Document:

EXHIBIT 10.4

 

FOCUS ENHANCEMENTS, INC.

EXECUTIVE RESTRICTED STOCK

AGREEMENT

 

We are pleased to notify you that FOCUS
ENHANCEMENTS, INC., a Delaware corporation (the “Company”) hereby grants to you
a restricted stock award (“Award”) under the Focus Enhancements, Inc. 2004
Stock Incentive Plan (the “Plan”) to receive the shares of the Common Stock of
the Company (the “Award Shares”) as described in your Notice of Award of
Restricted Stock and this Restricted Stock Agreement.

 

EXCEPT AS EXPRESSLY SET FORTH IN THIS
RESTRICTED STOCK AGREEMENT, THE AWARD IS SUBJECT TO AND MAY BE EXECUTED ONLY IN
ACCORDANCE WITH THE PLAN.  ONLY CERTAIN
PROVISIONS OF THE PLAN ARE SUMMARIZED IN THIS RESTRICTED STOCK AGREEMENT.  THE TERMS OF THE PLAN ARE INCORPORATED HEREIN
BY REFERENCE.  IN THE EVENT OF ANY
CONFLICT BETWEEN THE PROVISIONS IN THIS RESTRICTED STOCK AGREEMENT AND THE
PLAN, THE PROVISIONS IN THE PLAN SHALL GOVERN. 
A COPY OF THE PLAN IS ATTACHED AND IS AVAILABLE FOR YOUR INFORMATION
FROM THE COMPANY.

 

1.     Grant of Award.  Subject to the terms of this Restricted Stock
Agreement and the Plan, the Company hereby grants to you the Award for that
number of shares of restricted stock set forth in the Notice of Award of
Restricted Stock.

 

2.     Nontransferability of
Award and Shares.  The Award shall
not be transferable (including by sale, assignment, pledge or hypothecation)
other than by will or the laws of intestate succession.  The designation of a beneficiary does not
constitute a transfer.  You shall not
sell, transfer, assign, pledge or otherwise encumber the shares subject to the
Award until all vesting requirements have been met.

 

3.     Shareholder Rights.  Except as provided in Section 2, you 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.

 

4.     Vesting
and Earning of Award.

 

(a)           If
you continue to serve the Company as an employee, officer, or director (such
service is described herein as maintaining or being involved in a “Service
Relationship” with the Company), then the Award shall vest in accordance with
the Notice of Award of Restricted Stock.

 

The foregoing notwithstanding, this Award
shall become immediately vested with respect to all the Award Shares hereunder
if while you continue to maintain a Service Relationship with the Company a
change of control as defined herein occurs. 
For purposes of this Restricted Stock Agreement a “change in control”
shall mean: (x) a merger or consolidation of the Company with or into, or the

 

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acquisition of the Company by, another
entity, or (y) the sale of all or substantially all of the stock or assets of
the Company in a transaction or series of related transactions such that the
stockholders of the Company immediately prior to such event do not immediately
after giving effect to such event beneficially own voting securities
representing in the aggregate more than 50% of the combined voting power of the
voting securities of the surviving entity or the entity purchasing such stock
or assets (the “Surviving Entity”) or the members of the Board of Directors of
the Company immediately prior to such event do not immediately after giving
effect to such event constitute a majority of the Board of Directors of the
Surviving Entity.

 

(b)           The
Committee has sole authority to determine whether and to what degree the Award
has vested and been earned and is payable and to interpret the terms and
conditions of this Restricted Stock Agreement and the Plan.

 

5.     Termination of Employment.  In the event that your Service Relationship
with the Company is terminated for any reason, other than death or disability
as set forth in Section 6, and you have not yet earned all or part of the Award
pursuant to Section 4, then the Award, to the extent not earned as of your
termination date, shall be forfeited immediately upon such termination, and you
shall have no further rights with respect to the Award or the Award Shares
underlying that portion of the Award that have not yet been earned and
vested.  You expressly acknowledge and
agree that the termination of your Service Relationship with the Company shall
result in forfeiture of the Award and the Award Shares to the extent the Award
has not been earned and vested as of the date of his termination of service or
employment.

