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 


 

















 


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 


 

















 


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 


 

















 


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.


 

















 


(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.


 

















 


(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, 


 

















 


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.


 

















 


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 


 

















 


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.