Document:

Exhibit 10.1

 

FTD, INC.

 

SECOND AMENDMENT

TO CREDIT AGREEMENT

 

This SECOND AMENDMENT TO CREDIT
AGREEMENT (this “Amendment”) is
dated as of November 7, 2005 and entered into by and among FTD, Inc.,
a Delaware corporation (“Company”), the
Guarantors (as defined in Section 5 hereof), the financial institutions
listed on the signature pages hereof (“Lenders”)
and Credit Suisse, Cayman Islands Branch (formerly known as Credit Suisse First
Boston, acting through its Cayman Islands Branch), as administrative agent for
Lenders (“Administrative Agent”), and is made
with reference to that certain Credit Agreement, dated as of February 24,
2004 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Company, Lenders, UBS
Securities LLC, as syndication agent, Wells Fargo Bank, N.A., as documentation
agent and Administrative Agent. 
Capitalized terms used herein without definition shall have the same
meanings herein as set forth in the Credit Agreement.

 

RECITALS

 

WHEREAS, Company
and Lenders desire to amend the Credit Agreement to permit certain Capital
Stock repurchases.

 

NOW, THEREFORE, in consideration
of the premises and the agreements, provisions and covenants herein contained,
the parties hereto agree as follows:

 

Section 1.  AMENDMENTS TO THE CREDIT AGREEMENT

 

1.1                               Amendments
to Subsection 7.5:  Restricted
Junior Payments

 

A.                                    Subsection 7.5
of the Credit Agreement is hereby amended by adding at the end of clause (iii) thereof
the following:

 

“and (e) for other repurchases of Capital Stock
of Holdings in an aggregate amount not to exceed $30,000,000 on or after November 7,
2005 but on or before September 30, 2007; provided that after
giving pro forma effect to any such Restricted Junior Payments and repurchases (A) the
Consolidated Leverage Ratio as of the last day of the Fiscal Quarter
immediately preceding the date of any such Restricted Junior Payment is less
than 4.25:1.00 and (B) the excess of the aggregate Revolving Loan
Commitments over the Total Utilization of Revolving Loan Commitments as of the
date of any such Restricted Junior Payment is at least $20,000,000; provided
further that, such repurchases are made with the proceeds of the
applicable Restricted Junior Payments within three Business Days of the payment
of such Restricted Junior Payments,”

 

A.                                    In
addition, subsection 7.5 of the Credit Agreement is hereby further amended
by deleting the word “and” at the end of clause (iii)(c) thereof.

 

 

Section 2.                                          CONDITIONS
TO EFFECTIVENESS

 

This Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the “Second Amendment Effective Date”):

 

A.                                    On or before the Second
Amendment Effective Date, Company shall deliver to Lenders (or to
Administrative Agent for Lenders) the following, each, unless otherwise noted,
dated the Second Amendment Effective Date:

 

1.                                       Signature
and incumbency certificates of its officers executing this Amendment ; and

 

2.                                       Copies
of this Amendment executed by Company and Guarantors.

 

B.                                    On or before the Second
Amendment Effective Date, all corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all documents
incidental thereto not previously found acceptable by Administrative Agent,
acting on behalf of Lenders, and its counsel shall be satisfactory in form and
substance to Agent and such counsel, and Agent and such counsel shall have
received all such counterpart originals or certified copies of such documents
as Administrative Agent may reasonably request.

 

C.                                    Company
shall have paid to Administrative Agent the fees and expenses separately agreed
to by Company and Administrative Agent in connection with this Amendment,
including an amendment fee for the ratable benefit of each Lender that shall
have executed this Amendment on or prior to 5:00 P.M. New York City time
on November 4, 2005 (the “Consenting
Lenders”) equal to 10 basis points multiplied by the sum of the
aggregate principal amount of the outstanding Term Loans and Revolving Loan
Commitments held by the Consenting Lenders.

 

D.                                    Administrative
Agent and Requisite Lenders shall have executed and delivered copies of this
Amendment to Administrative Agent.

 

E.                                      All fees and expenses
incurred in connection with this Amendment or previously billed to Company and
owing to Administrative Agent and Lenders pursuant to the Credit Agreement,
including, without limitation, the fees and expenses of O’Melveny &
Myers LLP, shall have been paid.

