Document:

Exhibit 10.3

 

AMENDMENT
NO. 2 TO INTERCREDITOR AGREEMENT

 

This Amendment No. 2 to Intercreditor Agreement
(this “ Amendment ”), is entered into as of February 7, 2008, by
and among Carl E. Berg (“ Berg ”), Greater Bay Venture Banking, a
division of Greater Bay Bank, N.A., formerly Venture Banking Group, a division
of Greater Bay Bank N.A. (“ Bank ”), the purchasers of the Amended and
Restated Senior Secured Notes Due January 1, 2011 issued by Focus
Enhancements, Inc. who are identified on Exhibit A attached hereto
(the “New Purchasers ”), the previous purchasers who entered into
Amendment No. 1 (defined below) who are identified on Exhibit A
attached hereto (“Original Purchasers”), and Thomas O. Boucher, Jr., as
agent for the New 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, as
amended by that certain Amendment No. 1 to Intercreditor Agreement dated January 24,
2006 (“Amendment No. 1”), between Berg, Bank, and the original purchasers
(the “Original Purchasers”) under that certain Amended and Restated Senior
Secured Convertible Notes Due January 1, 2011 issued by Focus Enhancements, Inc.
(the “ Agreement ”).

 

WHEREAS, the New Purchasers intend to lend funds to
Focus Enhancements, Inc. (“ Borrower ”) pursuant to an Amended and
Restated Senior Secured Note Purchase Agreement;

 

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

 

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

 

The parties hereto agree as follows:

 

1.                     The
Agreement is hereby amended to add the New Purchasers as parties to the
Agreement and, for all purposes of the Agreement, to provide that the
capitalized term “Creditor” shall include the Original Purchasers, and the New
Purchasers such that the New 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 Berg agree that the New Purchasers will
not be bound by the Agreement to the extent the Borrower’s total debt to Bank
exceeds the Maximum Priority Debt Amount.  New Purchasers, Berg and Bank
agree that Purchasers’ Agent shall be the representative and agent of the New
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.                     Berg
agrees that the Unconditional Guaranty dated as of November 15, 2004
executed by Berg 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.

 

1

 

	
   

  	
  BERG:

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Carl E. Berg

  
	
   

  	
  CARL E. BERG

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Brad Smith

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Brad Smith

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PURCHASERS’ AGENT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Thomas O. Boucher, Jr.

  
	
   

  	
   

  	
   Thomas O. Boucher, Jr.

  
					

 

 

SIGNATURE
PAGE TO AMENDMENT NO. 2 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.

 

 

	
   

  	
   

  	
  PURCHASER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
						

 

SIGNATURE
PAGE TO AMENDMENT NO. 2 TO INTERCREDITOR AGREEMENT

 

 

EXHIBIT
A

 

 ORIGINAL PURCHASERS

	
  Name

  
	
  Barbara Shingleton Trust

  
	
  Brad Shingleton Trust

  
	
  CFG Trust#1

  
	
  David Foote

  
	
  Donald L. Foote Trust#1

  
	
  Heritage Mark Foundation, Inc.

  
	
  Ingalls & Snyder
  Value Partners, L.P.

  
	
  Kenneth Foote

  
	
  Rhonda Foote-Judy

  
	
  Ronald Altman

  
	
  Steven Foote

  
	
  Steven Foote IRA

  
	
  Theresa Foote

  

 

  NEW PURCHASERS

	
  Name

  
	
  First National Bancshares Inc.

  
	
  Blythefield Farms

  
	
  Inky Investments

  
	
  Steadfast LLC

  
	
  Shannah Ferguson

  
	
  Ferguson Children’s Trust

  
	
  Blake Ashdown IRA

  
	
  MacBay Partners

  
	
  Horace Boone

  
	
  John BooneExhibit 10.4

 

AMENDED
AND RESTATED INTERCREDITOR AGREEMENT

 

This AMENDED AND RESTATED INTERCREDITOR AGREEMENT (“Agreement”),
dated as of February 7, 2008, is made by and between Carl E. Berg (“Berg”),
on one hand, and the purchasers of the Amended and Restated Senior Secured
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 Thomas O. Boucher, Jr., as agent
for the Purchasers (“Purchasers’ Agent”), on the other hand.

