EXHIBIT 4.2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February
27, 1998, by and between FOCUS ENHANCEMENTS, INC., a corporation organized under
the laws of the State of Delaware (the "Company"), and the purchaser (the
"Purchaser") set forth on the execution page hereof.
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
B. The Company desires to sell, and the Purchaser desires to purchase,
upon the terms and conditions stated in this Agreement, for an aggregate
purchase price of Three Million Dollars ($3,000,000) (the "Purchase Price"), (i)
a number of shares (the "Common Shares") of the Company's common stock, par
value $.01 per share (the "Common Stock"), equal to the quotient of (x) the
Purchase Price, divided by (y) seventy-five percent (75%) of the average of the
closing bid prices for the Common Stock as reported on the Nasdaq SmallCap
Market ("SmallCap") by Bloomberg Financial Markets for the five (5) consecutive
trading days ending on the trading day immediately preceding the Closing Date
(as defined in Section 1(c) hereof); and (ii) warrants, in the form attached
hereto as Exhibit A, to acquire a number of shares of Common Stock equal to
thirty percent (30%) of the number of Common Shares purchased by the Purchaser
hereunder (the "Warrants"). The shares of Common Stock issuable upon exercise of
or otherwise pursuant to the Warrants are referred to herein as the "Warrant
Shares." The Common Shares, the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities" and each of them may individually be
referred to herein as a "Security."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
a. Purchase of Securities. On the Closing Date (as defined below),
subject to the satisfaction (or waiver) of the conditions set forth in Section 6
and Section 7 below, the Company shall issue and sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, the Common Shares and the
Warrants.
b. Form of Payment. On the Closing Date, the Purchaser shall pay the
Purchase Price by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates
representing the Common Shares and Warrants, and the Company shall deliver such
certificates and Warrants against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Common Shares and Warrants to the Purchaser
pursuant to this Agreement (the "Closing") shall be 12:00 noon, New York City
time, on February 27, 1998, subject to a three (3) business day grace period at
either party's option, but in any event not later than March 4, 1998, or such
other time as may be mutually agreed upon by the Company and the Purchaser (the
"Closing Date"). The closing shall occur at the offices of Klehr, Harrison,
Xxxxxx, Xxxxxxxxx & Xxxxxx, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx
00000.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The Purchaser represents and warrants to the Company as follows:
a. Investment Purpose. Purchaser is purchasing the Securities for
Purchaser's own account for investment purposes only and not with a present view
towards the public sale or distribution thereof. Purchaser understands that
Purchaser must bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering the
resale of any such Securities other than as contemplated by the Registration
Rights Agreement. Notwithstanding anything in this Section 2(a) to the contrary,
by making the representations herein, the Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from the registration requirements under
the Securities Act.
b. Accredited Investor Status. Purchaser is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Purchaser understands that the Securities
are being offered and sold to Purchaser in reliance upon specific exemptions
from the registration requirements of
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United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of Purchaser to acquire the Securities.
d. Information. Purchaser and its counsel, if any, have been furnished
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
specifically requested by Purchaser or its counsel. Purchaser and its counsel
have been afforded the opportunity to ask questions of the Company and have
received what Purchaser believes to be satisfactory answers to any such
inquiries. In making its decision to purchase the Securities, Purchaser has
relied solely upon the information concerning the Company contained in this
Agreement, the schedules hereto and the SEC Documents (as defined in Section
3(f) hereof), and no independent inquiry or other investigation conducted by
Purchaser or its counsel or any of its representatives shall modify, amend or
affect Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 below. Purchaser understands that Purchaser's investment
in the Securities involves a high degree of risk.
