhancements,
Inc. confirming agreement to issue warrant in exchange for fee
reduction. (2)
4.11 Stock Purchase Warrant issued to Union Atlantic, L.C. (2)
4.12 General Release, as amended, between Asia ITN Ltd. and FOCUS
Enhancements, Inc. *
4.13 Form of Registration Rights Agreement with Asia ITN Ltd.
(included as Exhibit A to the General Release). *
5.1 Opinion of Christopher P. Ricci, Esq. (2)
23.1 Consent of Wolf & Company, P.C., independent public
accountants. (2)
23.2 Consent of Christopher P. Ricci, Esq. (included in Exhibit
5.1).
24. Power of Attorney (contained in signature page to the original
registration statement as filed on January 13, 2000 and
incorporated herein by reference).
(1) Filed as an exhibit to the Company's Registration Statement on
Form SB-2, No. 33-60248-B, and incorporated herein by
reference.
(2) Filed as an exhibit to the Company's original Registration
Statement on Form S-3, No. 333-94621, as filed on January 13,
2000 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
II-2
<PAGE>
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
(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 Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the Town of Wilmington, Commonwealth
of Massachusetts, on February 7, 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
Amendment No. 1 to the Registration Statement on 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Thomas L. Massie President, Chief Executive Officer and February 7, 2000
- ---------------------------------
Thomas L. Massie Director (Principal Executive Officer)
/s/ Gary M. Cebula Vice President of Finance and February 7, 2000
- ---------------------------------
Gary M. Cebula Administration (Principal Financial and
Accounting Officer)
* Director February 7, 2000
- ---------------------------------
John C. Cavalier
Director February __, 2000
- ---------------------------------
William B. Coldrick
Director February __, 2000
- ---------------------------------
Timothy E. Mahoney
* Director February 7, 2000
- ---------------------------------
Robert C. Eimers
* Director February 7, 2000
- ---------------------------------
William A. Dambrackas
* By: /s/ Christopher P. Ricci
Christopher P. Ricci
Attorney-in-Fact
</TABLE>
II-4
EXHIBIT 4.12
GENERAL RELEASE
This General Release Agreement effective as of November 19, 1999 (the
"Release"), is between the Asia ITN LTD., a corporation with its principal place
of business at No. 508, 16F-2, Chung Hsiao E. Rd. Section 5, Taipei, Taiwan,
R.O.C. ("Creditor"), and FOCUS Enhancements, Inc., a Delaware corporation,
having a principal address of 600 Research Drive, Wilmington, MA 01887
("Focus").
WHEREAS, Focus has trade payables which for the purposes of this
Release are agreed to be due and owing to Creditor and Creditor having a balance
of at least $323,259.56 ("Payables Balance");
WHEREAS, Creditor is currently holding inventory of Focus and/or parts
to manufacture Focus products at its warehouse;
WHEREAS, Company and the Creditor desire, upon terms and subject to the
conditions hereinafter set forth, to settle all outstanding Claims (as defined
later herein) relating to the foregoing;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Balance" shall mean all outstanding balances Focus may have with
the Creditor including, but not limited to, the Payables Balance.
Section 1.2. "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 Focus.
Section 1.3. "Common Stock" shall mean Focus's common stock, $0.01 par value per
share.
Section 1.4. "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 1.5. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
<PAGE>
- 2 -
Section 1.6. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.7. "Average Market Price" shall mean the average of the closing price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal Market for
the five trading days preceding the Effective Date.
Section 1.8. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, stock Creditor or financial condition of Focus that is
material and adverse to Focus 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 Focus to enter into and perform any of
its obligations under this Agreement or the Registration Rights Agreement, in
any material respect.
Section 1.9. "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 Focus.
Section 1.10. "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 1.11. "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 1.12. "Registrable Securities" shall mean the Shares until (i) the
Registration Statement has been declared effective by the SEC, and all Shares
have been disposed of pursuant to the Registration Statement, (ii) all 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 have been otherwise transferred to
holders who may trade such shares without restriction under the Securities Act,
and Focus 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 Focus, all 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.
<PAGE>
- 3 -
Section 1.13. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between Focus and Creditor in the form annexed hereto
as Exhibit A.
