EXHIBIT 10.1

 

FOCUS ENHANCEMENTS, INC.
AMENDED 2004 STOCK INCENTIVE PLAN

 

1.             Purpose.  This Stock Incentive Plan, to be known as the 2004
Stock Incentive Plan (hereinafter, this “Plan”), is intended to promote the
interests of Focus Enhancements, Inc. (hereinafter, the “Company”) by providing
an inducement to obtain and retain the services of qualified persons to serve as
employees of the Company or members of its Board of Directors (the “Board”).

 

2.             Available Shares.  The total number of shares of common stock,
par value $0.01 per share, of the Company (the “common stock”) for which options
or restricted stock may be granted under this Plan shall not exceed 5,952,000
shares, subject to adjustment in accordance with paragraph 2 of this Plan. 
Shares subject to this Plan are authorized but unissued shares or shares that
were once issued and subsequently reacquired by the Company.  If any options or
restricted stock granted under this Plan are surrendered or forfeited before
exercise or lapse without exercise, in whole or in part, the shares reserved
therefore shall continue to be available under this Plan.

 

In the event of any change in the outstanding shares of common stock or other
securities then subject to the Plan by reason of any stock split, reverse stock
split, stock dividend, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change, or if the outstanding
securities of the class then subject to the Plan are exchanged for or converted
into cash, property or a different kind of security, or if cash, property or
securities are distributed in respect of such outstanding securities (other than
a regular cash dividend), then, unless the terms of such transaction shall
provide otherwise, such equitable adjustments shall be made in the Plan and the
awards thereunder (including, without limitation, appropriate and proportionate
adjustments in (i) the number and type of shares or other securities that may be
acquired pursuant to awards theretofore granted under the Plan; (ii) the maximum
number and type of shares or other securities that may be issued pursuant to
awards thereafter granted under the Plan; (iii) the number of shares of
restricted stock that are outstanding; and (iv) the maximum number of shares or
other securities with respect to which awards may thereafter be granted to any
Participant in any Plan Year) as the Committee determines are necessary or
appropriate, including, if necessary, any adjustment in the maximum number of
shares of common stock available for distribution under the Plan as set forth in
this Section 3. Such adjustments shall be conclusive and binding for all
purposes of the Plan.

 

3.             Administration.  This Plan shall be administered by the by the
Compensation Committee, which consists of two or more members of the Board, each
of whom shall be both a “Non-Employee Director,” as that term is defined in
Rule 16b-3(b)(3)(i) of the Exchange Act, and an “outside director” within the
meaning of Section 162(m) of the Code. The Committee shall, subject to the
provisions of the Plan, have the power to construe this Plan, to determine all
questions hereunder, and to adopt and amend such rules and regulations for the
administration of

 

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this Plan as it may deem desirable.  No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to this Plan or any option granted under it.

 

4.                                       Grant of Options or Restricted Shares /
Eligibility.  Subject to the availability of shares under this Plan, the
Committee may make grants of options and/or restricted shares to employees of
the Company and/or members of the Board under this Plan from time to time in
accordance with the terms of the Plan.

 

5.                                       Stockholder Approval.  Anything in this
Plan to the contrary notwithstanding, the effectiveness of this Plan and of the
grant of all options or restricted stock hereunder is in all respect subject to
this Plan and options or restricted stock granted under it shall be of no force
and effect unless and until the approval of this Plan by the vote of the holders
of a majority of the Company’s shares of common stock present in person or by
proxy and entitled to vote at a meeting of stockholders at which this Plan is
presented for approval.

 

6.                                       Options.  (a) Option Price.  The
purchase price of the stock covered by an option granted pursuant to this Plan
shall be 100% of the fair market value of such shares on the day the option is
granted.  The option price will be subject to adjustment in accordance with the
provisions of paragraph 2 of this Plan.  For purposes of establishing the
exercise price and for all other valuation purposes under the Plan, the fair
market value of a share of common stock on any relevant date will be the closing
sales price of the common stock in the case where the common stock is traded on
a national securities exchange, the NASDAQ Capital Market or NASDAQ National
Market.  Alternatively, fair market value shall be determined by the average
between the highest and lowest sales price quoted (on that date) by an
established quotation service if the common stock is quoted on the
over-the-counter bulletin board (the “OTCBB”).   If the common stock is not
publicly traded on a national securities exchange, the Nasdaq Capital Market,
Nasdaq National Market or OTCBB, “fair market value” shall be deemed to be the
fair value of the common stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the common stock in private
transactions negotiated at arm’s length.