 

6.     Death or Permanent
Disability.  If your Service
Relationship with the Company is terminated due to death or disability before
the first anniversary of the Award Date, the entire Award is forfeited.  If your employment with the Company is
terminated due to death or disability after the first anniversary of the Award
Date, a pro-rata portion of the Award Shares, to the extent that the Award
Shares are partially vested on the termination date, will be converted into
Shares and issued to you or your legal representatives, beneficiaries, or
heirs, as the case may be.  In
determining the pro-rata portion of the Award Shares that are vested on the
termination date, the Committee will consider the number of months worked by
you during the 12-calendar month period immediately preceding the next
anniversary of the Award Date under the following formula:

 

	
  Number of Award Shares
  scheduled to vest on the next anniversary of the Award Date

  	
  multiplied
  by

  	
  [Number
  of calendar months worked by you during the 12-month period immediately prior
  to the next anniversary of the Award Date] divided by 12

  

 

You will be deemed to have worked a calendar month
if you have worked any portion of that month. 
The Committee’s determination of vested Award Shares shall be in whole
Award Shares only and shall be binding on you.

 

7.     Settlement of Award.  The Committee shall determine whether the
Award, if earned in accordance with Section 4 herein, is payable in cash or
whole shares of Common Stock, or

 

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partly in cash
and partly in whole shares of Common Stock. 
The Company shall not be obligated to deliver any shares hereunder for
such period as may be required by it in order to comply with applicable federal
or state statutes, laws and regulations.

 

8.     No
Acquired Rights.  You agree and
acknowledge that:

 

(a)                  the
Plan is discretionary in nature and that the Company can amend, cancel, or
terminate it at any time;

 

(b)                  the
grant of this Award under the Plan is voluntary and occasional and does not
create any contractual or other right to receive future grants of any Awards or
benefits in lieu of any Awards, even if Awards have been granted repeatedly in
the past and regardless of any reasonable notice period mandated under local
law;

 

(c)                  the
value of this Award is an extraordinary item of compensation which is outside
the scope of your employment contract, if any;

 

(d)                  this
Award is not part of normal or expected compensation or salary for any
purposes, including, but not limited to, calculating termination, severance,
resignation, redundancy, end of service payments, bonuses, long-service awards,
pension, retirement benefits, or similar payments;

 

(e)                  this
Award shall expire upon termination of your Service Relationship with the
Company for any reason except as may otherwise be explicitly provided in the
Plan and this Restricted Stock Agreement;

 

(f)                   the
future value of the shares awarded under the Plan is unknown and cannot be
predicted with certainty;

 

(g)                  no
claim or entitlement to compensation or damages arises from the termination of
this Award or diminution in value of this Award or Award Shares purchased under
the Plan and you irrevocably release the Company from any such claim; and

 

(h)                  your
participation in the Plan shall not create a right to further employment with
the Company and shall not interfere with the ability of the Company to
terminate your employment relationship at any time, with or without cause.

 

9.     Tax Withholding.

 

(a)           The Company will assess its
requirements regarding tax, social security, and other applicable taxes (“Tax
Items”) in connection with the Award. These requirements may change from time
to time as laws or interpretations change. Regardless of the Company’s actions
in this regard, you acknowledge and agree that the ultimate liability for Tax
Items is your responsibility.  You
acknowledge and agree that the Company and/or your employer:

 

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(i)            make no representations or
undertakings regarding the treatment of any Tax Items in connection with any
aspect of the Award, including the subsequent sale of Award Shares acquired
under the Plan; and

 

(ii)           do not commit to structure the terms
of the Award or any aspect of the Award to reduce or eliminate your liability
for Tax Items.