Section 1.14. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to Focus pursuant to the rules
of the SEC and, if not, on such other form promulgated by the SEC for which
Focus then qualifies and which counsel for Focus shall deem appropriate, and
which form shall be available for the resale by Creditor 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 Creditor of the Registrable Securities under the Securities Act.
Section 1.15. "SEC" shall mean the Securities and Exchange Commission.
Section 1.16. "SEC Documents" shall mean Focus'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 Focus with the SEC pursuant to the Exchange Act
since the filing of such Annual Report through the date hereof.
Section 1.17. "Shares" shall mean the shares of Common Stock received pursuant
to this Agreement.
ARTICLE II
Consideration
Section 2.1. Consideration.
(a) On or before December 31, 1999 and upon the terms and subject to
the conditions set forth herein, each party agrees as follows:
(i) Stock. Focus agrees to transfer to Creditor 100,000
shares of Common Stock.
(ii) Creditor Release. Creditor, for itself and its
respective parents, subsidiaries, affiliates,
officers, directors, employees, agents, trustees,
beneficiaries, successors and assigns, hereby
release, remise and forever discharge Focus, its
respective parents, subsidiaries, affiliates,
officers, directors, employees, agents, trustees,
beneficiaries, successors and assigns (collectively
referred to hereinafter as "Focus Released Parties")
of and from the Balance and any and all claims,
suits, demands, liabilities, sums, dues, actions and
causes of action that such Creditor has had, now has,
or can, shall or may have against Focus Released
Parties, or any of them, from the beginning of the
world until
<PAGE>
- 4 -
this date (collectively, the "Claims").
Notwithstanding the foregoing, both parties agree
that the release contained in this Section 2.1(a)(ii)
shall only become effective on the Effective Date.
(iii) Security Interest. The Creditor agrees that all
security interests relating to the above-described
Claims shall be released immediately upon delivery of
the stock described above.
(b) This Agreement is subject to the satisfaction of the following
conditions:
(i) delivery of original fully-executed Common Stock
certificates to Creditor;
(ii) delivery of all excess materials purchased by
Creditor for the manufacture of Focus products and
held by the Creditor to any destination designated by
Focus within Taiwan; and
(iii) delivery to Creditor of the Registration Rights
Agreement; and
Section 2.2. Risk of Claim Expanding.
Creditor hereby acknowledge and assume all risk, chance, hazard, likelihood or
possibility, however large or remote, that the Claims may be or become greater
or more extensive than is now known, anticipated or expected, that no promise or
inducement has been made to the Creditor except the consideration recited
herein, and that in executing this General Release the Creditor do not rely on
and will not claim reliance on any statement or representation of the Focus
Released Parties or any of them concerning the nature or extent of any Claims.
Focus hereby acknowledges and assumes all risk, chance, hazard, likelihood or
possibility, however large or remote, that the Claims may be or become small or
less extensive than is now known, anticipated or expected, that no promise or
inducement has been made to the Focus Related Parties except the consideration
recited herein, and that in executing this General Release Focus does not rely
on and will not claim reliance on any statement or representation of the
Creditor Released Parties or any of them concerning the nature or extent of any
Claims.
Section 2.3. Claims Doubtful. Creditor understands that this General Release is
given in connection with the settlement and compromise of disputed and doubtful
claims and that any payment or consideration given in connection herewith is
not, and may not be construed or taken as, an admission of liability on the part
of any of the Focus Released Parties, each of whom expressly denies any such
liability.
<PAGE>
- 5 -
ARTICLE III
Representations and Warranties of Creditor
Creditor, severally and not jointly, represents and warrants to Focus that:
Section 3.1. Intent. Creditor is entering into this Agreement for his own
account and not with a view to or for sale in connection with any distribution
of the Common Stock, except in accordance with federal and state securities laws
applicable to any such disposition. Creditor has no present arrangement (whether
or not legally binding) at any time to sell the Shares or Additional Shares (as
defined later herein) to or through any person or entity; provided, however,
that by making the representations herein, Creditor does not agree to hold such
securities for any minimum or other specific term and reserves the right to
dispose of the Shares and Additional Shares at any time in accordance with
federal and state securities laws applicable to such disposition.
Section 3.2. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by the Creditor has been duly authorized
and validly executed and delivered by the Creditor and is a valid and binding
agreement of the Creditor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, Creditor' rights and remedies or by
other equitable principles of general application.