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(a) the resale of the Securities has been registered thereunder; or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions and reasonably acceptable to counsel to the Company)
to the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; or (c) the
Securities are sold under Rule 144 promulgated under the Securities Act (or a
successor rule) ("Rule 144"); or (d) the Securities are sold or transferred to
an affiliate of Purchaser who agrees to sell or otherwise transfer the
Securities only in accordance with the provisions of this Section 2(f) and who
is an Accredited Investor; and (ii) neither the Company nor any other person is
under any obligation to register such Securities under the Securities Act or any
state securities laws (other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
g. Legends. Purchaser understands that the Warrants and, until such
time as the Common Shares and Warrant Shares have been registered under the
Securities Act as contemplated by the Registration Rights Agreement or otherwise
may be sold by Purchaser under Rule 144, the certificates for the Common Shares
and Warrant Shares may bear a restrictive legend in substantially the following
form:
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The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws of
any state of the United States. The securities represented hereby may
not be offered, sold, transferred or assigned in the absence of an
effective registration statement for the securities under applicable
securities laws unless offered, sold, transferred or assigned under an
available exemption from the registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act as contemplated by the
Registration Rights Agreement; (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions and reasonably acceptable to counsel to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the Securities Act; or (c) such holder provides
the Company with reasonable assurances that such Security can be sold under Rule
144. Purchaser agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, pursuant to an effective
registration statement or under an exemption from the registration requirements
of the Securities Act. In the event the above legend is removed from any
Security and thereafter the effectiveness of a registration statement covering
such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or under Rule 144 and Purchaser shall cooperate
in the replacement of such legend. Such legend shall thereafter be removed when
such Security may again be sold pursuant to an effective registration statement
or under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
i. Short Positions. Neither Purchaser nor any of its affiliates,
directly or indirectly, has maintained prior to the execution of this Agreement,
has the intention to maintain or will maintain, any short position in any
securities of the Company until the Common Shares and Warrant Shares have been
registered under the Securities Act.
j. Residency. Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the execution page hereto executed by Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which
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it is incorporated, and has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. "Material Adverse Effect" means
any material adverse effect on (i) the Securities, (ii) the ability of the
Company to perform its obligations hereunder or under the Warrants or the
Registration Rights Agreement or (iii) the business, operations, properties,
prospects or financial condition of the Company and its subsidiaries, taken as a
whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue and
sell the Common Shares and Warrants in accordance with the terms hereof and to
issue the Warrant Shares upon exercise of the Warrants in accordance with the
terms of such Warrants; (ii) the execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Common Shares and Warrants
and the issuance and reservation for issuance of the Warrant Shares) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, any committee of the Board
of Directors, or its stockholders is required (under Rule 4460(i) promulgated by
the National Association of Securities Dealers ("NASD") or otherwise); (iii)
this Agreement has been duly executed and delivered by the Company; and (iv)
this Agreement constitutes, and, upon execution and delivery by the Company of
the Warrants and the Registration Rights Agreement, such agreements will
constitute, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of December 31,
1997, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans and the number of shares issuable and reserved
for issuance pursuant to securities (other than the Warrants) exercisable or
exchangeable for, or convertible into, any shares of capital stock of the
Company is set forth on Schedule 3(c). All of such outstanding shares of capital
stock have been, or upon issuance in accordance with the terms of any such
warrants, options or preferred stock, will be, validly issued, fully paid and
non-assessable. No authorized but unissued shares of capital stock of the
Company (including the Common Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as set forth on
Schedule 3(c), as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
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register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). Except as set forth on Schedule
3(c), there are no securities or instruments containing antidilution or similar
provisions that will be triggered by the issuance of the Securities in
accordance with the terms of this Agreement or the Warrants. The Company has
furnished to the Purchaser true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof ("Certificate of
Incorporation"), the Company's By-laws as in effect on the date hereof (the
"By-laws"), and all other instruments and agreements governing securities
convertible into or exercisable or exchangeable for capital stock of the
Company.
d. Issuance of Shares. The Common Shares are duly authorized and, upon
issuance in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability on
the holders thereof. The Warrant Shares are duly authorized and reserved for
issuance, and, upon exercise of the Warrants in accordance with the terms
thereof, will be validly issued, fully paid and non-assessable, and free from
all taxes, liens, claims and encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company and will not
impose personal liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Common Shares, Warrants and Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation or By-laws or
(ii) except as set forth on Schedule 3(e), conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment
(including, without limitation, the triggering of any anti-dilution provisions),
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations and rules or regulations of any
self-regulatory organizations to which either the Company or its securities are
subject) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or affected
(except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for actual or possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as the
Purchaser owns any of the Securities, in
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violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and the Registration Rights Agreement, the
Company is not required to obtain any consent, approval, authorization or order
of, or make any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Warrants or the
Registration Rights Agreement, in each case in accordance with the terms hereof
or thereof. The Company is not in violation of the listing requirements of the
SmallCap and does not reasonably anticipate that the Common Stock will be
delisted by the SmallCap for the foreseeable future.