 

Section 3.                                          COMPANY’S
REPRESENTATIONS AND WARRANTIES

 

In order to induce Lenders to enter into this
Amendment and to amend the Credit Agreement in the manner provided herein,
Company represents and warrants to each Lender that the following statements
are true, correct and complete:

 

A.                                    Corporate
Power and Authority.  Company and
each Guarantor has all requisite corporate power and authority to enter into
this Amendment and to carry out the 

 

2

 

transactions contemplated by, and perform its
obligations under, this Amendment and the Credit Agreement as amended by this
Amendment (the “Amended Agreement”), as applicable.

 

B.                                    Authorization
of Agreements.  The execution and
delivery of this Amendment and the performance of the Amended Agreement have
been duly authorized by all necessary corporate action on the part of Company
and each Guarantor, as applicable.

 

C.                                    No
Conflict.  The execution, delivery
and performance by Company and each Guarantor of this Amendment and the
performance by Company of the Amended Agreement do not and will not (i) violate
any provision of any law or any governmental rule or regulation applicable
to Company or any Guarantor, the Organizational Documents of Company or any Guarantor
or any order, judgment or decree of any court or other agency of government
binding on Company or any Guarantor, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of Company or any Guarantor, (iii) result
in or require the creation or imposition of any Lien upon any of the properties
or assets of Company or any Guarantor (other than Liens created under any of
the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require
any approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Company or any Guarantor.

 

D.                                    Governmental
Consents.  The execution, delivery
and performance by Company and each Guarantor of this Amendment and the
performance by Company of the Amended Agreement do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body.

 

E.                                      Binding
Obligation.  This Amendment has been
duly executed and delivered by Company and each Guarantor and this Amendment
and the Amended Agreement are the legally valid and binding obligations of
Company and each Guarantor, as applicable, enforceable against Company and each
Guarantor, as applicable, in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors’ rights generally or by equitable
principles relating to enforceability.

 

F.                                      Incorporation
of Representations and Warranties From Credit Agreement.  The representations and warranties contained
in Section 5 of the Credit Agreement are and will be true, correct and
complete in all material respects on and as of the Second Amendment Effective
Date to the same extent as though made on and as of that date, except to the
extent such representations and warranties specifically relate to an earlier
date, in which case they were true, correct and complete in all material
respects on and as of such earlier date.

 

G.                                    Absence
of Default.  No event has occurred
and is continuing or will result from the consummation of the transactions
contemplated by this Amendment that would constitute an Event of Default or a
Potential Event of Default.

 

3

 

Section 4.  MISCELLANEOUS

 

A.                                    Reference
to and Effect on the Credit Agreement and the Other Loan Documents.

 

(i)                                     On
and after the Second Amendment Effective Date, each reference in the Credit
Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like
import referring to the Credit Agreement, and each reference in the other Loan
Documents to the “Credit Agreement”, “thereunder”, “thereof” or words of like
import referring to the Credit Agreement shall mean and be a reference to the
Amended Agreement.

 

(ii)                                  Except
as specifically amended by this Amendment, the Credit Agreement and the other
Loan Documents shall remain in full force and effect and are hereby ratified
and confirmed.

 

(iii)                               The
execution, delivery and performance of this Amendment shall not, except as
expressly provided herein, constitute a waiver of any provision of, or operate
as a waiver of any right, power or remedy of Agent or any Lender under, the
Credit Agreement or any of the other Loan Documents.

 

B.                                    Fees
and Expenses.  Company acknowledges
that all costs, fees and expenses as described in subsection 10.2 of the
Credit Agreement incurred by Administrative Agent and its counsel with respect
to this Amendment and the documents and transactions contemplated hereby shall
be for the account of Company.

 

C.                                    Headings.  Section and subsection headings in
this Amendment are included herein for convenience of reference only and shall
not constitute a part of this Amendment for any other purpose or be given any
substantive effect.

 

D.                                    Applicable
Law.  THIS AMENDMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.

 

E.                                      Counterparts.  This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered (including a facsimile thereof) shall
be deemed an original, but all such counterparts together shall constitute but
one and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.

 

Section 5.   ACKNOWLEDGEMENT AND CONSENT BY GUARANTORS

 

Each guarantor (or pledgor) listed on the signatures pages hereof
(each, a “Guarantor”) hereby
acknowledges and agrees that any of the Guaranties and Collateral 

 

4

 

Document (each, a “Credit
Support Document”) to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. 
Each Guarantor represents and warrants that all representations and
warranties contained in the Amended Agreement and the Credit Support Documents
to which it is a party or otherwise bound are true, correct and complete in all
material respects on and as of the Second Amendment Effective Date to the same
extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date.