 

(b)           Period of Option.  Unless sooner terminated in accordance with the
provisions of paragraph 6(e) of this Plan, an option granted hereunder shall
expire on the date set by the Board or the Committee in its discretion but in no
case shall such expiration date exceed ten (10) years after the date of grant.

 

(c)           Vesting of Options and Non-Transferability of Options.  Options
granted under this Plan shall not be exercisable until they become vested. 
Options granted under this Plan shall vest in the optionee and thus become
exercisable in accordance with the vesting schedule as determined by the
Committee from time to time in a option grant letter, or upon the occurrence of
a specified event or performance criteria (including certain performance
criteria similar to that set forth in paragraph 7(b)(4)), provided, however, the
optionee has continuously served as a member of the Board, as an employee of the
Company, or in another advisory role to the Company.

 

The number of shares as to which options may be exercised shall be cumulative,
so that

 

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once the option shall become exercisable as to any shares it shall continue to
be exercisable as to said shares, until expiration or termination of the option
as provided in this Plan; provided however, any option granted under this Plan
shall in no event be exercised unless and until this Plan has been approved by
the Company’s stockholders, but upon such approval the vesting shall become
effective as of the date of the grant.

 

(d)           Non-transferability.  Any option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee’s lifetime only by him or her.

 

(e)           Termination of Option Rights.

 

(1)           Except as otherwise specified in the agreement relating to an
option, in the event an optionee ceases to be an employee of Company or a member
of the Board, as the case may be, for any reason other than death or permanent
disability, any then unexercised portion of options granted to such optionee
shall, to the extent not then vested, immediately terminate and become void;
except as set forth in paragraphs 6(b) and 6(c), any portion of an option which
is then vested but has not been exercised at the time the optionee so ceases to
be a member of the Board or an employee may be exercised, to the extent it is
then vested by the optionee within ninety days after such event.

 

(2)           Notwithstanding the foregoing, in the event any optionee who is a
member of the Board of Directors (i) ceases to be a member of the Board of
Directors at the request of the Company, (ii) is removed without cause, or
(iii) otherwise does not stand for nomination or re-election as a director of
the Company at the request of the Company, then any portion of any Option
granted to such optionee may be exercised, to the extent it is then vested by
the optionee within one year after such event.

 

(3)           Notwithstanding anything to the contrary herein, in no event shall
any option be exercised if the optionee is dismissed from employment or removed
from the Board of Directors for any one of the following reasons: 
(i) disloyalty, gross negligence, dishonesty or breach of fiduciary duty to the
Company; or (ii) the commission of an act of embezzlement, fraud or deliberate
disregard of the rules or polices of the Company which results in loss, damage
or injury to the Company, whether directly or indirectly; or (iii) the
unauthorized disclosure of any trade secret or confidential information of the
Company; or (iv) the commission of an act which constitutes unfair competition
with the Company or which induces any customer of the Company to break a
contract with the Company; or (v) the conduct of any activity on behalf of any
organization or entity which is a competitor of the Company (unless such conduct
is approved by a majority of the members of the Board of Directors).

 

(4)           In the event that an optionee ceases to be an employee of the
Company or a member of the Board, as the case may be, by reason of his or her

 

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death or permanent disability, any option granted to such optionee shall be
immediately and automatically accelerated and become fully vested and all
unexercised options shall be exercisable by the optionee (or by the optionee’s
personal representative, heir or legatee, in the event of death) for a period of
one year thereafter.