f. SEC Documents, Financial Statements. Except as set forth on Schedule
3(f), since December 31, 1994, the Company has timely filed (within applicable
extension periods) all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of
the foregoing and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to the Purchaser true and complete copies of the SEC Documents. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the statements made in any such SEC Documents is,
or has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings made prior
to the date hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto (except for such
financial statements as have been amended and restated in subsequent filings
made prior to the date hereof). Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to immaterial year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the SEC Documents
filed prior to the date hereof, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such financial statements, (ii) liabilities
not required by generally accepted accounting principles ("GAAP") to be
disclosed on a balance sheet prepared in accordance with GAAP, and (iii)
obligations under contracts and commitments incurred in the ordinary course of
business and not
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required under generally accepted accounting principles to be reflected in such
financial statements, which liabilities and obligations referred to in clauses
(i), (ii) and (iii), individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
g. Absence of Certain Changes. Since December 31, 1996, there has been
no material adverse change and no material adverse development in the business,
properties, operations, prospects, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole, except as disclosed in
Schedule 3(g) or in the SEC Documents filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, any of
its subsidiaries, or any of their respective directors or officers in their
capacities as such, which could reasonably be expected to have a Material
Adverse Effect. There are no facts which, if known by a potential claimant or
governmental authority, could give rise to a claim or proceeding which, if
asserted or conducted with results unfavorable to the Company or any of its
subsidiaries, could reasonably be expected to have a Material Adverse Effect.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted and as
described in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996. To the best knowledge of the Company, neither the
Company nor any subsidiary of the Company infringes or is in conflict with any
right of any other person with respect to any Intangibles which, individually or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect. Except as disclosed in the SEC Documents,
neither the Company nor any of its subsidiaries has received written notice of
any pending conflict with or infringement upon such third party Intangibles,
which alleged pending conflict or alleged infringement, if adversely determined,
would result in a Material Adverse Effect. Except as disclosed in the SEC
Documents, the termination of the Company's ownership of, or right to use, any
single Intangible would not result in a Material Adverse Effect on the Company.
Neither the Company nor any of its subsidiaries has entered into any consent
agreement, indemnification agreement, forbearance to xxx or settlement agreement
with respect to the validity of the Company's or its subsidiaries' ownership or
right to use its Intangibles and, to the best knowledge of the Company, there is
no reasonable basis for any such claim to be successful. The Intangibles are
valid and enforceable and no registration relating thereto has lapsed, expired
or been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all applications therefor are pending and in good
standing. The Company and its subsidiaries have complied, in all material
respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the
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Company, no person is infringing on or violating the Intangibles owned or used
by the Company or its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company
set forth in this Agreement is true and correct in all material respects and the
Company has not omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to the primary
issuance of the Company's securities.
l. Acknowledgment Regarding Purchaser's Purchase of the Securities. The
Company acknowledges and agrees that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, the relationship between
the Company and the Purchaser is "arms-length" and any statement made by the
Purchaser or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchaser's purchase of
Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further acknowledges that the Company's
decision to enter into this Agreement has been based solely on an independent
evaluation by the Company and its representatives.
m. Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances known to the Company that
would prohibit or delay the preparation and filing of a registration statement
on Form S-3 with respect to the Registrable Securities (as defined in the
Registration Rights Agreement).
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
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o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
p. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Xxxxxxx Capital Partners Ltd.,
whose commission and fees will be paid by the Company.
q. Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(q) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
r. Tax Status. Except as set forth on Schedule 3(r), the Company and
each of its subsidiaries has made or filed all foreign, federal, state and local
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. Except as set forth on Schedule 3(r), there are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to any statute of limitations relating to
the assessment or collection of any federal, state or local tax. Except as set
forth on Schedule 3(r), none of the Company's tax returns is presently being
audited by any taxing authority.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
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b. Form D: Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchaser
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchaser on or prior to the Closing
Date.