 

Each Guarantor acknowledges and agrees that (i) notwithstanding
the conditions to effectiveness set forth in this Amendment, such Guarantor is
not required by the terms of the Credit Agreement or any other Loan Document to
consent to the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this Amendment or any
other Loan Document shall be deemed to require the consent of such Guarantor to
any future amendments to the Credit Agreement.

 

[The remainder of page intentionally
left blank.]

 

5

 

IN WITNESS WHEREOF, the parties
hereto have caused this Amendment to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first written above.

 

	
   

  	
  FTD,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ MICHAEL
  SOENEN

  
	
   

  	
  Name:

  	
  Michael
  Soenen

  
	
   

  	
  Title:

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  CREDIT
  SUISSE, CAYMAN ISLANDS BRANCH (formerly
  know as Credit Suisse First Boston, acting through its Cayman Islands Branch),
  individually and
  as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ VANESSA
  GOMEZ

  
	
   

  	
  Name:

  	
  Vanessa
  Gomez

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ NUPUR
  KUMAR

  
	
   

  	
  Name:

  	
  Nupur Kumar

  
	
   

  	
  Title:

  	
  Associate

  
									

 

 

(Lenders signature pages
omitted.)

 

 

GUARANTORS:

 

	
   

  	
  FTD
  GROUP, INC., as a
  Guarantor (for purposes of Section 5 hereof only)

  
	
   

  	
   

  
	
   

  	
  /S/ MICHAEL
  SOENEN

  
	
   

  	
  Name:

  	
  Michael
  Soenen

  
	
   

  	
  Title:

  	
  President
  and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FLORISTS’
  TRANSWORLD DELIVERY, INC., as a Guarantor (for
  purposes of Section 5 hereof only)

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JON R.
  BURNEY

  
	
   

  	
  Name:

  	
  Jon R.
  Burney

  
	
   

  	
  Title:

  	
  Vice
  President, General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VALUE NETWORK SERVICE, INC., as a Guarantor (for purposes of Section 5
  hereof only)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JON R.
  BURNEY

  
	
   

  	
  Name:

  	
  Jon R.
  Burney

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FTD INTERNATIONAL CORPORATION, as a Guarantor (for purposes of Section 5
  hereof only)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JON R.
  BURNEY

  
	
   

  	
  Name:

  	
  Jon R.
  Burney

  
	
   

  	
  Title:

  	
  Secretary

  
							

 

 

	
   

  	
  FTD HOLDINGS, INCORPORATED, as a Guarantor (for purposes of Section 5
  hereof only)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JON R.
  BURNEY

  
	
   

  	
  Name:

  	
  Jon R.
  Burney

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FTD.COM, INC., as a Guarantor (for purposes of Section 5 hereof only)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JON R.
  BURNEY

  
	
   

  	
  Name:

  	
  Jon R.
  Burney

  
	
   

  	
  Title:

  	
  Vice
  President, General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FLOWERS USA, INC., as a Guarantor (for purposes of Section 5 hereof only)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JON R.
  BURNEY

  
	
   

  	
  Name:

  	
  Jon R.
  Burney

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RENAISSANCE GREETING CARDS, INC., as a Guarantor (for purposes of Section 5
  hereof only)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ JON R.
  BURNEY

  
	
   

  	
  Name:

  	
  Jon R.
  Burney

  
	
   

  	
  Title:

  	
  SecretaryExhibit 4.1

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT  (WHICH LEGAL OPINION SHALL NOT BE REQUIRED
FOR ANY SALE PURSUANT TO RULE 144(K) OF THE SECURITIES ACT), THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.

 

COMMON
STOCK PURCHASE WARRANT

 

To Purchase            
Shares of Common Stock of

 

FOCUS
ENHANCEMENTS, INC.

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
CERTIFIES that, for value received,            
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date of issuance of this Warrant (the “Initial Exercise Date”)
and on or prior to the five-year anniversary of the Initial Exercise Date (the “Termination
Date”) but not thereafter, to subscribe for and purchase from Focus
Enhancements, Inc., a Delaware corporation (the “Company”), up to            
shares (the “Warrant Shares”) of Common Stock, par value $0.01 per
share, of the Company (the “Common Stock”).  The purchase price of one share of Common
Stock (the “Exercise Price”) under this Warrant shall be $0.8505,
subject to adjustment hereunder.  The
Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated November 3, 2005, among the Company and the purchasers signatory
thereto.