 

(f)            Exercise of Option.  Subject to the terms and conditions of this
Plan and the option agreements, an option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Secretary of the Company by mail or in person addressed to FOCUS
Enhancements, Inc., 1370 Dell Avenue, Campbell, California 95008, at its
principal executive offices, or other such address as optionee may be informed
from time to time, stating the number of shares with respect to which the option
is being exercised, accompanied by payment in full for such shares.  Payment may
be (a) in United States dollars in cash or by check, (b) in whole or in part in
shares of the common stock of the Company already owned by the person or persons
exercising the option or shares subject to the option being exercised (subject
to such restrictions and guidelines as the Board may adopt from time to time),
valued at fair market value determine in accordance with the provisions of
paragraph 6 or (c) consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
to the broker or selling agent to pay that amount to the Company, which sale
shall be at the participant’s direction at the time of exercise. 
Notwithstanding the foregoing, the Committee shall have the authority, in their
absolute discretion to settle options that are exercised by way of the “cashless
exercise” method described in (c) of this paragraph 9 through an issuance of the
“net shares,” where the term “net shares” is the number of shares that is
equivalent in value to the fair market value of the underlying stock on the
exercise date, as determined in accordance with the provisions of paragraph 5,
less the exercise price.  The Company’s transfer agent shall, on behalf of the
Company, prepare a certificate or certificates representing such shares acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares on the books of the Company and shall cause the fully executed
certificate(s) representing such shares to be delivered to the optionee as soon
as practicable after payment of the option price in full.  The holder of an
option shall not have any rights of a stockholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise of the
option.

 

7.             Restricted Stock.  Restricted stock awards under the Plan shall
consist of grants of shares of common stock of the Company subject to the terms
and conditions hereinafter provided.

 

(a)           Grant of Awards.  The Committee shall (i) select the officers and
key employees to whom restricted stock may from time to time be granted,
(ii) determine the number of shares to be covered by each award granted,
(iii) determine the issue price; (iv) determine the terms and conditions (not
inconsistent with the Plan) of any award granted hereunder, and (v) prescribe
the form of the agreement, legend or other instrument necessary or advisable in
the administration of awards under the Plan.  Restricted stock may be granted to
Board members in lieu of Board fees.

 

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(b)           Terms and Conditions of Awards.  Any restricted stock award
granted under the Plan shall be evidenced by a Restricted Stock Agreement
executed by the Company and the recipient, in such form as the Committee shall
approve, which agreement shall be subject to the following terms and conditions
and shall contain such additional terms and conditions not inconsistent with the
Plan as the Committee shall prescribe:

 

(1)           Number of Shares Subject to an Award:  The Restricted Stock
Agreement shall specify the number of shares of common stock subject to the
Award.

 

(2)           Restriction Period:  The period of restriction applicable to each
Award shall be established by the Committee but may not be less than one year,
unless the Committee determines otherwise.  The Restriction Period applicable to
each Award shall commence on the Award Date.

 

(3)           Consideration:  With respect to employees of the Company, each
recipient, as consideration for the grant of an award, shall remain in the
continuous employ of the Company for at least one year from the date of the
granting of such award, or as otherwise determined by the Committee, and any
shares covered by such an award shall lapse if the recipient does not remain in
the continuous employ of the Company for at least one year from the date of the
granting of the award, except as otherwise determined by the Committee.

 

(4)           Restriction Criteria:  The Committee shall establish the criteria
upon which the Restriction Period shall be based.  Restrictions shall be based
upon either or both of (i) the continued employment of the recipient or (ii) the
attainment by the Company of one or more of the following measures of operating
performance:

 

a.  Earnings

 

b.  Revenue

 

c.  Operating or net cash flows

 

d.  Financial return ratios

 

e.  Total Stockholder Return

 

f.  Market share

 

The Committee shall establish the specific targets for the selected criteria
and, in its judgment, can select additional measures of performance.  These
targets may be set at a specific level or may be expressed as relative to the
comparable measure at comparison companies or a defined index.  These targets
may be based upon the total Company, one or more business units of the Company
or a defined business unit that the executive has responsibility for or
influence over.  In cases where objective performance criteria are established,
the Committee shall determine the extent to which the criteria have been
achieved and the corresponding level to which restrictions will be removed from
the Award or the extent to which a participant’s right to receive an Award
should be lapsed in cases where the performance criteria have not been met and
shall certify these determinations in writing.  The Committee may provide for
the determination of the attainment of such restrictions in installments where
deemed appropriate.

