Document:

Exhibit 10.3

 

SECOND AMENDMENT TO LOAN AND SECURITY
AGREEMENT

 

This
Second Amendment to Loan and Security Agreement (this “Amendment”) is entered
into as of June 24, 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 new defined terms are added to Section 1.1 in their proper alphabetical
order:

 

“Committed Bridge
Line” means a credit extension of up to Two Million Five Hundred Thousand
Dollars ($2,500,000).

 

“Bridge Advance”
or “Bridge Advances” means a loan advance under the Committed Bridge Line.

 

“Bridge Maturity
Date” means December 24, 2006.

 

(b)           A new Section 2.1.2
is added to the Agreement, which shall read as follows:

 

2.1.2        Bridge
Advances.

 

(a)           Subject
to and upon the terms and conditions of this Agreement, Bank agrees to make
Bridge Advances to Borrower in an aggregate outstanding amount not to exceed
the Committed Bridge Line.  Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1.2
may be repaid and reborrowed at any time prior to the Bridge Maturity Date.

 

(b)           Whenever
Borrower desires a Bridge Advance, Borrower will notify Bank by facsimile
transmission or telephone no later than 3:00 p.m. Pacific time, on the
Business Day that the Bridge Advance is to be made.  Each such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B
hereto.  Bank is authorized to make
Bridge Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank’s discretion such Bridge Advances are necessary to meet
Obligations which have become due and remain unpaid.  Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be a
Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance.  Bank will credit the amount of
Bridge Advances made under this Section 2.1.2 to Borrower’s deposit
account.  Borrower shall deliver to Bank
a promissory note in substantially the form of Exhibit C-2.

 

(c)           The
Committed Bridge Line shall terminate on the Bridge Maturity Date, at which
time all Bridge Advances under this Section 2.1.2 shall be immediately due
and payable.

 

 

(c)           Section 2.3(a) is
amended by adding the following at the end thereof:

 

Except as set
forth in Section 2.3(b), any Bridge Advances shall bear interest on the
average daily balance thereof at a per annum rate equal to the Prime Rate plus
one percent (1.0%).

 

(d)           Exhibit C-2
shall be in the form of Exhibit C-2 attached hereto.

 

2.             Limited
Waiver.  Bank hereby waives Borrower’s
obligation to comply with Section 6.8 of the Agreement for the fiscal
quarters ending June 30, 2005 and September 30, 2005.  Such waiver does not constitute a waiver (i) of
compliance with that section as of any other dates, (ii) of any other
failure by Borrower to comply with the Agreement or any other Events of
Default, now existing or hereafter arising, or (iii) Bank’s right to
require compliance at all times with the terms and conditions of the
Agreement.  Bank reserves all rights
under the Agreement and under applicable law. 
All other terms and conditions of the Agreement of or relating to the
Committed Revolving Line remain in full force and effect.

 

3.             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 Amendment;

 

(iii)          a
promissory note evidencing the amounts owing under Section 2.1.2 of the
Agreement;

 

(iv)          a credit
application from Carl Berg;

 

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

 

(b)           Bank shall
have received a loan facility fee in the amount of Twelve Thousand Five Hundred
Dollars ($12,500), plus an amount equal to 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.

 

4.             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.

 

5.             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/ Gary
  Williams

  	
   

  
	
   

  	
   

  
	
   

  	
  Title

  	
  VP of
  Finance & CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VENTURE BANKING
  GROUP, A DIVISION OF

  GREATER BAY BANK N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Todd Racine

  	
   

  
	
   

  	
   

  
	
   

  	
  Title

  	
  Vice PresidentExhibit 10.4

 

FOCUS ENHANCEMENTS, INC.

 

June 27, 2005

 

Mr. Carl Berg

10050 Bandley Drive

Cupertino, CA 95014

 

Dear Mr. Berg:

 

This refers to the following agreements between us:

 

A.            Security Agreement
between us dated October 26, 2000, wherein we granted you a security
interest in the items of Collateral described therein, as amended by First
Amendment to Security Agreement between us dated as of February 28, 2001
(collectively, the “Security Agreement”);

 

B.            Collateral Assignment,
Patent Mortgage and Security Agreement dated as of October 26, 2000 (the “Assignment”).

 

This also refers to the credit accommodations granted to us by Venture
Banking Group, a Division of Greater Bay Bank, N.A. (“Bank”) pursuant to that
certain Loan and Security Agreement between us and the Bank dated as of November 15,
2004 and the First Amendment thereto dated as of March 15, 2005
(collectively, the “Loan Agreement”).  To
induce Bank to extend such credit accommodations, you executed and delivered to
Bank an Unconditional Guaranty (the “Guaranty”) dated as of November 15,
2004 and an Intercreditor Agreement (the “Intercreditor Agreement”) dated as of
November 15, 2004.  You affirmed the
Guaranty on March 15, 2005 in connection with the making of such First
Amendment.

 

Concurrently, we are executing and delivering to Bank the Second
Amendment to Loan and Security Agreement providing for an additional “Committed
Bridge Line” to be made available to us in the amount of $2,500,000.  In connection therewith, and as a condition
thereto, you are requested to sign a further affirmation of the Guaranty and
the Intercreditor Agreement.

 

To induce you to affirm your Guaranty, and to maintain same in full
force and effect, and to affirm the Intercreditor Agreement, we hereby confirm
to you, as follows:

 

1.             We granted and do
hereby grant to you a security interest in (a) all present and future
items of property described as “Collateral” in the Security Agreement, (b) all
present and future goods, chattel paper, instruments, documents, letter of credit
rights, investment property and general intangibles and (c) all proceeds
of the foregoing.  The items of property
described in the foregoing clauses “(a),” “(b)” and “(c)” are referred to
herein as the “Collateral Security.”

 

2.             The Collateral Security
shall secure any and all obligations and indebtedness  owing by us to you, now in existence or
hereafter arising, direct or contingent, due or to become due (collectively,
the “Obligations”), including, but not limited to, Obligations arising by
reason of the Guaranty and amounts that we owe to you as a consequence of your
paying to Bank pursuant to the terms of the Guaranty.  At such time as you pay any sums to Bank
pursuant to the Guaranty, the amount thereof will constitute a direct
Obligation of us to you payable on demand.

 

3.             We hereby ratify and
confirm that all the terms of the Security Agreement and the Assignment (as
same may have been modified by the terms of this letter agreement) will apply
with respect to the Obligations.

 

4.             We agree to cooperate
with you in all reasonable respects to maintain the priority of the security
interests heretofore and hereby granted to you, consistent in all respects with
the terms and conditions of the Intercreditor Agreement.

 

 

Please sign the enclosed copy of this letter, which shall then
constitute an agreement between us.

 

	
   

  	
  Sincerely yours,

  
	
   

  	
   

  
	
   

  	
  FOCUS ENHANCEMENTS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary Williams

  	
   

  
	
   

  	
  Name:

  	
  Gary Williams

  	
   

  
	
   

  	
  Title:

  	
  VP of Finance & CFO

  	
   

  
	
   

  	
   

  
	
  AGREED:

  	
   

  
	
   

  	
   

  
	
  /s/

  	
  Carl Berg

  	
   

  	
   

  
	
   

  	
  Carl Berg

  	
   

  
	
  Date:

  	
  June 28, 2005

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