Document:

Exhibit 10.3

 

AMENDMENT NO. 1 TO INTERCREDITOR AGREEMENT

 

This Amendment No.
1 to Intercreditor Agreement (this “Amendment”), is entered into as of
January 24, 2006, by and among Carl E. Berg (“Creditor”),
Venture Banking Group, a division of Greater Bay Bank N.A. (“Bank”), the
purchasers of Senior Secured Convertible Notes Due January 1, 2011 issued by
Focus Enhancements, Inc. who are identified on Exhibit A attached hereto (the “Purchasers”)
and Ingalls & Snyder LLC, a New York limited liability company, as agent
for the Purchasers (“Purchasers’ Agent”).  Capitalized terms used in this Amendment
without definition have the meanings ascribed to them in the Intercreditor
Agreement dated as of November 15, 2004, between Creditor and Bank (the “Agreement”).

 

WHEREAS, the
Purchasers intend to lend funds to Focus Enhancements, Inc. (“Borrower”)
pursuant to a Senior Secured Convertible Note Purchase Agreement;

 

WHEREAS, Bank has
previously loaned funds to Borrower, which loan is secured by the Bank
Collateral and is guarantied by Creditor; and

 

WHEREAS, Bank and
Creditor wish to amend the Agreement to add the Purchasers and Purchasers’
Agent as parties to the Agreement.

 

The parties hereto agree as follows:

 

1.                                       The
Agreement is hereby amended to add the Purchasers as parties to the Agreement
and, for all purposes of the Agreement, to provide that the capitalized term
“Creditor” shall include the Purchasers such that the Purchasers have the same
rights and obligations of Creditor under the Agreement, so long as the total
indebtedness of Borrower to Bank does not exceed $6,500,000 in principal amount
plus accrued interest, and fees and expenses collectible under the applicable
loan documents (the “Maximum Priority Debt Amount”).  Bank and Creditor agree that the Purchasers
will not be bound by the Agreement to the extent the Borrower’s total debt to
Bank exceeds the Maximum Priority Debt Amount. 
Purchasers, Creditor and Bank agree that Purchasers’ Agent shall be the
representative and agent of the Purchasers for all purposes under this
Amendment and the Agreement, which Purchasers’ Agent acknowledges by his
signature below.

 

2.                                       Except
to the extent amended hereby, all of the definitions, terms, provisions and
conditions set forth in the Agreement are hereby ratified and confirmed and
shall remain in full force and effect. 
The Agreement and this Amendment shall be read and construed together as
a single agreement.  This Amendment may
be signed in any number of counterparts, each of which shall be deemed to be an
original and all of which together shall constitute one and the same
instrument.

 

3.                                       Creditor
agrees that the Unconditional Guaranty dated as of November 15, 2004 executed
by Creditor for the benefit of Bank with respect to the obligations of Borrower
to Bank shall remain in full force and effect.

 

 

IN WITNESS WHEREOF, the parties to this Amendment have
caused this Amendment to be executed and delivered as of the date first written
above.

 

 

	
   

  	
  CREDITOR

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Carl Berg

  	
   

  
	
   

  	
  CARL
  E. BERG

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VENTURE
  BANKING GROUP, A DIVISION

  OF GREATER BAY BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tod Racine

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Tod Racine

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Senior Vice
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PURCHASERS’
  AGENT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Ingalls
  & Snyder LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas
  Boucher Jr.

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Thomas Boucher
  Jr.

  	
   

  
	
   

  	
   

  
	
   

  	
  Title (if
  applicable):

  	
  Manager

  	
   

  
	
   

  	
   

  
												

 

SIGNATURE PAGE TO AMENDMENT NO. 1
TO INTERCREDITOR AGREEMENT

 

 

IN WITNESS WHEREOF, the parties to this Amendment have caused this
Amendment to be executed and delivered as of the date first written above.

 

 

	
   

  	
  THE PURCHASERS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
							

 

 

EXHIBIT A

 

SCHEDULE OF PURCHASESExhibit 10.4

 

INTERCREDITOR AGREEMENT

 

This INTERCREDITOR AGREEMENT, dated as of January 24,
2006, is made by and between Carl E. Berg (“Berg”), on one hand, and the
purchasers of Senior Secured Convertible Notes due January 1, 2011 issued
by Focus Enhancements, Inc., a Delaware corporation (the “Company”) who
are identified on Exhibit A attached hereto, (the “Purchasers”) and
Ingalls & Snyder LLC, a New York limited liability company, as agent
for the Purchasers (“Purchasers’ Agent”), on the other hand.