 

1

 

1.  Title to Warrant.  Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this
Warrant and all rights hereunder are transferable, in whole or in part, at the
office or agency of the Company by the Holder in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form annexed
hereto properly endorsed.  The transferee
shall, to the extent the Warrant or Warrant Shares are required to contain a
restrictive legend following such transfer, sign an investment letter in form
and substance reasonably satisfactory to the Company.

 

2.  Authorization of Shares.  The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by
this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).

 

3.  Exercise of Warrant.

 

(a) 
Exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery of the Notice of Exercise Form, surrender of this
Warrant and payment of the aggregate Exercise Price, in each case, to the
Company at its address set forth on the signature page to the Purchase
Agreement (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of such Holder
appearing on the books of the Company). 
Certificates for shares purchased hereunder shall be delivered to the
Holder within five (5) Trading Days from the delivery to the Company of the
Notice of Exercise Form, surrender of this Warrant and payment of the aggregate
Exercise Price as set forth above (“Warrant Share Delivery Date”).  This Warrant shall be deemed to have been
exercised on the date the Exercise Price is received by the Company.  The Warrant Shares shall be deemed to have
been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by the Holder,
if any, pursuant to Section 5 prior to the issuance of such shares, have
been paid.  If the Company fails to
deliver to the Holder a certificate or certificates representing the Warrant
Shares pursuant to this Section 3(a) by the Warrant Share Delivery
Date, then the Holder will have the right to rescind such exercise.  In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise by the
Warrant Share Delivery Date, and if after such day the Holder is required by
its broker to purchase (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”),
then the Company shall (1) pay in cash to the Holder the amount by which
(x) the Holder’s total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that 

 

2

 

the Company was required to deliver to the
Holder in connection with the exercise at issue times (B) the price at
which the sell order giving rise to such purchase obligation was executed, and (2) at
the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and delivery
obligations hereunder.  For example, if
the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of
$10,000, under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations and other
evidence reasonably requested by the Company. 
Nothing herein shall limit a Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of Common
Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

(b)  If
this Warrant shall have been exercised in part, the Company shall, at the time
of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

 

(c) If at
any time after one year from the date of issuance of this Warrant there is no
effective Registration Statement registering the resale of the Warrant Shares
by the Holder, this Warrant may also be exercised at such time by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for
the number of Warrant Shares equal to the quotient obtained by dividing [(A-B)
(X)] by (A), where:

 

	
  (A) =

  	
  the Market Price (as defined below) of one
  share of Common Stock on the date that the Holder delivers a complete Notice
  of Exercise Form to the Company as provided herein

  
	
   

  	
   

  
	
  (B) =

  	
  the Exercise Price of this Warrant, as
  adjusted; and

  
	
   

  	
   

  
	
  (X) =

  	
  the number of Warrant Shares issuable upon
  exercise of this Warrant in accordance with the terms of this Warrant by
  means of a cash exercise rather than a cashless exercise.

  

 

The term “Market Price” as of a
particular date (the “Valuation Date”) shall mean the following: (a) if
the Common Stock is then listed or quoted on a Trading Market, the closing sale
price of one share of Common Stock on such exchange on the last Trading Day
prior to the Valuation Date or, if no such closing sale price is available, the
average of the high bid and the low asked price quoted thereon on the last
trading day prior to the Valuation Date; (b) if the Common Stock is not
then listed or quoted on a Trading Market and if prices for the Common 

 

3

 

Stock are then quoted on the
OTC Bulletin Board or such similar exchange or association, the closing sale
price of one share of Common Stock on the OTC Bulletin Board or such other
exchange or association on the last Trading Day prior to the Valuation Date or,
if no such closing sale price is available, the average of the high bid and the
low asked price quoted thereon on the last Trading Day prior to the Valuation
Date; or (c) if the Common Stock is not then listed or quoted on a Trading
Market or quoted on the OTC Bulletin Board or such other exchange or
association, the fair market value of one share of Common Stock as of the
Valuation Date, shall be determined in good faith by the Board of Directors of
the Company and the Holder.  If the
Common Stock is not then listed or quoted on a Trading Market or quoted on the
OTC Bulletin Board or such other exchange or association, the Board of
Directors of the Company shall respond promptly, in writing, to an inquiry by
the Holder prior to the exercise hereunder as to the fair market value of a
share of Common Stock as determined by the Board of Directors of the
Company.  In the event that the Board of
Directors of the Company and the Holder are unable to agree upon the fair market
value in respect of subpart (c) hereof, the Company and the Holder shall
jointly select an appraiser, who is experienced in such matters.  The decision of such appraiser shall be final
and conclusive, and the cost of such appraiser shall be borne equally by the
Company and the Holder.  Such adjustment
shall be made successively whenever such a payment date is fixed.