Section 3.3. Sophisticated Investor.
Creditor 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 Creditor has such experience in business and financial matters that he
has the capacity to protect his own interests in connection with this
transaction and is capable of evaluating the merits and risks of an investment
in the Common Stock. Creditor acknowledges that an investment in the Common
Stock is speculative and involves a high degree of risk.
Section 3.4. Not an Affiliate. Creditor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of
Focus.
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
Creditor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Creditor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on the Creditor or (a)
violate any provision of any indenture, instrument or agreement to which the
Creditor are a party or is subject, or by which the Creditor 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 the Creditor 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 the Creditor are subject or to which any of its assets, operations or
management may be
<PAGE>
- 6 -
subject. The Creditor further agrees that to the extent that this Agreement and
each agreement which is attached as an Exhibit hereto and executed by the
Creditor in connection herewith conflicts with or requires the consent of the
Creditor due to previous agreements with Focus, consummation hereof shall be
deemed to waive such conflicts and be an express consent to execution of this
Agreement.
Section 3.6. Enforceable
This Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of Focus and are valid and binding
agreements of Focus enforceable in accordance with their terms.
Section 3.7. Disclosure; Access to Information. Creditor has received all
documents, records, books and other publicly available information pertaining to
Creditor's investment in Focus that have been requested by Creditor. Focus is
subject to the periodic reporting requirements of the Exchange Act, and Creditor
has reviewed copies of all SEC Documents deemed relevant by Creditor.
Section 3.8. Manner of Sale. At no time was Creditor 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 Focus
Focus represents and warrants to the Creditor that, except as set forth on the
Disclosure Schedule prepared by Focus and attached hereto:
Section 4.1. Organization of Focus.Focus 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. Focus 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. Focus 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) Focus has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement, and to issue the Shares, and
the Additional Shares pursuant to their respective terms, (ii) the execution,
issuance and delivery of this Agreement, the Registration Rights Agreement, the
Common Stock certificates by Focus 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 Focus or its Board
of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Common Stock certificates representing the
Shares have been duly executed and delivered by Focus and shall constitute valid
and binding obligations of Focus enforceable against
<PAGE>
- 7 -
Focus 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, Creditor' rights and remedies or by
other equitable principles of general application.
Section 4.3. Capitalization. The authorized capital stock of Focus 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 19, 1999 and
3,000,000 shares of preferred stock, par value $0.01 per share, none of which
shares are issued and outstanding. All of the outstanding shares of Common Stock
of Focus have been duly and validly authorized and issued and are fully paid and
non-assessable. The Shares, when issued in accordance with this Agreement, will
be duly and validly authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock Focus 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 Focus 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 Focus
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. Focus has made available to Creditor true and
complete copies of the SEC Documents. Focus has not provided to Creditor any
information that, according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by Focus, 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 Focus 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 Focus 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 Focus 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 Focus's past
practices since the last date of such financial statements.
<PAGE>
- 8 -
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of Creditor's representations in Article III, the sale of the 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 Additional
Shares will be duly and validly issued, fully paid, and non-assessable. Neither
the sales of the Shares or the Additional Shares pursuant to, nor Focus's
performance of its obligations under, this Agreement, the Registration Rights
Agreement will (i) result in the creation or imposition by Focus of any liens,
charges, claims or other encumbrances upon the Shares, or the Additional Shares
or, except as contemplated herein, any of the assets of Focus, 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 Focus. The
Shares or the Additional Shares shall not subject Creditor to personal liability
to Focus or its Creditor by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither Focus nor any of its affiliates nor, to the knowledge of
Focus, 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
(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
or the Additional Shares under the Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by Focus and the consummation by Focus of the transactions
contemplated hereby, including without limitation the issuance of the Shares and
the Additional Shares, do not and will not (i) result in a violation of Focus'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 Focus 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
Focus or by which any material property or asset of Focus is bound or affected,
nor is Focus 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
Focus 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. Focus 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 in accordance with
the terms hereof (other than any SEC, Principal Market or state securities
filings that may be required to be made by Focus subsequent hereto (all of which
will be made on a timely basis), 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, Focus is assuming and
relying upon the accuracy of the relevant representations and agreements of
Creditor herein.
