TERMINATION AGREEMENT

         AGREEMENT  (this  "Agreement")  dated January 4, 2002,  between  Euston
Investments Holdings Limited ("Euston") and FOCUS Enhancements,  Inc. ("FOCUS").
In  consideration  of the mutual covenants and agreements of the parties hereto,
and for other good and valuable  consideration,  the receipt and  sufficiency of
which are hereby  acknowledged,  the  parties  hereto,  intending  to be legally
bound, do hereby agree as follows:

         1.       Termination.

                  (a) (i)  that the  exercise  price  of that  certain  warrant,
         issued to Euston on June 9, 2000, representing the right to purchase up
         to 250,000  shares of FOCUS's common stock (the  "Warrant"),  is hereby
         reduced from $1.625 to $0.75  (subject to  adjustment  in the Warrant),
         for the  remainder  of the term of the  Warrant  and Euston  shall have
         until June 12, 2003 to exercise  the Warrant into such shares of common
         stock,  (ii) that,  except as otherwise set forth  herein,  the Private
         Equity  Line of Credit  Agreement,  dated July 28,  2000 (as amended on
         February 6, 2001) between Euston and FOCUS, the agreements entered into
         in connection therewith (except the Warrant) and any amendments thereto
         (collectively,   the  "Purchase   Agreement")  are  hereby  terminated,
         whereupon the Purchase  Agreement  shall become null and void and of no
         further force or effect whatsoever,  (iii) that no party shall have any
         further or continuing obligations under the Purchase Agreement,  except
         for any  registration  rights with respect to the Warrants  thereunder,
         and (iv) that,  except as otherwise set forth herein,  each party shall
         be  irrevocably,  unconditionally  and  generally  released and forever
         discharged  (each, a "Releasee")  from any and all debts,  obligations,
         reckonings, promises, covenants, agreements,  contracts,  endorsements,
         bonds, suits, actions, specialties,  claims,  controversies,  causes of
         action, defaults,  demands or judgments, at law or in equity, which any
         of such parties ever had, now has or hereafter  can, shall or may have,
         against such  Releasee  under or in  connection  with the  transactions
         contemplated by the Purchase Agreement;  provided,  however,  that this
         termination  and release shall have no force or effect  whatsoever with
         respect to Euston's rights and FOCUS's  obligations under the Warrants,
         including any registration rights under the Purchase Agreement.  Euston
         shall not exercise the Warrant by means of a "cashless  exercise" until
         after  March  31,  2002 and  thereafter  only if there is no  effective
         registration  statement  registering  for  resale by Euston  the shares
         underlying the Warrant.  The Warrants are and remain duly authorized by
         all necessary corporate action, including the reduction in the exercise
         price of the  Warrants  hereunder,  and,  when  paid for or  issued  in
         accordance  with  the  terms  thereof,   the  shares  of  common  stock
         underlying the warrants shall be validly issued and outstanding,  fully
         paid and  non-assessable,  and Euston  shall be  entitled to all rights
         accorded to a holder of such common stock.

                  (b) The parties  mutually  agree not to make any defamatory or
         derogatory  statements  to any third  party,  whether  written or oral,
         concerning  one another  from the  beginning of the world to the end of
         time.

         2.       Miscellaneous.
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                           (a) Entire  Agreement.  This  Agreement  embodies the
         entire agreement and understanding among the parties hereto relating to
         the subject  matter  hereof and  supersedes  any prior  agreements  and
         undertakings among the parties which relate to such subject matter.

                           (b)  Binding  Agreement.   This  Agreement  shall  be
         binding  upon and inure to the  benefit of the  parties  hereto,  their
         respective successors, representatives and permitted assigns.

                           (c) Governing Law. This  Agreement  shall be governed
         by and construed in accordance with the laws of the State of New York.

                           (d) Severability.  If any provision of this Agreement
         shall be held invalid, illegal or unenforceable, the validity, legality
         and  enforceability  of all other provisions  hereof shall in no way be
         affected thereby.

                           (e)  Counterparts.  This Agreement may be executed in
         any number of  counterparts,  each of which shall be deemed an original
         but all of  which  taken  together  shall  constitute  one  instrument.
         Execution may be made by delivery by facsimile.

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<PAGE>

         IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.

                                            FOCUS ENHANCEMENTS, INC.


                                            By: /s/ Gary Williams
                                                -------------------------------
                                                    Gary Williams
                                                    V.P. of Finance & CFO

                                            EUSTON INVESTMENTS HOLDINGS LIMITED


                                            By: /s/ David Sims
                                                -------------------------------
                                                    David Sims
                                                    Director

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