 

RECITALS

 

A.            The
Company, Purchasers’ Agent, Berg, and the purchasers identified on Exhibit A  (the “Original Purchasers”) previously entered into an
Intercreditor Agreement dated as of January 24, 2006 (the “Original
Intercreditor Agreement”).  The Company,
the Purchasers’ Agent, and the Original Purchasers desire to amend and restate
the Original Intercreditor Agreement on the terms stated herein.  This Agreement is intended to and does
completely amend and restate, without novation, the Original Intercreditor
Agreement.  All security interests
referred to in the Original Intercreditor Agreement are hereby confirmed and
ratified and shall continue to secure all obligations under their respective
agreements.

 

B.            In addition to the Original Purchasers, other purchasers
identified on Exhibit A (the “New Purchasers”) wish to become a party to
this intercreditor agreement under terms pari passu with the Original
Purchasers.  The Original Purchasers and
the New Purchasers are referred to herein collectively as the “Purchasers”.

 

C.            Collectively,
the Purchasers have purchased $20,800,000 of Amended and Restated Senior
Secured Notes Due January 1, 2011 (the “Notes”) from the Company pursuant to
an Amended and Restated Senior Secured 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 an Amended and Restated Security Agreement dated as of
the same date as this Agreement (the “Purchasers’ Security Interest”).

 

D.            Berg
has previously guaranteed a Loan and Security Agreement, dated as of November 15,
2004, as amended subsequently through December 1, 2005 (“Bank Loan
Agreement”) between Wells Fargo Bank, as successor-in-interest to 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”).

 

E.            The
Bank and Berg are parties to an Intercreditor Agreement (the “Bank
Intercreditor Agreement”) dated as of November 15, 2004, amended by that
certain Amendment No. 1 to Intercreditor Agreement dated January 24,
2006 to add the Original Purchasers, which has been further amended by that
certain Amendment No. 2 to Intercreditor Agreement of even date herewith to
add the New Purchasers as additional parties.

 

F.             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 .   The recitals set forth above are hereby
incorporated by this reference as if they were part of the body of this
Agreement.  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.

 

1

 

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  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 (i) 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, (ii) deduct the other party’s pro rata share of
the collectible enforcement fees and expenses, and (iii) 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 $20,000,000, upon a
sale of Collateral by Berg that realizes gross proceeds of $5,000,000, Berg can
retain 24.5283% of the proceeds plus 75.4717% 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  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 

 

2

 

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  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 

 

3

 

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  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 February 7, 2008.

 

 Signatures on following
page.

 

4

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Carl E. Berg

  
	
   

  	
   

  	
  CARL E. BERG

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PURCHASERS’ AGENT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Thomas O. Boucher, Jr.

  
	
   

  	
   

  	
  Thomas O. Boucher, Jr.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PURCHASER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

 

 

SIGNATURE
PAGE FOR AMENDED AND RESTATED INTERCREDITOR AGREEMENT

 

 

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

  
	
   

  	
   

  	
  Brett Moyer

  
	
   

  	
  Title:

  	
  President & CEO

  
						

 

 

EXHIBIT A

 

SCHEDULE OF
PURCHASERS

 

ORIGINAL PURCHASERS

	
    Name

  
	
    Barbara
  Shingleton Trust

  
	
    Brad
  Shingleton Trust

  
	
    CFG Trust#1

  
	
    David Foote

  
	
    Donald L.
  Foote Trust#1

  
	
    Heritage Mark
  Foundation, Inc.

  
	
    Ingalls &
  Snyder Value Partners, L.P.

  
	
    Kenneth Foote

  
	
    Rhonda
  Foote-Judy

  
	
    Ronald Altman

  
	
    Steven Foote

  
	
    Steven Foote
  IRA

  
	
    Theresa Foote

  

 

  NEW PURCHASERS

	
    Name

  
	
    First
  National Bancshares Inc

  
	
    Blythefield
  Farms

  
	
    Inky
  Investments

  
	
    Steadfast LLC

  
	
    Shannah
  Ferguson

  
	
    Ferguson
  Children’s Trust

  
	
    Blake Ashdown
  IRA

  
	
    MacBay
  Partners

  
	
    Horace Boone

  
	
    John Boone

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