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Section 4.9. No Material Adverse Change. Since September 30, 1999, no Material
Adverse Effect has occurred or exists with respect to Focus, 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 Focus 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 Focus 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
Creditor in connection with the transactions contemplated hereby, Focus 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 Focus 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
Additional Shares), so as to make unavailable the exemption from Securities Act
registration being relied upon by Focus for the offer and sale to Creditor of
the Shares (and the Additional Shares) as contemplated by this Agreement.
Section 4.12. No Misleading or Untrue Communication. Focus and, to the knowledge
of Focus, any person representing Focus or any other person selling or offering
to sell the Shares 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 4.13. Insurance. Focus 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
Focus's historical claims experience. Focus has not received notice from, and
has no knowledge of any threat by, any insurer (that has issued any insurance
policy to Focus) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Section 4.14. Tax Matters.
(a) Focus 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; Focus 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 Focus (including any provisions for deferred
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income taxes) reflected on the books of Focus are adequate to cover any Tax
liabilities of Focus 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 Focus does not file tax returns that Focus 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 Focus 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 Focus or any
subsidiary from any foreign, federal, state or local taxing authority. There are
no material unresolved questions or claims concerning Focus's Tax liability.
Focus (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 Focus 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 Focus. Focus 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) Focus has not made an election under ss. 341(f) of the Internal
Revenue Code. Focus is not liable for the Taxes of another person that is not a
subsidiary of Focus 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. Focus is not a party to any tax sharing
agreement. Focus 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.
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Section 4.15. Property. Neither Focus nor any of its subsidiaries owns any real
property. Each of Focus 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 Focus; and to Focus's knowledge any real property, mineral or water
rights, and buildings held under lease by Focus 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 Focus.
Section 4.16. Intellectual Property. Each of Focus 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 Focus's knowledge, except as disclosed in
the SEC Documents and except as to counterclaims asserted in a patent
infringement litigation between Focus and AVerMedia Technologies, Inc., neither
Focus 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 Focus has no knowledge of any basis for
such claim.
Section 4.17. Internal Controls and Procedures. Focus maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which Focus or any subsidiary is a party or by which its
properties are bound are executed with management's authorization; (ii) the
recorded accounting of Focus's consolidated assets is compared with existing
assets at regular intervals; (iii) access to Focus's consolidated assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which Focus 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 Focus in accordance with U.S. generally accepted
accounting principles.
Section 4.18. Payments and Contributions. Neither Focus, any subsidiary, nor any
of its directors, officers or, to its knowledge, other employees has (i) used
any Focus 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 Focus 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 Focus matters. Section 4.19. No
Misrepresentation.The representations and warranties of Focus contained in this
Agreement, any schedule, annex or exhibit hereto and any agreement, instrument
or certificate furnished by Focus to the Creditor 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.
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ARTICLE V
Covenants of the Creditor
Creditor, severally and not jointly, covenants with Focus that:
Section 5.1. Compliance with Law. Creditor's trading activities with respect to
shares of Focus'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 Focus's Common Stock is listed. Section 5.2.
Security Interests.Creditor hereby covenant and agree that each will, at any
time upon request, without further cost to Focus and without further
compensation, execute and deliver any and all papers or instruments that may be
necessary or customary to release and/or terminate any security interests that
the Creditor may have in any assets of Focus.
ARTICLE VI
Covenants of Focus
Section 6.1. Registration Rights. Focus shall cause the Registration Rights
Agreement to remain in full force and effect and Focus shall comply in all
material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, Focus has
reserved and Focus shall continue to reserve and keep available at all times,
free of preemptive rights, shares of Common Stock for the purpose of enabling
Focus to issue the Shares.
Section 6.3. Listing of Common Stock. Focus 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 to
list the Shares on the Principal Market. Focus further agrees, if Focus applies
to have the Common Stock traded on any other Principal Market, it will include
in such application the Shares, and will take such other action as is necessary
or desirable in the opinion of Creditor to cause the Shares to be listed on such
other Principal Market as promptly as possible. Focus will comply in all
respects with Focus's reporting, filing and other obligations under the bylaws
or rules of the Principal Market and shall provide Creditor with copies of any
correspondence to or from such Principal Market which questions or threatens
delisting of the Common Stock,
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within three (3) Trading Days of Focus's receipt thereof, until Creditor has
disposed of all of his Registrable Securities.
