EXHIBIT 10.1


 


THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT


 


This
Third Amendment to Loan and Security Agreement (this “Amendment”) is entered
into as of December 1, 2005, by and between Venture Banking Group, a
division of Greater Bay Bank N.A. (“Bank”) and Focus Enhancements, Inc. (“Borrower”).


 


RECITALS


 


Borrower
and Bank are parties to that certain Loan and Security Agreement dated as of November 15,
2004, as amended (the “Agreement”). 
Borrower and Bank desire to amend certain provisions of the Agreement,
all in accordance with the terms of this Amendment.


 


NOW,
THEREFORE, the parties agree as follows:


 


1.                                       Amendments
to Agreement.  The Agreement is
hereby amended as follows:


 


(a)                                  The
following defined terms in Section 1.1 are amended to read as follows:


 


“Equity Event” means the
receipt by Borrower of not less than Three Million Dollars ($3,000,000) in cash
proceeds from the sale or issuance of Borrower’s equity securities or
Subordinated Debt to investors reasonably acceptable to Bank by January 31,
2006.


 


“Revolving Maturity Date”
means December 24, 2006.


 


(b)                                 Section 6.3
is amended by adding the following at the end thereof:


 


Borrower
shall deliver to Bank with the filings of reports on Form 10-K, 10-Q, a
Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit E-1 hereto.


 


Bank
shall have a right from time to time hereafter to audit Borrower’s Accounts at
Borrower’s expense, provided that such audits will be conducted no more often
than every 12 months unless an Event of Default has occurred and is continuing.


 


Guarantor
shall deliver to Bank on an annual basis, an updated personal financial
statement and first page of the federal tax return within five (5) days
of tax return filing.


 


(c)                                  Section 6.8
is deleted and reserved.


 


(d)                                 Section 6.9
is amended to read as follows:


 


6.9                                 Maximum
Net Loss


 


For any fiscal quarter of
Borrower, Borrower shall not incur a net loss of more than one hundred twenty
five percent (125%) of the projected amount of net loss for such period as set
forth in Borrower’s financial projections, delivered to Bank and attached
hereto as Exhibit E.


 


2.                                       Conditions
Precedent to Effectiveness.  This
Amendment shall become effective only upon:


 


(a)                                  receipt
by the Bank of the following (each of which shall be in form and substance
satisfactory to Bank):


 





















 


(i)                                     counterparts
of this Amendment duly executed on behalf of the Borrower and the Bank;


 


(ii)                                  copies
of resolutions of the Board of Directors or other authorizing documents of
Borrower, authorizing the execution and delivery of this Agreement;


 


(iii)                               an
affirmation of guaranty and intercreditor agreement by Carl Berg;


 


(iv)                              warrant
agreement;


 


(b)                                 Bank
shall have received a nonrefundable fee for the Committed Revolving Line in an
amount equal to $10,000, and all Bank Expenses incurred in connection with this
Amendment; and


 


(c)                                  completion
of such other matters and delivery of such other agreements, documents and
certificates as Bank may reasonably request.


 


3.                                       Representation
and Warranties.  Borrower represents
and warrants that the Representations and Warranties contained in the Agreement
are true and correct as of the date of this Amendment, and that no Event of
Default has occurred and is continuing.


 


4.                                       MISCELLANEOUS.


 


(a)                                  Successors
and Assigns.  This Amendment shall be
binding upon and shall inure to the benefit of Borrower and Bank and their
respective successors and assigns; provided, however, that the foregoing shall
not authorize any assignment by Borrower of its rights or duties hereunder.


 


(b)                                 Entire
Agreement.  This Amendment and the
Loan Documents contain the entire agreement of the parties hereto and supersede
any other oral or written agreements or understandings.


 


(c)                                  Course
of Dealing; Waivers.  No course of
dealing on the part of Bank or its officers, nor any failure or delay in the
exercise of any right by Bank, shall operate as a waiver thereof, and any
single or partial exercise of any such right shall not preclude any later
exercise of any such right.  Bank’s
failure at any time to require strict performance by Borrower of any provision
shall not affect any right of Bank thereafter to demand strict compliance and
performance.  Any suspension or waiver of
a right must be in writing signed by an officer of Bank.


 


(d)                                 Legal
Effect.  Except as amended by this
Amendment, the Loan Documents remain in full force and effect.  If any provision of this Amendment conflicts
with applicable law, such provision shall be deemed severed from this
Amendment, and the balance of this Amendment shall remain in full force and
effect.  Unless otherwise defined, all
capitalized terms in this Amendment shall have the meaning set forth in the
Agreement.


 


(e)                                  Counterparts.  This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.


 





















 


IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
date above written.


 


 


	
   

  	
  FOCUS
  ENHANCEMENTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Brett Moyer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
  President & CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  VENTURE BANKING GROUP, A
  DIVISION OF

  GREATER BAY BANK N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Tod Racine

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
  Vice President

  	
   

  
						



 





















 


EXHIBIT E-1

COMPLIANCE CERTIFICATE


 


TO:                            VENTURE
BANKING GROUP, A DIVISION OF GREATER BAY BANK N.A.


 


FROM:         Focus
Enhancements, Inc.


 


The
undersigned authorized officer of Focus Enhancements, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower
is in complete compliance for the period ending                               
with all required covenants except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct in all material respects as of the date hereof.  Attached herewith are the required documents
supporting the above certification.  The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or
footnotes.  The Officer expressly
acknowledges that no borrowings may be requested by Borrower at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that such compliance is determined not just at the date
this certificate is delivered.


 


Please indicate compliance status by circling Yes/No under “Complies”
column.


 


	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10-Q,
  10-K, CC

  	
   

  	
  Within
  5 days after filing with SEC

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  A/R &
  A/P Agings, BBC

  	
   

  	
  Monthly
  within 20 days

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  A/R
  Audit

  	
   

  	
  Annual

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  PFS
  and 1st page federal tax return from Guarantor

  	
   

  	
  Annual
  within 5 days of filing

  	
   

  	
  Yes

  	
   

  	
  No

  



 


	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain at
  all times (unless otherwise noted):

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maximum Net Loss

  	
   

  	
  $

  	
  (1)

  	
  $

  	
   

  	
  Yes

  	
   

  	
  No

  



 










(1) For any fiscal quarter of Borrower,
Borrower shall not incur a net loss of more than one hundred twenty five
percent (125%) of the projected amount of net loss for such period as set forth
in Borrower’s financial projections, delivered to Bank and attached hereto as Exhibit E.


 


 


	
  Comments
  Regarding Exceptions:
  See Attached.

  	
  BANK
  USE ONLY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Received
  by:

  	
   

  	
   

  
	
  Sincerely,

  	
   

  	
  AUTHORIZED
  SIGNER

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
  SIGNATURE

  	
   

  	
  AUTHORIZED
  SIGNER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  TITLE

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance
  Status

  	
  Yes

  	
  No

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DATE