 

4.  No Fractional Shares or
Scrip.  No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.  As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to such fraction multiplied by the Exercise Price.

 

5.  Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event
certificates for Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the Holder; and
the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

 

6.  Closing of Books.  The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.

 

7.  Transfer, Division and
Combination.

 

(a)  Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 1 and 7(e) hereof
and to the provisions of Section 4.1 of the Purchase Agreement, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company, together with
a written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to
pay any transfer 

 

4

 

taxes payable upon the making of such
transfer.  Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.

 

(b)  This Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or
attorney.  Subject to compliance with Section 7(a),
as to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.

 

(c)  The Company shall prepare, issue and deliver
at its own expense (other than transfer taxes) the new Warrant or Warrants
under this Section 7.

 

(d)  The Company agrees to maintain, at its
aforesaid office, books for the registration and the registration of transfer
of the Warrants.

 

(e)  If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of this
Warrant shall not be registered pursuant to an effective registration statement
under the Securities Act and under applicable state securities or blue sky
laws, the Company may require, as a condition of allowing such transfer (i) that
the Holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company (to the extent any
restrictive legend is required to remain on the Warrant or the Warrant Shares
following such transfer) an investment letter in form and substance reasonably
acceptable to the Company and (iii) that the transferee be an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated
under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under
the Securities Act.

 

8.  No Rights as Shareholder
until Exercise.  This Warrant does
not entitle the Holder to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof. 
Upon the surrender of this Warrant and the payment of the aggregate
Exercise Price (or by means of a cashless exercise), the Warrant Shares so
purchased shall be and be deemed to be issued to such Holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.

 

9.  Loss, Theft, Destruction or
Mutilation of Warrant.  The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, 

 

5

 

destruction or mutilation of
this Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new
Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.

 

10.  Saturdays, Sundays,
Holidays, etc.  If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a federal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day that is not a Saturday, Sunday or federal holiday.

 

11.  Adjustments of Exercise
Price and Number of Warrant Shares, Stock Splits, etc.  The number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time upon the happening of any of the following.  In case the Company shall (i) pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock to all of the holders of its outstanding Common Stock, (ii) subdivide
its outstanding shares of Common Stock into a greater number of shares, (iii) combine
its outstanding shares of Common Stock into a smaller number of shares of
Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have owned or
have been entitled to receive had such Warrant been exercised in advance
thereof.  Upon each such adjustment of
the kind and number of Warrant Shares or other securities of the Company which
are purchasable hereunder, the Holder shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company that are purchasable pursuant hereto immediately
after such adjustment.  An adjustment
made pursuant to this paragraph shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.

 

12.  Reorganization,
Reclassification, Merger, Consolidation or Disposition of Assets.  In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the
Company), or sell, transfer or otherwise dispose of its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation (“Other Property”), are to be received by or distributed to
the holders of Common Stock of the Company, then the Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the number of
shares of common stock of the successor or acquiring corporation or Common
Stock of the Company, if it is the surviving corporation, and Other Property
receivable upon or as a result of such reorganization, reclassification,
merger, 

 

6

 

consolidation or disposition of
assets by a Holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such event. 
In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12.  For purposes of this Section 12, “common
stock of the successor or acquiring corporation” shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe
for or purchase any such stock.  The
foregoing provisions of this Section 12 shall similarly apply to
successive reorganizations, reclassifications, mergers, consolidations or
disposition of assets.