Section 6.4. Exchange Act Registration. Focus 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 Creditor has
disposed of all of his 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. Focus will take all
steps necessary to preserve and continue the corporate existence of Focus. Focus
shall not enter into any agreement, the terms of which agreement would restrict
or impair the right or ability of Focus to perform any of its obligations under
this Agreement or any of the other agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. Focus shall not, at any time after the date
hereof, effect any merger or consolidation of Focus with or into, or a transfer
of all or substantially all of the assets of Focus to, another entity (a
"Consolidation Event") unless the resulting successor or acquiring entity (if
not Focus) assumes by written instrument or by operation of law the obligation
to deliver to Creditor such shares of stock and/or securities as Creditor is
entitled to receive pursuant to this Agreement.
Section 6.8. Additional Shares. Except as provided by this paragraph 6.8, the
Creditor shall not receive any additional Shares of Common Stock beyond those
contemplated by Section 2.1(a)(i) herein above. The foregoing notwithstanding,
if, the Average Market Price is less than three dollars and twenty-three cents
($3.23) per share then Creditor shall receive and Focus shall issue thereto
within five business days of the determination of the Average Market Price, a
certificate bearing a restrictive legend for additional Shares of Common Stock
("Additional Shares") up to a maximum of an additional 100,000 shares where the
amount of such additional shares is calculated as follows (rounded to the lowest
whole number):
Additional Shares = [Balance - [Average Market Price]*[Shares]] /
Average Market Price
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made by
each of Focus and Creditor 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 consummation
of the transactions contemplated hereby for a period of six (6) months.
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ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, Focus shall make
available for inspection and review by Creditor, advisors to and representatives
of Creditor (who may or may not be affiliated with Creditor and who are
reasonably acceptable to Focus), and any underwriter participating in any
disposition of the Registrable Securities on behalf of Creditor pursuant to the
Registration Statement, any amendment or supplement thereto or any Nasdaq or
other filing, all SEC Documents and other filings with the SEC, and all other
publicly available corporate documents and properties of Focus as may be
reasonably necessary for the purpose of such review, and cause Focus's officers,
directors and employees to supply all such publicly available information
reasonably requested by Creditor 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
Creditor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to Focus and the accuracy of the Registration Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) Focus shall not disclose material non-public information to
Creditor, advisors to or representatives of Creditor unless prior to disclosure
of such information Focus identifies such information as being non-public
information and provides Creditor, 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, Focus may, as a condition to
disclosing any non-public information hereunder, require Creditor's advisors and
representatives to enter into a confidentiality agreement in form and content
reasonably satisfactory to Focus and Creditor.
(b) Nothing herein shall require Focus to disclose material non-public
information to Creditor or their advisors or representatives, and Focus
represents that it does not disseminate material non-public information to any
Creditor who purchase stock in Focus in a public offering, to money managers or
to securities analysts, provided, however, that notwithstanding anything herein
to the contrary, Focus will, as hereinabove provided, promptly notify the
advisors and representatives of Creditor 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 Focus 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
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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 Creditor
(without the written consent of Focus 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 Focus
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. 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 Focus's transfer agent with respect thereto other
than as expressly set forth in this Article IX.
Section 9.3. Creditor's Compliance. Nothing in this Article shall affect in any
way Creditor's obligations to comply with all applicable securities laws upon
resale of the Common Stock.
<PAGE>
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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 Focus'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 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 Creditor
or Focus 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 purchased or acquired by Creditor hereunder with respect to the Shares
held by such person, and (b) upon the prior written consent of Focus, which
consent shall not unreasonably be withheld or delayed, Creditor'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 a Creditor) who
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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:
If to Focus: 600 Research Drive
Wilmington, MA 01887
Attention: Chris Ricci
Telephone: (978) 988-5888
Facsimile: (978) 661-0160
if to the Creditor: As set forth on the signature pages hereto
Asia ITN LTD.
No. 508, 16F-2 Chung Hsiao E. Rd.
Section 5, Taipei, Taiwan, ROC
Telephone: 886-2-2759-3515
FAX: 886-2-2759-3513
With a copy to: Steven L. Cantor, Esq.
