<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-11860
------------------------------
FOCUS Enhancements, Inc.
(Exact name of small business issuer as specified in its charter)
DELAWARE 04-3186320
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
600 Research Drive
Wilmington, MA 01887
(Address of principal executive offices)
(978) 988 - 5888
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No_____
As of March 31, 2000, there were outstanding 24,446,204 SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE.
1
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FOCUS ENHANCEMENTS, INC.
FORM 10-QSB
QUARTERLY REPORT
March 31, 2000
TABLE OF CONTENTS
PAGE
FACING PAGE 1
TABLE OF CONTENTS 2
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 2000
and December 31, 1999 3
Consolidated Statements of Operations
for the Three Months Ended March 31, 2000
and 1999 4
Statement of Changes in Equity for the Three
Months Ended March 31, 2000 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000
and 1999 6
Notes to Consolidated Financial Statements 7-10
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
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FOCUS ENHANCEMENTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 853,279 $ 3,736,517
Certificate of deposit 710,590 534,091
Accounts receivable, net of
allowances of $249,970 and
$294,907 at March 31, 2000 and
December 31, 1999, respectively 2,578,739 2,913,005
Inventories 3,794,079 3,588,702
Prepaid expenses and other current assets 817,688 240,732
------------ ------------
Total current assets 8,754,375 11,013,047
Property and equipment, net 906,866 968,594
Capitalized software development costs 2,517,644 2,122,450
Other assets, net 281,209 287,116
Goodwill, net 577,544 624,277
------------ ------------
Total assets $ 13,037,638 $ 15,015,484
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 224,134 $ 1,006,258
Obligations under capital leases 129,046 129,451
Current portion of long-term debt 312,556 312,556
Accounts payable 2,270,315 3,413,285
Accrued liabilities 1,116,521 518,726
------------ ------------
Total current liabilities 4,052,572 5,380,276
Obligations under capital leases 160,392 202,002
Long-term debt, net of current portion 140,718 226,041
------------ ------------
Total liabilities 4,353,682 5,808,319
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; 3,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value;
30,000,000 shares authorized,
24,896,204 and 24,504,203 shares
issued at March 31, 2000 and December 31,
1999, respectively 248,962 245,042
Additional paid-in capital 47,393,132 46,340,891
Accumulated deficit (38,258,008) (36,678,638)
Treasury stock at cost, 450,000 shares (700,130) (700,130)
------------ ------------
Total stockholders' equity 8,683,956 9,207,165
------------ ------------
Total liabilities and stockholders' equity $ 13,037,638 $ 15,015,484
============ ============
</TABLE>
*See accompanying notes to Unaudited Financial Statements
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FOCUS ENHANCEMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Net revenues $ 3,614,271 $ 5,067,079
Cost of goods sold 2,329,632 2,937,134
------------ ------------
Gross profit 1,284,639 2,129,945
------------ ------------
Operating expenses:
Sales, marketing and support 1,027,777 1,023,696
General and administrative 1,147,174 353,943
Research and development 259,828 492,480
Depreciation and amortization expense 213,612 139,370
Restructuring Expenses 202,252
------------ ------------
Total operating expenses 2,850,643 2,009,489
------------ ------------
Income from operations (1,566,004) 120,456
Interest expense, net (19,766) (21,364)
Other income, net 10,400 3,898
------------ ------------
Income before income taxes (1,575,370) 102,990
Income tax expense (4,000) --
------------ ------------
Net income $ (1,579,370) $ 102,990
============ ============
Net income per common share
Basic $ (0.06) $ 0.01
============ ============
Diluted $ (0.06) $ 0.01
============ ============
Weighted average common shares outstanding
Basic 24,335,368 18,005,090
============ ============
Diluted 24,335,368 18,721,905
============ ============
</TABLE>
*See accompanying notes to Unaudited Financial Statements
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FOCUS ENHANCEMENTS, INC.