 

13.  Voluntary Adjustment by the
Company.  The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.

 

14.  Notice of Adjustment.  Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

 

15.  Limitations on Exercise.
Notwithstanding anything to the contrary contained herein, the number of Warrant
Shares that may be acquired by the Holder upon any exercise of this Warrant (or
otherwise in respect hereof) shall be limited to the extent necessary to insure
that, following such exercise (or other issuance), the total number of shares
of Common Stock then beneficially owned by such Holder and its Affiliates and
any other Persons whose beneficial ownership of Common Stock would be
aggregated with the Holder’s for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), does
not exceed 9.999% (the “Maximum Percentage”) of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Each
delivery of a notice of exercise hereunder will constitute a representation by
the Holder that it has evaluated the limitation set forth in this Section and
determined that issuance of the full number of Warrant Shares requested in such
notice of exercise is permitted under this Section.  The Company’s obligation to issue shares of
Common Stock in excess of the limitation referred to in this Section shall
be suspended (and, except as provided below, shall not terminate or expire 

 

7

 

notwithstanding any contrary
provisions hereof) until such time, if any, as such shares of Common Stock may
be issued in compliance with such limitation; provided, that, if, as of the
Expiration Date, the Company has not received written notice that the shares of
Common Stock may be issued in compliance with such limitation, the Company’s
obligation to issue such shares shall terminate.  This provision shall not restrict the number
of shares of Common Stock which a Holder may receive or beneficially own in
order to determine the amount of securities or other consideration that such
Holder may receive in the event of a reorganization, reclassification, merger,
consolidation or disposition of assets as contemplated in Section 12 of
this Warrant. This restriction may not be waived.

 

16.  Notice of Corporate Action.  If at any time:

 

(a)           the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or

 

(b)           there shall be any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger of the Company
with, or any sale, transfer or other disposition of all or substantially all
the property, assets or business of the Company to, another corporation, or

 

(c)           there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company;

 

then, in any one or more of such cases, the Company shall give to
Holder (i) at least 10 days’ prior written notice of the date on which a
record date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days’ prior
written notice of the date when the same shall take place.  Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, the date on
which the holders of Common Stock shall be entitled to any such dividend,
distribution or right, and the amount and character thereof, and (ii) the
date on which any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up is to take
place and the time, if any such time is to be fixed, as of which the holders of
Common Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such disposition, dissolution,
liquidation or winding up.  Each such
written notice shall be sufficiently given if addressed to Holder at the last
address of Holder appearing on the books of the Company and delivered in
accordance with Section 18(d).

 

17.  Authorized Shares.  The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise 

 

8

 

of any purchase rights under
this Warrant.  The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action
as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of the Trading Market upon which the Common Stock may be
listed.

 

Except and to the extent as waived or
consented to by the Holder, the Company shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise of this
Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

 

Before taking any action which would result
in an adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.

 

18.  Miscellaneous.

 

(a)  Jurisdiction.  All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.

 

(b)  Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

 

(c)  Nonwaiver and Expenses.  No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting 

 

9

 

any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.

 

(d)  Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

 

(e)  Limitation of Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

 

(f)  Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.

 

(g)  Successors and Assigns.  Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder.  The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by any such Holder
or holder of Warrant Shares.

 

(h)  Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.

 

(i)  Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

 

(j)  Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

 

********************

 

10

 

IN WITNESS WHEREOF, the Company has caused
this Warrant to be executed by its officer thereunto duly authorized.

 

 

Dated:  November 7, 2005

 

	
   

  	
  FOCUS ENHANCEMENTS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary Williams

  	
   

  
	
   

  	
   

  	
  Name: Gary
  Williams

  
	
   

  	
   

  	
  Title: EVP
  of Finance & CFO

  

 

11

 

NOTICE
OF EXERCISE

 

To:          Focus Enhancements, Inc.

 

(1)  The undersigned hereby elects
to purchase           Warrant
Shares of the Company pursuant to the terms of the attached Warrant, and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any, in the event Warrant Shares are to be issued
in a name other than the undersigned.

 

(2)  Payment shall take the form of
(check applicable box):

 

o
in lawful money of the United States; or

 

o
the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 3(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 3(c).

 

(3)  Please issue a certificate or
certificates representing said Warrant Shares in the name of the undersigned or
in such other name as is specified below:

 

 

The Warrant Shares shall be delivered to the following:

 

 

(4)  Accredited Investor.  The undersigned is an “accredited investor”
as defined in Regulation D under the Securities Act of 1933, as amended.

 

	
   

  	
  [PURCHASER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  	
   

  
						

 

 

ASSIGNMENT
FORM

 

(To assign the foregoing
warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

 

FOR VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

                                                                                                                         whose
address is

                                                                                                                                                                                                .

 

 

	
   

  	
  Dated:

  	
   

  	
  , 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature
  Guaranteed: 

  	
   

  	
   

  
										

 

 

NOTE:  The signature to this
Assignment Form must correspond with the name as it appears on the face of
the Warrant, without alteration or enlargement or any change whatsoever, and
must be guaranteed by a bank or trust company. 
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.

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