 

RECITALS

 

A.                                   Collectively,
the Purchasers have purchased $10,000,000 of Senior Secured Convertible Notes
Due January 1, 2011 (the “Notes”) from the Company pursuant to a Senior
Secured Convertible Note Purchase Agreement dated as of the same date as this
Agreement, which Notes are secured by all of the assets of the Company pursuant
to a Security Agreement dated as of the same date as this Agreement (the “Purchasers’
Security Interest”).

 

B.                                     Berg
has previously guarantied a Loan and Security Agreement, dated as of November 15,
2004, as amended subsequently through December 1, 2005 (“Bank Loan
Agreement”) between Venture Banking Group, a division of Greater Bay Bank N.A.
(“Bank”) and the Company pursuant to an Unconditional Guaranty dated as of November 15,
2004, which guaranty is secured by all of the assets of the Company under a
Security Agreement between Berg and the Company dated as of October 26,
2000, as amended subsequently through December 1, 2005 (the “Berg Security
Interest”).

 

C.                                     The
Bank and Berg are parties to an Intercreditor Agreement (the “Bank
Intercreditor Agreement”) dated as of November 15, 2004, which has been
amended to all the Purchasers as additional parties.

 

D.                                    This
Agreement provides for certain matters of repayment and sharing of Collateral
between Berg and the Purchasers.

 

NOW THEREFORE, the parties agree as follows:

 

1.               Bank
Collateral.  As used in this
Agreement, “Bank Collateral” means all of the Company’s present and future “Accounts”
(such term as most broadly defined in the Bank Loan Agreement and the
California Uniform Commercial Code in effect on the date hereof), and all
proceeds of these Accounts.

 

2.               Collateral.  As used in this Agreement, “Collateral” means
all of the property of the Company now owned and hereafter acquired.

 

3.               Pro
Rata Security Interest and Subordination.

 

(a)          To the extent that the
total amount of debt secured by the Berg Security Interest does not exceed
$6,500,000 plus all accrued and unpaid interest and fees and expenses

 

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collectible under the applicable loan documents (the “Maximum
Priority Debt Amount”), the Purchasers agree that all security interests in
Bank Collateral and Creditor Collateral shall be shared pro rata by Berg and
the Purchasers based on the outstanding payment obligations of the Company to
Berg, if any under the Unconditional Guaranty and the Purchasers under the
Notes, subject to the first priority security interest of Bank in Bank
Collateral pursuant to the Bank Intercreditor Agreement to the extent, and only
to the extent, debt remains owed to the Bank by the Company under the Bank Loan
Agreement.  Berg agrees that the
Purchasers shall have priority over Berg with respect to all Collateral to the
extent the total debt to Berg and Bank exceeds the Maximum Priority Debt Amount
and that the Purchasers shall be entitled to the value or proceeds of all such
Collateral to the extent of such excess amount of debt.  In the event any Collateral is being sold or
otherwise disposed of by Berg pursuant to rights under the Berg Security
Interest or by or for the Purchasers pursuant to the Purchasers’ Security
Interest in connection with the liquidation of Company assets after an event of
default, the party selling or otherwise disposing of such Collateral shall
apply the proceeds thereof pro rata in respect of its share of the total debt
then owed by the Company to Berg and the Purchasers, may deduct the other party’s
pro rata share of the collectible enforcement fees and expenses and shall pay
over the remaining share to the other party (so long as the debt to Berg does
not exceed the Maximum Priority Debt Amount). 
Thus, by way of example, but not of limitation, if the total debt owed
by the Company to Berg is $6,500,000 and the total debt owed by the Company to
the Purchasers is $10,000,000, upon a sale of Collateral by Berg that realizes
gross proceeds of $2,000,000, Berg can retain $787,879 plus 60.61% of the
expenses of sale, and must pay over to the Purchasers or to the Purchasers’
Agent for their respective accounts, all remaining proceeds.

 

(b)         The priorities specified
in this Agreement shall be applicable irrespective of the time or order of
attachment or perfection of any security interest or the time or order of
filing of any financing statements or other documents, or the giving of any
notices of purchase money security interests or other notices, or possession of
any Collateral, or any statutes, rules or law, or court decisions to the
contrary.