STATEMENT OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
------------ --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 245,042 $ 46,340,891 $ (36,678,638) $ (700,130) $ 9,207,165
Comprehensive income
Net income (1,579,370) (1,579,370)
---------------- --------------
Comprehensive income (1,579,370)
Common stock issued 3,920 1,052,241 -- -- 1,056,161
------------ --------------- ---------------- ------------- --------------
Balance at March 31, 2000 $ 248,962 $ 47,393,132 $ (38,258,008) $ (700,130) $ 8,683,956
============ =============== ================ ============= ==============
</TABLE>
*See accompanying notes to Unaudited Financial Statements
5
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FOCUS ENHANCEMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $(1,579,370) $ 102,990
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 213,612 139,370
Changes in operating assets and liabilities, net of the effects of acquisition:
(Increase) decrease in accounts receivable 334,266 (891,669)
Decrease (increase) in inventories (205,378) 212,403
Decrease (increase) in prepaid expenses and other assets (571,048) (27,140)
(Decrease) increase in accounts payable (1,142,970) 600,794
(Decrease) increase in accrued liabilities 597,794 (511,787)
----------- -----------
Net cash used in operating activities (2,353,094) (375,039)
----------- -----------
Cash flows from investing activities:
Increase in certificates of deposit (176,499) (4,135)
Purchase of property and equipment (500,345) (662,053)
----------- -----------
Net cash used in investing activities (676,844) (666,188)
----------- -----------
Cash flows from financing activities:
Payments on notes payable (867,447) (770,243)
Payments under capital lease obligations (42,014) (52,243)
Net proceeds from accounts receivable factoring -- 969,459
Net proceeds from private offerings of common stock -- --
Net proceeds from exercise of common stock options and warrants 1,056,161 --
----------- -----------
Net cash provided by financing activities 146,700 146,973
----------- -----------
Net increase in cash and cash equivalents (2,883,238) (894,254)
Cash and cash equivalents at beginning of period 3,736,517 1,128,380
----------- -----------
Cash and cash equivalents at end of period $ 853,279 $ 234,126
=========== ===========
Supplemental Cash Flow Information:
Interest paid $ 19,766 $ 43,147
Income taxes paid
-- 50
</TABLE>
6
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FOCUS ENHANCEMENTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements of FOCUS Enhancements, Inc. ("the
Company") as of March 31, 2000 and for the three month periods ended March 31,
2000 and 1999 are unaudited and should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1999 included in the Company's Annual Report on Form 10-KSB/A for the year
ended December 31, 1999.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary PC Video Conversion, Inc. The companies other
subsidiaries, Lapis Technologies, Inc., T-View, Inc and Focus Enhancements, B.V.
(Netherlands corporation) became inactive or were merged into Focus in 1999. On
March 31, 1998, the Company acquired certain assets and assumed certain
liabilities of Digital Vision, Inc. in a transaction accounted for under the
purchase method of accounting. On July 29, 1998, the Company acquired certain
assets and assumed certain liabilities of PC Video Conversion, Inc. in a
transaction accounted for under the purchase method of accounting. All
intercompany accounts and transactions have been eliminated upon consolidation.
The results of operations of Digital Vision, Inc. have been included in
the accompanying consolidated financial statements since April 1, 1998. The
results of operations of PC Video Conversion, Inc. have been included in the
accompanying consolidated financial statements since July 29, 1998
2. NET INCOME PER SHARE
In February 1997, FASB issued SFAS No. 128, "Earnings per Share" which
requires earnings per share to be calculated on a basic and dilutive basis.
Basic earnings per share represents income available to common stock divided by
the weighted-average number of common shares outstanding during the period.
Diluted earnings per share reflects additional common shares that would have
been outstanding if dilutive potential common shares had been issued, as well as
any adjustment to income that would result from the assumed conversion.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options and warrants, and are determined using the treasury
stock method. The assumed conversion of outstanding dilutive stock options and
warrants would increase the shares outstanding but would not require an
adjustment to income as a result of the conversion. For the three months ended
March 31, 2000 and 1999, options and warrants applicable to 3,380,884 shares and
5,460,505 shares, respectively were anti-dilutive and excluded from the diluted
earnings per share computation.
3. INCOME TAXES
The Company has utilized its net operating loss carryforwards in estimating
its provision for income taxes in the three-month period ended March 31,2000 and
1999.
7
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4. INVENTORIES
Inventories consist of the following:
March 31, December 31,
--------------- ----------------
2000 1999
-------- ----------
Finished goods 3,794,079 3,588,702
--------------- ----------------
$3,794,079 $3,588,702
=============== ================
5. RESTRUCTURING EXPENSES
For the three-month period ended March 31, 2000, the Company recorded
restructuring expenses of $202,262 in conjunction with the planned closure of
its Morgan Hill, CA facility and operation. These direct expenses are
comprised of inventory adjustments (approximately $118,000), payroll and
benefits (approximately $57,000), travel (approximately $16,000) and lease
cancellation charges (approximately $11,000).