 

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(c)           Terms and Conditions of Restrictions and Forfeitures.  The shares
of common stock awarded pursuant to the Plan shall be subject to the following
restrictions and conditions:

 

(1)           During the Restriction Period, the participant will not be
permitted to sell, transfer, pledge or assign restricted stock awarded under
this Plan.

 

(2)           Except as provided in Section 7(c)(1), or as the Committee may
otherwise determine, the participant shall have all of the rights of a
stockholder of the Company, including the right to vote the shares and receive
dividends and other distributions provided that distributions in the form of
stock shall be subject to the same restrictions as the underlying restricted
stock.

 

(3)           In the event of a participant’s retirement, death or disability
prior to the end of the Restriction Period for a participant who has satisfied
the one year employment requirement of Section 7(b)(3) with respect to an award
prior to retirement, death or disability, or as otherwise determined by the
Committee, the participant, or the participant’s estate, shall be entitled to
receive that proportion (to the nearest whole share) of the number of shares
subject to the Award granted as the number of months of the Restriction Period
which have elapsed since the Award date to the date at which the participant’s
retirement, death or disability occurs, bears to the total number of months in
the Restriction Period.  The participant’s right to receive any remaining shares
shall be canceled and forfeited and the shares will be deemed to be reacquired
by the Company.

 

(4)           In the event of a participant’s retirement, death, disability or
in cases of special circumstances as determined by the Committee, the Committee
may, in its sole discretion when it finds that such an action would be in the
best interests of the Company, accelerate or waive in whole or in part any or
all remaining time based restrictions with respect to all or part of such
participant’s restricted stock.

 

(5)           Upon termination of employment for any reason during the
Restriction Period, subject to the provisions of paragraph (3) above or in the
event that the participant fails promptly to pay or make satisfactory
arrangements as to the withholding taxes as provided in the following paragraph,
all shares still subject to restriction shall be forfeited by the participant
and will be deemed to be reacquired by the Company.

 

(6)           A participant may, at any time prior to the expiration of the
Restriction Period, waive all rights to receive all or some of the shares of a
restricted stock Award by delivering to the Company a written notice of such
waiver.

 

(7)           Notwithstanding the other provisions of this Section 7, the
Committee may adopt rules that would permit a gift by a participant of
restricted shares to members of the participant’s immediate family (spouse,
parents,

 

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children, stepchildren, grandchildren or legal dependants) or to a trust whose
beneficiary or beneficiaries shall be either such a person or persons or the
participant.

 

(8)           Any attempt to dispose of restricted stock in a manner contrary to
the restrictions shall be ineffective.

 

8.             Acceleration Upon Change in Control.  The Committee may, in its
discretion, provide that unvested awards will accelerate upon the occurrence of
a Change in Control.  The terms of such acceleration shall be specifically set
out in an agreement upon the grant of an award or pursuant to an employment,
severance or similar agreement.

 

“Change in Control” shall mean any of the following occurrences:

 

(a) any “person,” as such term is used in Sections 13(d) and 14(d) of the
Exchange Act (other than the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company), is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company’s then outstanding securities;

 

(b) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors, and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (a), (c) or (d) of this
definition) whose election by the Board of Directors or nomination for election
by the Company’s stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;

 

(c) the stockholders of the Company approve a merger or consolidation of the
Company with any other entity, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
(ii) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no “person” (as hereinabove defined)
acquires more than 50% of the combined voting power of the Company’s then
outstanding securities; or

 

(d) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.

 

9.             Legend on Certificates.  The certificates representing restricted
shares or shares issued pursuant to the exercise of an option granted hereunder
shall carry such appropriate legend, and such written instructions shall be
given to the Company’s transfer agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933 or any state securities laws.

 

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10.           Representations of Optionee.  If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1933).

 

11.           Agreement.  Each option or restricted stock award granted under
the provisions of this Plan shall be evidenced by an agreement, which agreement
shall be duly executed and delivered on behalf of the Company and by the grantee
to whom such award is granted.  The agreement shall contain such terms,
provisions and conditions not inconsistent with this Plan as may be determined
by the committee and the officer executing it.