Steven L. Cantor, P.A.
777 Brickell Avenue Suite 500
Miami, FL 33131
Tel: (305) 374-3886
Fax: (305) 371-4564
Either party hereto may from time to time change its address or facsimile number
for notices under
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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 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 Creditor parties to
this Agreement, which Creditor may be natural persons or entities. All
references to plural Creditor shall apply equally to a single Creditor if there
is only one Creditor, and all references to a Creditor 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 Creditor 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
Creditor and Focus shall be required to employ any other reporting entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to Focus of the loss, theft, destruction or mutilation
of a certificate representing the Shares and (ii) in the case of any such loss,
theft or destruction of such certificate, upon delivery of an indemnity
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agreement or security reasonably satisfactory in form to Focus (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, Focus at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of Focus and the Creditor agrees to pay
its own expenses incident to all negotiations related to this agreement
(including, but not limited to, legal fees) and the performance of its
obligations hereunder.
The Creditor and Focus each acknowledges that by the signing hereof the
Creditor and Focus each admit to reading and understanding each and every line
and the contents and effect of this General Release, that the Creditor and Focus
are each represented by an attorney who has reviewed this General Release and
given Creditor legal advice pertaining to this General Release prior to the
Creditor or Focus signing this General Release, and that the signing hereof is
the free act and deed of the Creditor and Focus or its duly authorized
representative.
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. ASIA ITN LTD.
By: /s/ Christopher P. Ricci By: /s/ Eiran Ben Dashan
Christopher P. Ricci, Eiran Ben Dashan,
Sr. Vice President & General Counsel President
<PAGE>
AMENDMENT
This Amendment (this "Amendment") is entered into as of February 4,
2000, modifies certain terms and conditions of the below-described General
Release Agreement (the "Original Agreement") between Focus Enhancements, Inc.
("Focus") and Asia ITN LTD. ("Creditor") and shall be deemed for all purposes to
be effective as of the effective date of the Original Agreement. Unless
specifically noted herein, all other terms of the Original Agreement shall
remain in full force and effect, including any terms that survive termination of
the Original Agreement.
WHEREAS, Focus and Creditor have heretofore entered into the Original
Agreement, more particularly described as the General Release Agreement,
effective as of November 19, 1999;
WHEREAS, Focus and Creditor desire, upon terms and subject to the
conditions hereinafter set forth, to amend the Original Agreement in certain
respects for the purpose of clarifying the understanding of the parties;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
Section 1.1 Defined Terms
Except as otherwise specified herein, the terms used in this Amendment
and defined in the Original Agreement as amended hereby (as so amended, the
"Amended Agreement") shall have the meanings provided in the Original Agreement.
Section 1.2 Amendment
Effective upon the execution of this Amendment, the provisions of the
Original Agreement referred to below are hereby amended as follows:
1. The third paragraph of the Preamble of the Original Agreement is
restated in its entirety to read as follows:
"WHEREAS, Company and Creditor agree, upon execution hereof, that
Focus shall be discharged of all Claims (as defined later herein)
relating to the foregoing;"
2. Section 1.4 of the Original Agreement is restated in its entirety to
read as follows:
"`Registration 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."
3. Section 1.7 of the Original Agreement is restated in its entirety to
read as follows:
"`Average Market Price' shall mean the average of the closing price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal
Market for the five trading days preceding the Registration Date."
4. The introductory clause of Section 2.1(a) is restated in its entirety
to read as follows:
"Each party hereby agrees as follows:"
5. The final sentence of Section 2.1(a)(ii) of the Original Agreement
shall be deleted.
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<PAGE>
6. Section 2.1(b) of the Original Agreement is restated in its entirety
to read as follows:
"This Agreement provides Creditor a fully-vested and enforceable right
to receive original fully-executed Common Stock certificates."
7. Section 2.1(c) shall be added to the Original Agreement and is stated
to read as follows:
"Creditor shall deliver of all excess materials purchased by Creditor
for the manufacture of Focus products and held by the Creditor to any
destination designated by Focus within Taiwan."
Section 1.3 General Provisions
Except as expressly modified herein, all of the terms and conditions of
the Original Agreement will remain in full force and effect. In the event of any
conflict between the provisions of the Original Agreement and the provisions of
this Amendment, the provisions of this Amendment shall control. This Amendment
may be executed in several counterparts all of which taken together shall
constitute one single agreement between the parties.