 

(c)          The subordinations and
priorities specified in this Agreement are expressly conditioned upon the
nonavoidability and perfection of the security interest to which another
security interest is subordinated, and if the security interest to which
another security interest is subordinated is not perfected or is avoidable, for
any reason, then the subordinations and relative priority provided for in this
Agreement shall not be effective as to the particular Collateral which is the
subject of the unperfected or avoidable security interest.

 

(d)         Berg agrees that if there
is an event of default by the Company under the Bank Loan Agreement (as such an
event is defined thereunder) which is not cured, or otherwise resolved as
evidenced by the Bank’s withdrawal of the notice of default, within 30 days after
notice of the default is given to the Company, he will pay all amounts then
owed to Bank by the Company that are subject to his Unconditional Guaranty and
will acquire the Bank Security Interest, which he will hold subject to and in
accordance with the terms of this Agreement.

 

4.               Termination
Statements.  In the event any
Collateral is being sold or otherwise disposed of in connection with the
liquidation of assets upon or after an event of default under any present or
future instrument or agreement between the Company and Berg, or by the
Purchasers’ Agent pursuant to any present or future instrument or agreement
between the

 

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Company and the Purchasers, each such party to this
Agreement shall promptly deliver to the other a notice thereof, and each party
agrees to promptly execute and deliver to the other, upon its request, all
appropriate UCC termination statements or partial releases with respect to any
such Collateral.

 

5.               Purchasers’
and Berg’s Rights.  The Purchasers
and Berg each agree that the other may at any time, and from time to time,
without the consent of the other party and without notice to the other party,
renew or extend any of the indebtedness, liabilities or obligations owing to it
from the Company (the “Secured Obligations”) or that of any other person at any
time directly or indirectly liable for the payment of any Secured Obligations,
accept partial payments of the Secured Obligations, settle, release (by
operation of law or otherwise), compound, compromise, collect or liquidate any
of the Secured Obligations, make loans or advances to the Company secured in
whole or in part by Collateral or refrain from making any loans or advances to
the Company, change, alter or vary the interest charge on, or any other terms
or provisions of the Secured Obligations or any present or future instrument,
document or agreement with the Company, and take any other action or omit to
take any other action with respect to its Secured Obligations or its Collateral
as it deems necessary or advisable in its sole discretion.  The Purchasers and Berg each waive any right
to require the other to marshal any Collateral or other assets in favor of it
or against or in payment of any or all of its Secured Obligations.

 

6.               No
Commitment by Berg or the Purchasers. 
It is understood and agreed that this Agreement shall in no way be
construed as a commitment or agreement by the Purchasers or Berg to continue
financing arrangements with the Company, and that the Purchasers and Berg,
subject to the terms of such financing arrangements, may terminate such
arrangements at any time.

 

7.               Insurance.  The Purchasers and Berg each having a pro
rata security interest or lien in the Collateral shall, subject to such
Purchaser’s or Berg’s rights under its agreements with the Company and to the
Bank Intercreditor Agreement, have the right to any settlement of any insurance
policy in the event of any loss pro rata by Berg and the Purchasers based on
the then outstanding payment obligations of the Company to Berg and the
Purchasers pursuant to the Notes.

 

8.               Bankruptcy
Financing.  In the event of any
financing of the Company by the Purchasers or Berg during any Bankruptcy,
arrangement, or reorganization of the Company, each of Berg and the Purchasers
agrees that the other’s “Secured Obligations” shall include without limitation
all indebtedness, liabilities and obligations incurred by the Company in any
such proceeding, and the other’s “Collateral” shall include without limitation
all Collateral arising during any such proceeding, and this Agreement shall
continue to apply during any such proceeding.

 

9.               Notices
of Default; Consultation.  Berg and
the Purchasers agree to use their best efforts to give to the other copies of
any written notice of the occurrence or existence of an event of default sent
to the Company, simultaneously with the sending of such notice to the Company,
and to consult with each other for a reasonable period, not to exceed 60 days,
as to enforcement of their respective remedies against the Company and its
property, but the failure to do so shall not affect the validity of such notice
or create a cause of action against or liability on the part of

 

E-3

 

the party failing to give such notice, nor shall it
create any claim or right on behalf of the other party, the Company or any
third party.  The sending of such notice
shall not give the recipient the obligation to cure such default or event of
default.