6. NOTES PAYABLE / SECURITY ARRANGEMENTS
Line of Credit, Bank. On March 31, 1999, the Company restructured its line
of credit with its commercial bank under a $2,000,000 accounts receivable
financing agreement with the bank. The agreement allows for advances on accounts
receivable not to exceed 80% of qualified invoices. Interest is charged on the
outstanding balance at a rate of the prime lending rate plus 4.5%. Under the
terms of this agreement the bank has been issued warrants to purchase 100,000
shares of the Company's common stock at a price of $1.70 per share. At March 31,
2000 the Company had no outstanding balance on the line of credit and no
additional financing was available.
Term Loan, Bank. On March 31, 1998, the Company assumed a $329,953 bank
loan resulting from the purchase of certain assets and the assumption of certain
liabilities of Digital Vision, Inc. The borrowings bear interest at the prime
rate plus 2% (9.75 % at December 31, 1998). The outstanding balance is payable
in monthly installments, with interest, until the loan expiration date of June
30, 1999. The loan was paid in full at December 31, 1999.
Term Loan, Vendor. On April 20, 1999, the Company converted certain
accounts payable due to a contract manufacturer to a term note in the amount of
$1,700,000 with interest at a rate of 12% per annum. The balance of the Note was
$1,006,258 at December 31, 1999. On December 31, 1999, the Company and the
holder of the note reached an agreement as to the settlement of the note and
related accounts payable. On January 5, 2000 the Company repaid $1,000,000 of
these obligations and on January 28, 2000, escrowed $669,000 to be paid to the
holder in three equal installments on February 5, March 5, and April 5, 2000.
8
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Long-Term Debt. On July 29, 1998, the Company issued a $1,000,000 note
payable to a related party in conjunction with the acquisition of PC Video
providing for the payment of principal and interest at 3.5 % over a period of 36
months. The Company computed a discount of $89,915 on this note based on its
incremental borrowing rate. Maturities of long-term debt at March 31, 2000 are
as follows:
2000 227,233
2001 226,041
--------
Total $453,274
========
7. COMMON STOCK TRANSACTIONS
On January 18, 2000, the Company received gross proceeds of $990,000 from
the issuance of 330,000 shares of common stock resulting from the exercise of
common stock warrants issued pursuant to a private placement with an
unaffiliated investor on September 10, 1997.
During the quarter ended March 31, 1999, the Company issued at various
times, 62,001 shares of common stock resulting from other exercises of options
and warrants, receiving cash of approximately $66,161. Additional Paid-in
Capital of 1,052,241 for the quarter is net of $29,440 of related legal
expenses.
On February 22, 1999, the Company issued warrants to purchase 30,000 shares
of common stock as partial compensation to an unaffiliated investor relations
firm. The warrants are exercisable until February 22, 2002 at an exercise price
of $1.063 per share. These warrants were exercised on February 23, 2000
(15,000) and March 2, 2000 (15,000).
8. SUBSEQUENT EVENTS
Separation Agreements
On May 1, 2000, the Company entered into a Separation Agreement with Thomas
L. Massie, President and CEO, whereby the Company and Mr. Massie agreed to sever
Mr. Massie's employment relationship effective April 30, 2000.
On May 1, 2000, the Company entered into a Separation Agreement with Gary
M. Cebula, Vice President of Finance and Administration, whereby the Company and
Mr. Cebula agreed to sever Mr. Cebula's employment relationship effective April
30, 2000.
9
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Consulting Agreements
On May 1, 2000, the Company entered into a Consulting Agreement with
William B. Coldrick, Vice Chairman, to provide management services to the
Company for the period of May 1, 2000 to December 31, 2000.
On May 1, 2000, the Company entered into a Consulting Agreement with Thomas
L. Massie, Chairman, to provide management services to the Company for the
period of May 1, 2000 to December 31, 2000.
On May 1, 2000, the Company entered into a Consulting Agreement with Gary
Cebula to provide financial management services to the Company for the period of
May 1, 2000 to December 31, 2000.
The Company estimates that the aggregate financial impact to the Company of
the above agreements for the year ended December 31, 2000 will be approximately
$260,000 comprised of $176,000 in compensation and $84,000 of debt forgiveness
for the year ended December 31, 2000.
Common Stock Transactions
On May 1, 2000, the Board of Directors approved by unanimous written
consent, an increase in the authorized shares of common stock to 43,000,000
shares.
On May 1, 2000, the Board of Directors approved by unanimous written
consent, the establishment of the 2000 Non-Qualified Stock Option Plan. In
addition, the Board authorized 3,000,000 shares to be reserved for the 2000
Plan. On May 5, 2000, the Company granted 2,473,375 Stock Options under the
2000 Plan.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following information should be read in conjunction with the
consolidated financial statements and notes thereto in Part I, Item 1 of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-KSB/A for the year ended December 31, 1999.