 

(b)           Prior to the settlement of the Award, you
must pay or make adequate provisions for the withholding of Tax Items.  You authorize the Company to collect the Tax
Items by withholding from the delivery of the Award Shares a whole number of
shares with a value equal to or in excess of the minimum withholding obligation
for Tax Items. The amount withheld in excess of the minimum withholding
obligation for Tax Items should not exceed the Fair Market Value of one share
of Common Stock on the vesting date.  The
Company or your employer will remit the total amount withheld for Tax Items to
the appropriate tax authorities. You shall pay to the Company or your employer
any amount of any Tax Items that the Company or your employer may be required
to withhold as a result of participation in the Plan that cannot be satisfied
by the means previously described.

 

10.   Fractional Award Shares. 
In the event that the Award is settled in shares as set forth in Section 7 and
in the event that you are vested in a fractional portion of an Award Share (a “Fractional Portion”),
such Fractional Portion shall not be converted into a share or issued to
you.  Instead, the Fractional Portion shall remain unconverted until the
final vesting date for the Award Shares; provided,
however, if a subsequent Fractional Portion is received by you prior
to the final vesting date for the Award Shares, it may be added to an existing Fractional
Portion accrued by you  under this Award such that the
resulting sum would be equal to or greater than a whole Share,
then such Fractional Portions shall be converted into one share; provided, further, that following such
conversion, any remaining Fractional Portion shall remain unconverted.  Upon the final vesting date, the value of any
remaining Fractional Portion(s) shall be paid in cash to you at the same time
as the conversion of the remaining Award Shares.

 

11.   Administration.  The authority to construe and interpret this
Restricted Stock Agreement and the Plan, and to administer all aspects of the
Plan, shall be vested in the Committee (as such term is defined in the Plan),
and the Committee shall have all powers with respect to this Restricted Stock
Agreement as are provided in the Plan. 
Any interpretation of the Restricted Stock Agreement by the Committee
and any decision made by it with respect to the Restricted Stock Agreement is
final and binding.

 

12.   Adjustments Upon Changes
in Capitalization.  In the event of
any change in the outstanding Common Stock of the Company by reason of stock
dividends, recapitalization, mergers, consolidations, split-up, combinations or
exchanges of shares and the like, the aggregate number or class of shares
subject to this Award immediately prior to such event shall be appropriately
adjusted by the Board of Directors in accordance with the terms of the Plan,
and such adjustment shall be conclusive.

 

13.   Superseding Agreement;
Binding Effect.  This Restricted
Stock Agreement supersedes any statements, representations or agreements of the
Company with respect to the grant of the Award or any related rights, and you
hereby waive any rights or claims related to

 

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any such
statements, representations or agreements. 
This Restricted Stock Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective executors,
administrators, next-of-kin, successors and assigns.

 

14.   Governing Law.  Except as otherwise provided in the Plan or
herein, this Restricted Stock Agreement shall be construed and enforced
according to the laws of the State of Delaware, without regard to the conflict
of laws provisions of any state.

 

15.   Amendment and
Termination; Waiver.  Subject to the
terms of the Plan, this Restricted Stock Agreement may be modified or amended
only by the written agreement of the parties hereto.  The waiver by the Company of a breach of any
provision of the Restricted Stock Agreement by you shall not operate or be
construed as a waiver of any subsequent breach by you.

 

16.   Notices.  Except as may be otherwise provided by the
Plan, any written notices provided for in this Restricted Stock Agreement or
the Plan shall be in writing and shall be deemed sufficiently given if either
hand delivered or if sent by fax or overnight courier, or by postage paid first
class mail.  Notices sent by mail shall
be deemed received three business days after mailed but in no event later than
the date of actual receipt.  Notice may
also be provided by electronic submission, if and to the extent permitted by
the Committee.  Notices shall be
directed, if to you, at your address indicated by the Company’s records, or if
to the Company, at the Company’s principal office, attention Secretary.