 

12.           Termination and Amendment of Plan.  Awards may no longer be
granted under this Plan after May 27, 2014, and this Plan shall terminate when
all options granted or to be granted hereunder are no longer outstanding.  The
Board may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that if stockholder approval
of the Plan is required by law, the Board may not, without approval by the
affirmative vote of the holders of a majority of the shares of common stock
present in person or by proxy and voting on such matter at a meeting,
(a) increase the maximum number of shares for which awards may be granted under
this Plan (except by adjustment pursuant to Section 8), (b) materially modify
the requirements as to eligibility to participate in this Plan, (c) materially
increase benefits accruing to option holders under this Plan or (d) amend this
Plan in any manner which would cause Rule 16b-3 under the Securities Exchange
Act (or any successor or amended provision thereof) to become inapplicable to
this Plan Termination or any modification or amendment of this Plan shall not,
without consent of a participant, affect his or her rights under an option
previously granted to him or her.

 

13.           Reorganization or Liquidation of the Company.  In the event of
(a) the complete liquidation of the Company, (b) a merger, reorganization, or
consolidation of the Company with any other corporation (other than a Subsidiary
of the Company) in which the Company is not the surviving corporation, or
(c) the sale of all or substantially all of the Company’s assets, any unvested
restricted stock and unexercised options then outstanding shall be deemed
canceled as of the effective date of such event unless the surviving corporation
in any such merger, reorganization or consolidation or the acquiring corporation
in any such sale elects to assume the unvested restricted stock and unexercised
options under the Plan or to issue substitute unvested restricted stock and
options in place thereof.  Notwithstanding anything in this Plan or any option
agreement to the contrary, the Company shall not be deemed to have been
liquidated by reason of the merger or consolidation of the Company with or into
a Subsidiary of the Company in a transaction in which the Company is not the
surviving corporation.  The Company shall give each optionee at least thirty
(30) days prior written notice of the anticipated effective date of any such
liquidation, merger, reorganization, consolidation or sale.  Notwithstanding
anything in this Plan or in any Stock Option Agreement to the contrary, (i) all
Option exercises effected during the 30-day period prior to the effective date
of any such merger, reorganization , consolidation or sale, shall be deemed to
be effective immediately prior to the closing of such liquidation, merger,
reorganization, consolidation or sale and (ii), if the Company abandons or
otherwise fails to close any such liquidation, merger, reorganization,
consolidation or sale, then (a) all exercises during

 

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the foregoing 30-day period shall cease to be effective ab initio and (b) the
outstanding options shall be exercisable as otherwise determined under the
applicable option agreement and without consideration of this paragraph 12 or
the corresponding provisions of any option agreement.

 

14.           Withholding of Income Taxes.  The Company shall make appropriate
provisions for the payment of any Federal, state or local taxes or any other
charges that may be required by law to be withheld by reason of a grant or the
issuance of shares of common stock pursuant to the Plan.    At the election of
the optionee or restricted stockholder, the withholding obligation may be
satisfied: (a) through payment in United States dollars in cash or check,
(b) through the optionee’s or restricted stockholder’s surrender of shares of
common stock that the optionee or restricted stockholder had owned for more than
six (6) months prior to the date of such transfer, (c) by authorizing a
Company-approved third party to sell the shares (or a sufficient portion of the
shares) acquired upon exercise of the option and remit to the Company a
sufficient portion of the sale proceeds to pay any tax withholding resulting
from such exercise, and (d) through the Company’s retention of shares of common
stock which would otherwise be issued as a result of the exercise of the option
or the award of the restricted stock.  Notwithstanding the foregoing, in the
case where optionee elects tax withholding alternative (c), the Committee shall
have the authority, in their absolute discretion to satisfy the employer tax
withholding holding through the Company’s retention of shares of common stock
which would otherwise be issued as a result of the exercise of the option.

 

15.           Compliance with Regulations.  It is the Company’s intent that the
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended provision thereof) and any applicable
Securities and Exchange Commission interpretations thereof.  If any provision of
this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall
be null and void.

 

16.           Governing Law.  The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.

 

Approved by Board of Directors of the Company, as amended: October 22, 2007.

 

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