The Company does not provide forecasts of the future financial performance
of the Company. However, from time to time, information provided by the Company
or statements made by its employees may contain "forward looking" information
that involve risks and uncertainties. In particular, statements contained in
this Form 10-QSB which are not historical facts constitute forward looking
statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Each forward looking statement should
be read in conjunction with the consolidated financial statements and notes
thereto in Part I, Item 1, of this Quarterly Report and with the information
contained in Item 2, including, but not limited to, "Certain Factors That May
Affect Future Results" contained herein, together with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 1999, including, but not limited to, the section therein entitled
"Certain Factors That May Affect Future Results."
RESULTS OF OPERATIONS
Three-Month Period Ended March 31, 2000 As Compared
With The Three-Month Period Ended March 31, 1999
Net Revenues
Net revenues for the three-month period ended March 31, 2000 ("Q1 00") were
$3,614,271 as compared with $5,067,079 for the three-month period ended March
31, 1999 ("Q1 99"), a decrease of $1,452,808 or 29%. The decrease in sales is
primarily attributed to the discontinuation of sales to certain resellers of the
Company's consumer video conversion product line in North America. In the
three-month period ending March 31, 1999, approximately $1,400,000 of sales were
to resellers that the Company discontinued selling to in the fourth quarter of
1999. There were no sales to these resellers for the three-month period ended
March 31, 2000. In addition, sales to international resellers and OEM/Licensing
customers also decreased. Specifically, net revenues in Q1 00 to the Company's
international resellers decreased 54% to $240,000 from $517,000 in Q1 99. Net
revenues to OEM/Licensing customers decreased 22% to $531,000 in Q1 00 from
$677,000 for the same quarter in 1999. The decrease in OEM/Licensing sales
resulted from delays in the production of the Company's FS400 ASIC in the fourth
quarter of 1999, resulting in delays or lost opportunities in Q100. The
decreases were offset by an increase in Professional Product sales of $676,000
(an increase of 59%) in Q1 00 from $424,000 in Q1 99.
As of March 31, 2000, the Company had a sales order backlog of
approximately $1,170,000.
11
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Cost of Goods Sold
Cost of goods sold were $2,329,632 or 64% of net revenues, for the three-
month period ended March 31, 2000, as compared with $2,937,134 or 58% of net
revenues, for the three-month period ended March 31, 1999, a decrease in
absolute dollars of $607,502 or 21%. The Company's gross profit margins for Q1
00 and Q1 99 were 36% and 42%, respectively. The decrease in gross margins is
due principally to the decrease in net sales in Q100 as compared to Q199. In
addition, the Company provided additional reserves of $177,000 for potential
inventory obsolescence in Q100 compared to $20,000 in Q199.
Sales, Marketing and Support Expenses
Sales, marketing and support expenses were $1,023,767 or 28% of net
revenues, for the three-month period ended March 31, 2000, as compared with
$1,023,696 or 20% of net revenues, for the three-month period ended March 31,
1999, an increase of $71.
General and Administrative Expenses
General and administrative expenses for the three-month period ended March
31, 2000 were $1,150,968 or 32% of net revenues, as compared with $353,943 or 7%
of net revenues for the three-month period ended March 31, 1999, an increase of
$797,025 or 225%. The increase in absolute dollars is due primarily to
increases in accounting fees (approximately $302,000) and legal fees
(approximately $292,000) in conjunction with the completion of the 1999 annual
audit and review of accounting practices and the special investigation conducted
by the Board of Directors, with respect to the financial controls of the
Company, combined with increases in payroll (approximately $54,000), accounts
receivable reserves (approximately $45,000), consulting fees (approximately
$31,000), and investor relations (approximately $20,000).
Research and Development Expenses
Research and development expenses for the three-month period ended March
31, 2000 were $259,828, or 7% of net revenues, as compared to $492,480, or 10%
of net revenues, for three-month period ended March 31, 1999, a decrease of
$232,652 or 48%. The decrease was due principally to increased capitalization
of ASIC development costs of approximately $293,024, and decreases in staffing
and employee benefits of approximately $39,000.
Restructuring Expenses
For the three-month period ended March 31, 2000, the Company recorded
restructuring expenses of $202,262 in conjunction with the planned closure of
its Morgan Hill, CA facility and operation. These direct expenses are
comprised of inventory adjustments (approximately $118,000), payroll and
benefits (approximately $57,000), travel (approximately $16,000) and lease
cancellation charges (approximately $11,000).