 

17.   Severability.  The provisions of this Restricted Stock
Agreement are severable and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the remaining
provisions shall nevertheless be binding and enforceable.

 

18.   Counterparts; Further
Instruments. This Restricted Stock Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  The parties hereto agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Restricted Stock
Agreement.

 

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In signing below, you hereby agree to the
terms of this Restricted Stock Agreement and the Plan and acknowledge receipt
of a copy of the Plan.

 

	
   

  	
  EMPLOYEE:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  (print)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
						

 

6Exhibit 10.1

 

 

September 26, 2005

 

 

Ms. Linda Miller

15 Turnberry Lane

Pittsford, NY 14534

 

Dear Linda,

 

This letter confirms our
agreement wherein you will serve as the Acting President of Department 56, Inc.
(D56) from the date you sign this letter until June 15, 2006, (the
Consulting Period) unless earlier terminated pursuant to the terms set out
below.

 

	
  Position Status:

  	
   

  	
  You agree to be
  retained on an independent consultant basis to act in the capacity of Acting
  President of D56 during the Consulting Period. You agree to perform the
  Consulting Duties set out below for the Compensation set out below. Further,
  you agree that you are not an employee of D56 or any of its subsidiaries and
  that performing the Consulting Duties does not create an employer/employee
  relationship between you and D56 or any of its subsidiaries.

  
	
   

  	
   

  	
   

  
	
  Compensation:

  	
   

  	
  Your
  compensation as Acting President will be $2500 per working day based upon an
  average of three days per week. You will be paid once D56 receives an invoice
  from you, with no deductions for income taxes or other customary deductions
  taken from an employee’s pay check.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In addition, D56
  will provide you with the following as additional compensation for your
  services:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •      Paid
  living expenses in a Marriott Residence Inn or comparable accommodations;

  
	
   

  	
   

  	
  •      Fax
  machine;

  
	
   

  	
   

  	
  •      Rental
  car for time spent in the Minneapolis area;

  
	
   

  	
   

  	
  •      Coach airfare between your home in
  Rochester, New York and Minneapolis on a weekly basis;

  
	
   

  	
   

  	
  •      Coach airfare for your family to travel
  to Minneapolis four times within the Consulting Period;

  

 

1

 

	
   

  	
   

  	
  At the time the new
  President is transitioned into the position, this Agreement will terminate
  and your existing consulting agreement with the Company will be reinstated.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  If this Agreement is
  terminated early pursuant to the Early Termination of Consulting Period terms
  below, you will not continue to receive any unused benefits listed above or
  their cash equivalent.

  
	
   

  	
   

  	
   

  
	
  Benefits:

  	
   

  	
  You are not
  eligible to receive any benefits that D56 regularly provides to its
  employees, including, but not limited to health or dental insurance, paid
  holidays, or 401(k) plan benefits.

  
	
   

  	
   

  	
   

  
	
  Stock Options
  and Restricted Stock

  	
   

  	
  You will receive
  10,000 shares of restricted stock in Department 56, Inc. Such shares
  shall vest twelve months from the grant date, which will be the date you sign
  this letter, provided you perform consulting services throughout said twelve
  month period under both this Agreement and your prior consulting agreement,
  which will be reinstated upon successful completion of this Agreement, except
  that if D56 terminates your services without cause prior to the expiration of
  said twelve month period, your grant of restricted stock will vest immediately
  upon said termination date. In addition, you will receive 20,000 stock
  options in Department 56, Inc., which will vest upon signing this
  letter. Your stock option price will be the average of the high and low price
  on the day you sign this letter.