IN WITNESS WHEREOF, the parties have caused the signatures of their
duly authorized officers to be hereunto affixed.
Focus Enhancements, Inc. Asia ITN LTD.
By: /s/ Thomas L. Massie By: /s/ Eiran Ben Dashan
(Signature-Authorized Officer) (Signature-Authorized Officer)
Name: Thomas L. Massie Name: Eiran Ben Dashan
Title: President & CEO Title: President
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<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 19,
1999 between Asia ITN LTD. ("Creditor"), and FOCUS Enhancements, Inc., a
Delaware corporation (the "Focus").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, Creditor is receiving from Focus, pursuant to a General Release
Agreement dated the date hereof (the "Release Agreement"), 100,000 shares of
Common Stock (terms not defined herein shall have the meanings ascribed to them
in the Release Agreement); and
WHEREAS, Focus desires to grant to Creditor the registration
rights set forth herein with respect to the Shares transferred pursuant to the
Release Agreement (hereinafter referred to as the "Stock" or "Securities" of
Focus).
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 Focus 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 Focus, 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. Creditor 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. Creditor understands that no disposition or transfer of the
Securities may be made by Creditor in the absence of (i) an opinion of counsel
to Creditor, in form and substance reasonably satisfactory to Focus, that such
transfer may be made without registration under the Securities Act or (ii) such
registration.
With a view to making available to Creditor the benefits of
Rule 144 under the Securities Act or any other similar rule or regulation of the
Commission that
may at
<PAGE>
any time permit Creditor to sell securities of Focus to the public without
registration ("Rule 144"), Focus 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 Focus is then subject to such reporting
requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) Focus agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), within ten (10) days after
the date of the Release Agreement a registration statement (on Form S-3, or
other appropriate registration statement form) under the Securities Act (the
"Registration Statement"), at the sole expense and discretion of Focus (except
as provided in Section 3(c) hereof), in respect of Creditor, so as to permit a
public offering and resale of all of the Securities under the Act by Creditor as
a selling stockholder and not as an underwriter. Focus further agrees to notify
Creditor in writing promptly once such filing is made.
Focus shall its best efforts to cause such Registration
Statement to become effective within sixty (60) days from the date of the
Release Agreement (or, if the Registration Statement receives a "full review"
from the Commission, 150 days from the date of the Release Agreement) or, if
earlier, within five (5) days of SEC clearance to request acceleration of
effectiveness. Focus will notify Creditor 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 Focus shall be obligated
to file, within thirty (30) days of notice from Creditor, a further Registration
Statement registering such remaining shares and shall use all commercially
reasonable efforts to prosecute such additional Registration Statement to
effectiveness within sixty (60) days (or, if the Registration Statement receives
a "full review" from the Commission, 150 days) of the date of such notice.
(b) Focus 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 Creditor receive an opinion of counsel to
Focus, which counsel shall be reasonably acceptable to Creditor, 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 Focus 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
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<PAGE>
Act in the opinion of counsel to Focus, which counsel shall be reasonably
acceptable to Creditor (the "Effectiveness Period").
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by Focus 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 Focus) shall be borne by Focus. Creditor 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 his counsel. Focus at
its expense will supply Creditor 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 Creditor.
(d) Focus shall not be required by this Section 3 to include
any of Creditor's Securities in any Registration Statement which is to be filed
if, in the opinion of counsel for both Creditor and Focus (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for Creditor and Focus) 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) No provision contained herein shall preclude Focus from
selling securities pursuant to any Registration Statement in which it is
required to include Securities pursuant to this Section 3.
(f) If at any time or from time to time after the effective
date of any Registration Statement, Focus notifies Creditor in writing of the
existence of a Potential Material Event (as defined in Section 3(h) below),
Creditor 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 Creditor receive written
notice from Focus that such Potential Material Event either has been disclosed
to the public or no longer constitutes a Potential Material Event; provided,
however, that Focus 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 Focus'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. Focus
must, if lawful, give Creditor notice in writing at least two (2) Trading Days
prior to the first day of the blackout period.