Interest Expense, Net
Net interest expense for the three-month period ended March 31, 2000 was
$19,766, or 1% of net revenues, as compared to $21,364, or .4% of Net revenues,
for the three-month period ended March 31, 1999, a decrease of $1,598, or 7%.
The decrease is primarily attributable to decreases in interest paying
obligations for the quarter ended March 31, 2000 as compared to the quarter
ended March 31, 1999.
12
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Other Income
Other Income for the three-month period ended March 31, 2000 was $10,194 as
compared to $3,948, for the three-month period ended March 31, 1999, an increase
of $6,296.
Net Loss
For the quarter ended March 31, 2000, the Company reported a net loss of
($1,579,370), or ($0.06) per share, as compared to net income of $102,990, or
$0.01 per share, for the quarter ended March 31, 1999. The net loss is
primarily due to the discontinuation of sales to certain resellers, increased
inventory reserves, one-time restructuring expenses for the closure of the
Morgan Hill, CA operation, and significant non-recurring accounting and legal
fees pursuant to the 1999 annual audit and related review of accounting
practices and the special investigation of the Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three-month periods
ended March 31, 2000 and 1999 was $2,258,835 and $375,039, respectively. In Q1
00, net cash used in operating activities consisted primarily of increases in
inventory of $205,378 and prepaid expenses and other assets of $571,048, a
decrease in accounts payable of $1,142,970, and a net loss of $1,579,370. This
was offset by a decrease in accounts receivable of $334,266, an increase in
accrued liabilities of 597,794, and depreciation and amortization (non-cash
charge) of $213,612. As of March 31, 2000 and 1999, accounts receivable from a
major distributor represented approximately 26% and 45%, respectively of total
accounts receivable. In Q1 00, the Company continued to record provisions for
potential future uncollectable accounts and maintained reserves for potential
product returns.
In the three months ended March 31, 1999, net cash used in operations
consisted primarily of an increase in accounts receivable of $891,669 and a
decrease in accrued liabilities of $511,787. This was offset by a decrease in
inventory of $212,403, an increase in accounts payable of 600,794, depreciation
and amortization (non-cash charge) of $139,370, and net income of $102,990.
Net cash used in investing activities for the three-month periods ended
March 31, 2000 and 1999 was $676,844 and $666,188 respectively. In Q1 00 and Q1
99, cash used in investing activities was principally for the purchase of
property and equipment and capitalized software development costs..
Net cash provided by financing activities for the three-month periods ended
March 31, 2000 and 1999 was $52,441 and $146,973, respectively. In Q1 00, the
Company received $1,056,161 in net proceeds from the exercise of common stock
options and warrants. The Company's financing proceeds were offset by payments
on notes payable and capital lease obligations. In the same period in 1999, the
Company received $969,459 in net proceeds from a debt financing from a
commercial bank. The Company's financing proceeds were offset by payments on
notes payable and capital lease obligations.
As of March 31, 2000, the Company had working capital of $4,701,803, as
compared to $5,632,771 at December 31, 1999, a decrease of $930,968. The
Company's cash position at March 31, 2000 was $853,279, a decrease of
$2,883,238 over amounts at December 31, 1999.
Although the Company has been successful in the past in raising sufficient
capital to fund its operations, there can be no assurance that the Company will
achieve sustained profitability or obtain sufficient financing in the future.
13
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Effects of Inflation and Seasonality
The Company believes that inflation has not had a significant impact on the
Company's sales or operating results. The Company's business does not
experience substantial variations in revenues or operating income during the
year due to seasonality.
Environmental Liability
The Company has no known environmental violations or assessments.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued a proposed interpretive release, Stock Compensation-
Interpretation of APB Opinion 25 ("Interpretation"). The Interpretation will
provide accounting guidance on several issues that are not specifically
addressed in Accounting Principles Board ("APB") No. 25, "Accounting for Stock
Issued to Employees. Of the many questions addressed int the Interpretation,
the most significant are the clarification of the definition of the term
"employee" for the purposes of applying the opinion and the accounting for
options that have been repriced.
The Interpretation is generally effective beginning July 1, 2000. The
Interpretation applies prospectively at the date for repricings that occur after
December 15, 1998. It also applies prospectively on July 1, 2000 to new awards
granted after December 15, 1998 for purposes of applying the definition of
"employee".