c. Reporting Status. So long as the Purchaser beneficially owns any of
the Securities, the Company shall use its best efforts to timely file all
reports required to be filed with the SEC pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination. In addition, the Company shall take
all actions necessary to continue to be eligible to register the resale of its
Common Stock on a registration statement on Form S-3 under the Securities Act.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Common Shares and Warrants as set forth in Schedule 4(d).
e. Expenses. At the Closing, the Company shall pay the Purchaser's
legal fees and expenses incurred in connection with the negotiation,
preparation, execution and delivery of this Agreement, the Warrants and the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby and thereby up to a maximum of Fifteen Thousand Dollars
($15,000). Except as otherwise provided herein and in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for its
own expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith.
f. Financial Information. The Company agrees to send the following
reports to the Purchaser until the Purchaser transfers, assigns or sells all of
the Securities: (i) within ten (10) days after the filing with the SEC, a copy
of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, its
proxy statements and any Current Reports on Form 8-K; and (ii) within one (1)
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
g. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full exercise of the Warrants and the
issuance of the Warrant Shares in connection therewith subject to and as
otherwise required by the Warrants.
h. Listing. The Company shall promptly secure the listing of the Common
Shares and Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as the
Purchaser (or any of its affiliates) owns any Securities, such listing of all
Common Shares and all Warrant Shares. The Company will use its best efforts to
continue the
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listing and trading of its Common Stock on the Nasdaq National Market ("NNM"),
the New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX") or
the SmallCap and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and such
exchanges, as applicable. The Company shall promptly provide to the Purchaser
copies of any notices it receives regarding the continued eligibility of the
Common Stock for trading on the SmallCap or, if applicable, any securities
exchange or automated quotation system on which securities of the same class or
series issued by the Company are then listed or quoted, if any. The obligations
of the Company under this Section 4(h) shall not be imposed on any successor to
the Company's obligations under this Agreement in the event that such successor
is not a publicly traded entity.
i. Corporate Existence. So long as the Purchaser (or any of its
affiliates) beneficially owns any Securities, the Company shall maintain its
corporate existence, and in the event of a merger, consolidation or sale of all
or substantially all of the Company's assets, the Company shall ensure that the
surviving or successor entity in such transaction assumes the Company's
obligations hereunder and under the Warrants and the agreements and instruments
entered into in connection herewith regardless of whether or not the Company
would have had a sufficient number of shares of Common Stock authorized and
available for issuance in order to effect the exercise in full of all Warrants
outstanding as of the date of such transaction.
j. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
k. Legal Compliance. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of the Purchaser or its nominee, for the Common Shares
issued at the Closing and the Warrant Shares issuable upon the exercise of the
Warrants in such amounts as specified from time to time by the Purchaser to the
Company. To the extent and during the periods provided in Section 2(f) and 2(g)
of this Agreement, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the transfer of the Common
Shares or Warrant Shares prior to registration of the Common Shares and Warrant
Shares under the Securities Act or without an exemption therefrom, will be given
by the
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Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Warrants and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Purchaser's obligations and
agreement set forth in Section 2(g) hereof to resell the Securities pursuant to
an effective registration statement or under an exemption from the registration
requirements of applicable securities law.