(g) "Potential Material Event" means any of the following: (a)
the possession by Focus 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 Focus that disclosure of such information
in a Registration Statement would be detrimental to the business and affairs of
Focus; or (b) any material engagement or activity by Focus which would, in the
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<PAGE>
good faith determination of the Chief Executive Officer or the Board of
Directors of Focus, 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 Focus
that the applicable Registration Statement would be materially misleading absent
the inclusion of such information.
(h) With respect to the Additional Shares, if at any time
Focus shall determine to register in a public offering for its own account (and
not the account of Creditor) under the Securities Act any of its Common Stock,
it shall send to the Creditor written notice of such determination and, if
within 15 days after receipt of such notice, the Creditor shall so request in
writing, Focus shall use its best efforts to include in such registration
statement all or any part of the Additional Shares such holder requests to be
registered. This right shall not apply to a registration of shares of Common
Stock on S-4 or Form S-8 (or their then equivalents) relating to shares of
Common Stock to be issued by Focus 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.
If, in connection with any offering involving an underwriting
of Common Stock to be issued by Focus for the account of Focus, 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 Focus,
then Focus shall be obligated to include in such registration statement only
such limited portion (which may be none) of the Additional Shares with respect
to which the Creditor and all other selling stockholders have requested
inclusion thereunder.
Section 4. Cooperation with Focus. Creditor will cooperate
with Focus in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by Focus (which shall include all
information regarding Creditor 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 his 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 Creditor to consent to be named as an underwriter in
any Registration Statement. The obligation of Focus 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 Creditor as an underwriter. Any delay or delays caused
by Creditor by failure to cooperate as required hereunder shall not constitute a
Registration Default.
Section 5. Registration Procedures. If and whenever Focus is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, Focus shall (except as
otherwise provided in this Agreement), as expeditiously as possible, subject to
Creditor's assistance and cooperation as reasonably required with respect to
each Registration Statement:
4
<PAGE>
(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 Creditor 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 Creditor as required by Section 3(c) and reflect in such
documents all such comments as Creditor (and his counsel) reasonably may propose
respecting the Selling Shareholders and Plan of Distribution sections (or
equivalents) and (ii) furnish to Creditor 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 Creditor may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by
Creditor;
(c) register and qualify the Registrable Securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as Creditor 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 Creditor to consummate the public sale
or other disposition in such jurisdiction of the securities owned by Creditor;
(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 Creditor 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 Focus shall
prepare and file a curative amendment under Section 5(a) as quickly as
commercially possible;
5
<PAGE>
(f) as promptly as practicable after becoming aware of such
event, notify Creditor 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 Creditor 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 Creditor reasonably may request and registered in such names as
Creditor 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 Focus to deliver to the
transfer agent for the Registrable Securities (with copies to Creditor) 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 Creditor of his 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 Focus 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, Focus agrees to
indemnify and hold harmless Creditor and each person, if any, who controls
Creditor within the meaning of the Securities Act (each a "Distributing
Releasor") 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 Releasor 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 Focus 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
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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 Focus by the Distributing
Releasor, its counsel, affiliates or any underwriter, specifically for use in
the preparation thereof. This indemnity agreement will be in addition to any
liability which Focus may otherwise have.
(b) To the maximum extent permitted by law, each Distributing
Releasor agrees that it will indemnify and hold harmless Focus, and each officer
and director of Focus or person, if any, who controls Focus 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 Focus 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 Focus by such
Distributing Releasor, 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 Releasor 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
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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 Focus and the applicable Distributing Releasor 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 Focus on the one hand or the applicable Distributing
Releasor on the other hand, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
Focus and the Distributing Releasor 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 Section 6 or this Section 7, in no event
shall any (i) Distributing Releasor 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 Distributing Releasor
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from the sale of such Distributing Releasor'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 Release
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 Creditor under this
Agreement may be assigned to any purchaser of substantially all of the
Registrable Securities (or the rights thereto) from Creditor, as otherwise
permitted by the Release Agreement.
Section 10. Additional Covenants of Focus. Focus 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.
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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. Focus 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 Focus 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.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
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FOCUS ENHANCEMENTS, INC. ASIA ITN LTD.
By:
Christopher P. Ricci, Eiran Ben Dashan,
Sr. Vice President & General Counsel President
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