 

10.         No
Contest.  Neither Berg nor the
Purchasers shall contest the validity, perfection, priority or enforceability
of any lien or security interest granted to the other, and each agrees to
cooperate in the defense of any action contesting the validity, perfection,
priority or enforceability of such liens or security interest at the cost of
the party defending such action.

 

11.         Financial
Condition of Company.  Berg and the
Purchasers are each presently informed of the financial condition of the
Company and of all other circumstances which a diligent inquiry would reveal
and which bear upon the risk of non-payment of the Secured Obligations owing to
them.  Berg and the Purchasers each waive
any right to require the other to disclose to it any information which the
other may now or hereafter acquire concerning the Company.

 

12.         Waiver
of Jury Trial.  THE PURCHASERS AND BERG EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO:  (I) THIS
AGREEMENT; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT
BETWEEN THE PURCHASERS AND BERG RELATING TO THE COMPANY; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF THE PURCHASERS OR BERG OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH THE
PURCHASERS OR BERG, RELATING TO THE COMPANY, IN EACH OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

 

13.         General.  Berg and the Purchasers are not in any manner
to be construed to be partners or joint venturers or to have any other legal
relationship other than as expressly set forth in written agreements between
them.  Berg and the Purchasers each agree
to execute all such documents and instruments and take all such actions as the
other shall reasonably request in order to carry out the purposes of this
Agreement, including without limitation appropriate amendments to financing
statements executed by the Company in favor of Berg or the Purchasers in order
to refer to this Agreement (but this Agreement shall remain fully effective
notwithstanding any failure to execute any additional documents, instruments,
or amendments).  Berg and the Purchasers
each represents and warrants to the other that it has not heretofore transferred
or assigned any financing statement naming the Company as debtor and it as
secured party, and that it will not do so without first notifying the other in
writing, and delivering a copy of this Agreement to the proposed transferee or
assignee, and obtaining the acknowledgment of the proposed transferee or
assignee that the transfer or assignment is subject to all of the terms of this
Agreement.  This Agreement is solely for
the benefit of the Purchasers and Berg and their successors and assigns, and
neither the Company nor any other person shall have any right, benefit,
priority or interest under, or because of the existence of, this Agreement,
provided that this Agreement extends certain rights to Bank in concert with the
Bank Intercreditor Agreement.  This
Agreement sets forth in full the terms of agreement between Berg and the
Purchasers with respect to the subject matter hereof, and may not be modified
or amended, nor may any rights hereunder be waived, except in a writing signed
by Berg and the Purchasers.  In the event
of any

 

E-4

 

litigation between the parties based upon or arising
out of this Agreement, the prevailing party shall be entitled to recover all of
its costs and expenses (including without limitation attorneys’ fees) from the
non-prevailing party.  This Agreement
shall be binding upon the parties hereto and their respective successors and
assigns, and shall be construed in accordance with, and governed by, the laws
of California.  This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which shall constitute the same instrument.

 

14.         Purchasers’
Agent.  Berg acknowledges that
Purchasers’ Agent has been authorized by the Purchasers to act for the
Purchasers in all matters under the Security Agreement and he agrees to accept
the acts and writings of the Purchasers’ Agent on their behalf.  Each of the undersigned Purchasers agrees
that all acts and writings of the Purchasers’ Agent consistent with the terms
of this Agreement shall be binding on such Purchaser for all purposes under
this Agreement.

 

IN WITNESS WHEREOF, the undersigned have executed and
delivered this Intercreditor Agreement as of January 24, 2006.  

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Carl Berg

  
	
   

  	
   

  	
  CARL E. BERG

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PURCHASERS’ AGENT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Thomas
  Boucher Jr.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Thomas Boucher
  Jr.

  
					

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PURCHASER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
						

 

SIGNATURE PAGE FOR INTERCREDITOR AGREEMENT

 

E-5

 

COMPANY’S CONSENT AND AGREEMENT

 

The Company consents to the terms of this
Intercreditor Agreement and agrees not to take any actions inconsistent
therewith.  The Company agrees to execute
all such documents and instruments and take all such actions as Berg or the
Purchasers’ Agent on behalf of the several Purchasers shall reasonably request
in order to carry out the purposes of this Agreement, including without
limitation appropriate amendments to financing statements.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FOCUS
  ENHANCEMENTS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Brett Moyer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   President & CEO

  
					

 

E-6

 

EXHIBIT A

 

SCHEDULE OF
PURCHASERS

 

[See Exhibit A to Note Purchase Agreement]

 

E-7

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