c. If (i) (A) the Common Shares and Warrant Shares have been registered
under the Securities Act as contemplated by the Registration Rights Agreement,
or (B) the Purchaser provides the Company and the transfer agent with an opinion
of counsel, which opinion of counsel shall be in form, substance and scope
customary for opinions of counsel in comparable transactions and reasonably
acceptable to counsel to the Company, to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
registration, or (C) the Purchaser provides the Company with reasonable
assurances that such Securities may be sold under Rule 144, and (ii) (A) the
Purchaser has delivered to the Company certificates representing the Common
Shares and/or Warrant Shares, as applicable, along with a written request for
the removal of any restrictive legend set forth thereon or (B) in the case of
the exercise by the Purchaser of the Warrants, the Purchaser has complied with
the procedures for exercise set forth in Section 3 of the Warrants, the Company
shall permit the transfer and, in the case of the Common Shares and Warrant
Shares, promptly instruct its transfer agent to issue the Common Shares and/or
Warrant Shares, as applicable, in such name and in such denominations as
specified by the Purchaser. If the Company's transfer agent is participating in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer program
and the Purchaser has provided the Company with appropriate instructions to
effect a DTC Transfer (including the DTC account number of the firm to which
such Common Shares and/or Warrant Shares are to be delivered), the Company shall
cause its transfer agent to electronically transmit the Common Shares and/or
Warrant Shares, as applicable, to the Purchaser or its transferee by crediting
the account of the Purchaser or its transferee with DTC through its Deposit
Withdrawal Agent Commission system ("DTC Transfer"). If the aforementioned
conditions to a DTC Transfer are not satisfied, the Company shall deliver to the
Purchaser or its transferee physical certificates representing the Common Shares
and/or Warrant Shares, as applicable, which certificates shall not bear any
legend restricting transfer of the Common Shares and/or Warrant Shares
represented thereby. Further, a Purchaser may instruct the Company to deliver to
the Purchaser or its transferee unlegended physical certificates (which
certificates shall be in denominations of not less than 50,000 shares)
representing the Common Shares and/or Warrant Shares, as applicable, in lieu of
delivering such shares by way of DTC Transfer.
d. If the Company fails (a "Legend Removal Failure") to deliver such
unlegended Common Shares and/or Warrant Shares to the Purchaser or its
transferee in accordance with Section 5(c) within five (5) business days after
the conditions to such delivery have been satisfied (the "Legend Removal
Period"), then the Company shall pay to the Purchaser an amount equal to One
Hundred Fifty Dollars ($150.00) per day for each day after the expiration of the
Legend Removal Period through and until the date on which the Company issues and
delivers unlegended, freely tradeable shares of Common Stock in accordance with
Section 5(c).
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The payments to which a holder shall be entitled pursuant to this
Section 5(d) are referred to herein as "Legend Removal Payments." The Purchaser
may elect to receive accrued Legend Removal Payments in cash or to convert all
or any portion of such accrued Legend Removal Payments, at any time, into Common
Stock at the lowest Market Price in effect during the period beginning on the
date of the Legend Removal Failure through the date of conversion of such Legend
Removal Payments. In the event the Purchaser elects to take such payment in
cash, cash payment will be made by the Company within five (5) days after its
receipt of written notice of such election from the Purchaser. In the event the
Purchaser elects to convert all or any portion of the Legend Removal Payment
into Common Stock, the Purchaser shall provide written notice of such election
specifying the amount of such Legend Removal Payment to be converted and the
applicable Market Price at which such amount is to be converted. The Company
shall deliver the shares of Common Stock issuable upon any such conversion to
the Purchaser within five (5) days of its receipt of such written notice from
the Purchaser.
Nothing herein shall limit the Purchaser's right to pursue actual
damages for the Company's failure to deliver unlegended Common Shares and
Warrant Shares pursuant to Section 5(c), and the Purchaser shall have the right
to pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Common
Shares and the Warrants to the Purchaser hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion:
a. The Purchaser shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The Purchaser shall have delivered the Purchase Price in accordance
with Section 1(b) above.
c. The representations and warranties of the Purchaser shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the Purchaser shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Purchaser at
or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters
-14-
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of the Purchaser hereunder to purchase the Common Shares
and the Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in the Purchaser's sole discretion:
a. The Company shall have executed this Agreement, the Warrants and the
Registration Rights Agreement, and delivered the same to the Purchaser.
b. The Company shall have delivered to the Purchaser duly executed
Warrants and certificates (in such denominations as the Purchaser shall request)
representing the Common Shares being so purchased by the Purchaser in accordance
with Section 1(b) above.
c. The Common Stock shall be authorized for quotation and listed on the
SmallCap and trading in the Common Stock (or the SmallCap generally) shall not
have been suspended by the SEC or the SmallCap.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Purchaser shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date to
the foregoing effect and as to such other matters as may be reasonably requested
by the Purchaser.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which questions the validity of, or challenges or
prohibits the consummation of any of the transactions contemplated by this
Agreement.
f. The Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit C
attached hereto.