In December 1999, the Securities and Exchange Commission (the "Commission")
published Staff Accounting Bulleting ("SAB") No. 101, "Revenue Recognition",
which provides guidance for applying generally accepted accounting principles to
revenue recognition in financial statements filed with the Commission, including
income statement presentation and disclosure. As originally issued SAB 101 was
to be applied no later than the first quarter of the fiscal year beginning after
December 15, 1999. However, the Commission has delayed the effective date of
the SAB for companies with fiscal years beginning between December 16, 1999 and
March 15, 2000. For such entities, the mandatory implementation date may now be
no later than the second quarter of the fiscal year beginning after December 15,
1999.
The company is in the process of reviewing and evaluating the pronouncements
detailed above to determine the potential impact on the financial statements of
the company.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of the future financial performance
of the Company. However, from time to time, information provided by the Company
or statements made by its employees may contain "forward looking" information
that involve risks and uncertainties. In particular, statements contained in
this Form 10-KSB/A which are not historical facts (including, but not limited
to, statements concerning international revenues, anticipated operating expense
levels and such expense levels relative to the Company's total revenues)
constitute forward looking statements and are made under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results of operations and financial condition have varied and
may in the future vary significantly from those stated in any forward looking
statements. Factors that may cause such differences include, without limitation,
the availability of capital to fund the Company's future cash needs, reliance on
major customers, history of operating losses, limited availability of capital
under credit arrangements with lenders, market acceptance of the Company's
products, technological obsolescence, competition, component supply problems and
protection of proprietary information, as well as the accuracy of the Company's
internal estimates of revenue and operating expense levels.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in a lawsuit filed in United
States District Court for the District of Massachusetts, on or about November 9,
1999, on behalf of Frank E. Ridel and other currently-unnamed person(s) who are
alleged to have purchased shares of our common stock from July 17, 1997 to
February 19, 1999. In March of 2000, 15 additional actions were filed which
made claims on behalf of shareholders who purchase stock from the previous class
period through March 1, 2000. The actions are in the process of being
consolidated. The complaints allege that the company, its chief executive
officer and its chief financial officers violated federal securities laws in
connection with a number of allegedly false or misleading statements and seeks
certification as a class action and certain unquantified damages. We intend to
contest this case vigorously, as our management believes it consistently
complies with the federal securities laws.
The Company has been named as a defendant in a lawsuit filed in U.S.
District Court for the District of Texas, on or about November 1, 1999, on
behalf of CRA Associates. The complaint alleges that the company and its chief
executive violated federal securities laws by engaging in misrepresentation and
deceptive trade practices. The Company intends to contest this case
vigorously, as our management believes it consistently complies with the federal
securities laws.
From time to time, the Company is party to certain other claims and legal
proceedings that arise in the ordinary course of business of which, in the
opinion of management, have a material adverse effect on the Company's financial
position or results of operation.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
None
ITEM 5. OTHER INFORMATION
None
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. The following exhibits are filed herewith:
10.1 Consulting Agreement dated March 1, 2000 between the Company and
William B. Coldrick
10.2 Consulting Agreement dated May 1, 2000 between the Company and Thomas
L. Massie
10.3 Consulting Agreement dated May 1, 2000 between the Company and Gary M.
Cebula
10.4 Separation Agreement dated May 1, 2000 between the Company and Thomas
L. Massie
10.5 Separation Agreement dated April 30, 2000 between the Company and Gary
M. Cebula
11. Statement Re: Computation of Per Share Earnings
27. Financial data schedule
b. Reports on Form 8-K
The Company on March 2, 2000 filed a Form 8-K related to the period ending
December 31, 1999.
The Company did not file any reports on Form 8-K reports during the quarter
ended March 31, 2000 pertaining to the quarter ended March 31, 2000.
16
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOCUS ENHANCEMENTS, INC.
May 22, 2000 By: /s/ Brett A. Moyer
----------------------
Brett A. Moyer
Executive Vice President
& Chief Operating Officer
May 22, 2000 By: /s/ Richard A. Nardella
---------------------------
Richard A. Nardella
Principal Accounting Officer
17
<PAGE>
EXHIBIT 10.1
CONSULTING AGREEMENT
AGREEMENT effective as of March 1, 2000, by and between FOCUS
Enhancements, Inc., a Delaware corporation, having as its principal business
address 600 Research Drive, Wilmington, Massachusetts 01887 (hereinafter
referred to as the "Company") and William Coldrick, having a residence at 255
Seapine Road, North Chatham, MA 02650 (hereinafter referred to as "Consultant").
RECITALS:
WHEREAS, Consultant has certain skills and abilities that may be useful to
the Company.