  
	
   

  	
   

  	
   

  
	
  Consulting Duties:

  	
   

  	
  Throughout the
  Consulting Period you will regularly perform a broad range of advisory and
  management services on behalf of D56 with regard to managing the Company,
  including, but not limited to the following:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •      Managing
  the day-to-day operations of Department 56, Inc.;

  
	
   

  	
   

  	
  •      Hiring
  a replacement for Elise Linehan to fulfill the position of chief product
  development officer. Assisting in the transition and training of the
  replacement by working with Elise to effect a transition program;

  
	
   

  	
   

  	
  •      Assisting
  in hiring a President of Department 56, Inc. Working to transition and
  integrate the new President into his/her role;

  
	
   

  	
   

  	
  •      Ensuring
  the execution of the three-year strategic plan presented to the Department
  56, Inc. Board of Directors at the September 14, 2005, quarterly
  board meeting; and

  

 

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  •      Assisting
  the new President in preparing for the 2007 three-year planning cycle.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  You will also
  perform such other services as the Chairwoman & CEO of D56 may
  request from time to time during the Consulting Period. In performing your
  services during the Consulting Period you will do so consistent with
  Department 56, Inc.’s direction and policies, including the Code of
  Ethics and Business Conduct. In this connection, during and after the
  Consulting Period you will keep confidential and not disclose any and all
  nonpublic information relating to Department 56, Inc and/or its subsidiaries.

  
	
   

  	
   

  	
   

  
	
  Early
  Termination Of

  	
   

  	
  In the event
  that D56 or you (1) commit any material fraud

  
	
   

  	
   

  	
   

  
	
  Consulting
  Period:

  	
   

  	
  against the
  other, (2) commit any unlawful act which adversely affects the other’s
  commercial prospects or (3) willfully or habitually breach or neglect
  our respective obligations under this letter agreement, the other party may
  terminate the consulting engagement with 30 days’ prior written notice, and
  during such 30 day period you and D56 shall meet to attempt to resolve the
  matters giving rise to the termination notice.

  
	
   

  	
   

  	
   

  
	
  Noncompetition:

  	
   

  	
  From the date
  you sign this letter through one year following expiration of the Consulting
  Period, you agree that you will not own (other than a negligible interest),
  manage, operate, join, be employed by or otherwise provide services anywhere
  in the world to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •      Any person or firm engaged in the
  design, development, production or distribution of miniature decorative or
  collectible buildings or coordinated “village” accessories; or

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •      Any person or firm engaged in the
  design, development, production or distribution of giftware, home décor or
  tabletop products for the wholesale retail trade (examples: Midwest of Cannon
  Falls; Kurt Adler; Pacific Rim; Enesco; Goebel, Waterford/Wedgewood.)

  
	
   

  	
   

  	
   

  
	
  Nature of Legal Relationship:

  	
   

  	
  Your
  relationship to D56 during the Consulting Period shall be as an independent
  contractor, not as an employee, and you shall be responsible for paying when
  due all income taxes, including estimated taxes, incurred as a result of the
  compensation paid to you by D56. You will not have any claim against D56 for
  vacation pay, sick leave, retirement benefits, social security, workers’
  compensation, health or

  

 

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  disability
  benefits, unemployment insurance benefits or employee benefits of any kind.

  
	
   

  	
   

  	
   

  
	
  Legal Matters:

  	
   

  	
  The laws of
  Minnesota shall govern this letter agreement. This letter agreement may be
  amended or waived only in a writing signed by both parties. The provisions of
  this letter agreement are severable so that invalidity of any provision shall
  not affect the enforceability or validity of any other provision.

  

 

Kindly sign the enclosed copy of this letter in the
space provided below to confirm this as our mutual agreement, superseding all
prior understandings and agreements with respect to any of the subject matter
hereof.

 

	
  Sincerely,

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Timothy J. Schugel

  	
   

  	
   

  
	
  Timothy J. Schugel

  	
   

  
	
  Chief Financial Officer &

  	
   

  
	
  Chief Operating Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Confirmed and agreed:

  	
   

  
	
   

  	
   

  
	
  /s/ Linda J. Miller

  	
   

  	
  Effective September 30, 2005

  
	
  Linda Miller

  	
   

  
				

 

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