g. There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, since the date hereof, and no
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information, of which the Purchaser is not currently aware, shall come to the
attention of the Purchaser that is materially adverse to the Company.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and the
Purchaser irrevocably consent to the jurisdiction of the United States federal
courts and the state courts located in the State of Delaware in any suit or
proceeding based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company and the Purchaser irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
and the Purchaser further agree that service of process mailed by first class
mail shall be deemed in every respect effective service of process in any such
suit or proceeding. Nothing herein shall affect the right of the Company or the
Purchaser to serve process in any other manner permitted by law. The Company and
the Purchaser agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement. In
the event any signature is delivered by facsimile transmission, the party using
such means of delivery shall cause the manually executed signature page to be
physically delivered to the other party within five (5) days of the execution
hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein. No provision of this Agreement may be
waived other than by an instrument in writing signed by the party to be charged
with enforcement and no provision of this Agreement may be amended other than by
an instrument in writing signed by the Company and the Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered
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personally or by courier or by confirmed telecopy, and shall be effective five
days after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or confirmed telecopy, in each
case addressed to a party. The addresses for such communications shall be:
If to the Company:
Focus Enhancements, Inc.
000 Xxxxx Xxxx
Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attn: Chief Financial Officer
with a copy simultaneously transmitted by like means to:
Xxxxxxxx & Worcester LLP
Xxx Xxxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Telecopy: (000) 000-0000
Attn: Xxxx Xxxxxxxx, Esq.
If to the Purchaser, to such address set forth under the Purchaser's
name on the execution page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein or therein, neither the Company nor the Purchaser shall assign
this Agreement, the Registration Rights Agreement or the Warrants or any rights
or obligations hereunder or thereunder. Notwithstanding the foregoing, the
Purchaser may assign its rights hereunder to any of its "affiliates" (as that
term is defined under the Exchange Act) who are Accredited Investors without the
consent of the Company (provided such assignees agree to be bound by all of the
terms and conditions hereof), or to any other person or entity with the consent
of the Company, which consent shall not be unreasonably withheld. This provision
shall not limit the Purchaser's right to transfer the Securities pursuant to the
terms of this Agreement, the Warrants and the Registration Rights Agreement or
to assign the Purchaser's rights hereunder and/or thereunder to any such
transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations, warranties, agreements and covenants
of the Company set forth in Sections 3, 4, 5 and 8 hereof shall survive the
Closing hereunder
-17-
notwithstanding any investigation conducted by or on behalf of the Purchaser,
and the representations and warranties of the Purchaser set forth in Sections 2
and 5 hereof shall survive the Closing hereunder notwithstanding any
investigation conducted by or on behalf of the Company. Moreover, none of the
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies the Purchaser may have under applicable federal or
state securities laws and none of the representations and warranties made by the
Purchaser herein shall act as a waiver of any rights or remedies the Company may
have under applicable federal or state securities laws. The Company agrees to
indemnify and hold harmless the Purchaser and each of the Purchaser's officers,
directors, employees, partners, members, agents and affiliates for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations or covenants set forth herein, including
advancement of reasonable expenses as they are incurred. The Purchaser agrees to
indemnify and hold harmless the Company and each of its officers, directors,
agents and affiliates for loss or damage arising as a result of or related to
any breach or alleged breach by the Purchaser of any of its representations or
warranties set forth herein, including advancement of reasonable expenses as
they are incurred.
j. Publicity. The Company and the Purchaser shall have the right to
review before issuance any press releases, SEC or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior review
of the Purchaser, to make any press release or SEC or NASD filings with respect
to such transactions as is required by applicable law and regulations (although
the Purchaser shall be consulted by the Company in connection with any such
press release and filing prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing Date shall not have
occurred on or before March 4, 1998, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.
m. [Intentionally omitted.]
n. Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant
-18-
to Section 5 hereof), that the Purchaser shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer of the Securities, without the necessity of
showing economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
FOCUS ENHANCEMENTS, INC.
By: /s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
PURCHASER:
JNC OPPORTUNITY FUND LTD.
By: /s/ X. Xxxxx
Name: X. Xxxxx
Title: Director
RESIDENCE: Cayman Islands
ADDRESS:
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Xxxxxxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxxxx XX00
Xxxxxxx
Telecopy: (000) 000-0000
Attention: Xxxxxx Xxxxx
with copies of all notices to:
Encore Capital Management, L.L.C.
00000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxx
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