WHEREAS, Consultant is an independent contractor willing to provide
services to the Company for the period contemplated by this Agreement.
TERMS AND CONDITIONS:
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, receipt and
adequacy whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Retention of Consultant. The Company hereby retains Consultant solely as
-----------------------
an independent contractor and not as an employee, and Consultant hereby accepts
such retention upon the terms and conditions hereinafter set forth.
2. Term. Subject to the provisions for termination as hereinafter
----
provided, the term of this Agreement shall begin as set forth above and shall
terminate no later than one year from such date unless extended by Company and
Consultant. All work performed under such an extension shall remain subject to
these terms and conditions.
3. Compensation. For all services rendered by Consultant under this
------------
Agreement, the Company shall pay Consultant one thousand ($1000) per day. Travel
costs, if any, must be pre-approved by an officer of Company must be documented
by receipts showing all expenses over $25.00. All air travel shall be made by
coach or economy class and any hotels must be pre-approved by Company.
4. Duties. The Consultant is being retained to provide consultants to
------
Company as set forth in various Work Orders. It is required that Consultant be
available to perform its duties under this Agreement at such times as the
Company requires from time to time.
5. Extent of Services: Confidentiality. Consultant shall devote such time,
-----------------------------------
attention and energies to its duties hereunder as are required. In connection
with the performance of consulting services for Company, it is understood that
the Company may disclose to Consultant, or Consultant may have access to
Company's "Confidential Information" (as hereinafter defined). As used herein,
the term "Confidential Information" shall mean any and all proprietary or
confidential information, whether or not developed by Consultant, including,
without limitation: (i) any and all software programs, derivative works,
products and other results of the services performed by Consultant on a Company
project (together the "Work Product"); (ii) any and all technical information of
Company, including, without limitation, product data and specifications, know-
how, formulae, the source code, and other software information, processes,
inventions, research projects, and product development; (iii) any and all
business information of or relating to Company that is not known to the general
public, including, without limitation, accounting and financial information,
sales and marketing information, research, investment analyses, investment
strategies and techniques, investment transactions and holdings, clients,
personnel, shareholders, and information concerning funds and clients advised by
Company, "know-how" and information, data and material used or licensed by the
Company, including, but not limited to computer software, programming, research,
financial information and analyses, and the like and documentation relating
thereto; (iv) any and all employee information of Company; and (v) confidential
information disclosed to Company by third parties. Consultant acknowledges and
agrees that the Confidential Information constitutes valuable trade secrets of
Company. Company and Consultant agree that a separate confidentiality agreement
has been executed between the parties and that to the extent there is a conflict
between the provisions of this Agreement and the confidentiality agreement, the
terms of the confidentiality agreement shall apply.
<PAGE>
Consultant shall not disclose any Confidential Information to any third
party, nor shall Consultant use any Confidential Information for any purpose
other than the performance of Consultant's services for the Company. All
materials furnished to Consultant by the Company shall be considered
Confidential Information, shall remain the property of the Company and shall be
returned to the Company promptly upon the termination of this Agreement or at
the Company's earlier request. Consultant shall not copy, reproduce or
appropriate for its benefit or the benefit of any third party, any of the
Confidential Information.
Consultant's obligations under this section will continue for each item of
Confidential Information until such time as Consultant can show that such item
of Confidential Information (i) is or becomes publicly available other than as a
result of any act or failure to act by Consultant; (ii) was known to Consultant,
without an obligation to keep it confidential, prior to Consultant's receipt of
such item of Confidential Information from Company; or (iii) has legally and
properly been received by Consultant from a person other than Company, through
no breach of any agreement with Consultant or Company and without an obligation
to keep it confidential. Consultant acknowledges that the Company or any other
owner of any Confidential Information may suffer irreparable harm if Consultant
were to violate any of the foregoing undertakings and therefore agrees that, in
addition to any other remedies such party may have, it shall be entitled
(without the requirement of posting any bond) to seek from a court of competent
jurisdiction an injunction restraining the violation of any such undertaking (or
any participation therein).
6. Ownership of Work Product. All items, programs, ideas and the like and
-------------------------
all work product, including source code, table structures, forms, reports and
programming tools created by or with the assistance of Consultant pursuant to
this Agreement, whether prepared on or off Company premises, shall be and remain
the property of the Company alone, and shall be deemed to be works made for
hire. To the extent that any items may not, by operation of law, be works made
for hire, Consultant hereby assigns to Company the ownership of all rights,
titles and interests in such items, including but not limited to copyrights, and
the Company shall have the right to obtain and hold in its own name copyright or
other protection which may be available or become available in the items.
Consultant agrees to give Company, its designees, or assignees all assistance
reasonably required to perfect such rights, titles and interests. Consultant
agrees to disclose promptly to Company all inventions, discoveries, formulas,
processes, designs, trade secrets and other useful information and know-how
made, discovered or developed by Consultant alone or in conjunction with any
other person or entity during the term of this Agreement that are based on,
derived from or make use of any Confidential Information or any other
information disclosed to or acquired by Consultant during the term of the
Agreement and all such information shall be deemed Confidential Information.
7. Termination. Either Company or Consultant may cancel this Agreement
-----------
upon 30 days prior written notice to the other; however, no additional billable
work will be performed by Consultant once it has been informed by Company that
it wishes to terminate this Agreement. Company may terminate any particular Work
Order at any time upon written notice. Upon receipt of any termination notice,
consultant shall immediately discontinue services to the extent specified in the
notice. In addition upon termination, all unbilled time will be immediately
invoiced and presented for payment. At such time as Company has made such final
payment, Company will have no further obligation or liability to Consultant,
under this Agreement. Consultant agrees that Company may in its sole discretion,
require Consultant to replace any of its personnel performing work for Company.
8. Insurance. Consultant covenants and agrees that it has, in full force
---------
and effect, Workers' Compensation, Public Liability and Property Damage
insurance, and that Consultant further indemnifies Company against loss
resulting from injury to Consultant during the course of performance of service
work under this Agreement. Consultant further assumes full responsibility for
any acts of damage or destruction, including personal injury, caused by the
Consultant during the course of such work. Consultant is not responsible for and
shall not indemnify Company for injury or damage caused by negligence of
Company.
9. Notices. All notices under this Agreement shall be made in writing and
-------
shall be deemed properly delivered when (i) delivered personally, or (ii) by the
mailing of such notice to the parties entitled thereto, registered or certified
mail, postage prepaid to the parties at the addresses set forth above, and in
the case of Company, to the attention of Gary Cebula, Chief Financial Officer
and Treasurer, with a copy to Christopher P. Ricci, General Counsel and Senior
Vice President.
10. Nonassignability. Consultant shall not subcontract or assign the
----------------
Agreement, or otherwise dispose of its right, title, or interest therein or any
part thereof to any third party, without obtaining the prior written consent of
the Company. Consent by the Company to any assignment or subcontract of any Work
Order or the Agreement shall not be deemed to create a contractual relationship
between the Company and the subcontracting party or assignee.
<PAGE>
11. Compliance with Law and Company Policies; Personal Securities
-------------------------------------------------------------
Transactions. Consultant shall perform its duties hereunder in accordance with
- ------------
all applicable federal, state and local laws, rules, regulations and codes.
Consultant shall comply with all Company standards, rules, procedures and
policies relating to or affecting the conduct of Consultant's personnel.
Without limiting the foregoing, Consultant will comply with Company's rules
and policies with respect to security of and access to Company's premises and
telephone and electronic mail facilities. Any software Consultant wishes to load
onto Company's computers or computer system must be approved in writing by
Company prior to Consultant loading such software. Company agrees to inform
Consultant of and Consultant agrees to follow all Company standards and policies
related to the Company computer systems (e.g., security, environmental, disaster
recovery, virus detection and removal). Consultant shall use Company software,
hardware and data solely for the purposes contemplated hereby.
Without limiting the foregoing, Consultant will comply with Company's Code
of Ethics which restricts personal securities transactions executed, directly or
indirectly, by or on behalf of any person (including Consultant and Consultant's
directors, officers, employees, agents, consultants and representatives) with
access to Company's Confidential Information. In the event Consultant desires to
engage in any personal securities transaction within the scope of Company's Code
of Ethics during the term of this Agreement, it shall first contact Company's
General Counsel in order to ensure that Consultant is in full compliance with
Company's Code of Ethics.
Consultant shall indemnify Company for any loss or damage that may be
sustained by Company by reason of Consultant's failure to comply with this
Section 12.
12. Subcontracting, Responsibility for Employees and Agents. The hiring or
-------------------------------------------------------
use of outside services, subcontractors or consultants by Consultant in
connection with this Agreement shall not be permitted without the prior written
approval of Company. Consultant shall be fully responsible for all acts or
omissions of its employees, officers, directors, agents, consultants and
representatives, including without limitation their compliance with the terms of
this Agreement.
13. Consultant's Employees. Consultant represents, warrants and covenants
----------------------
that all personnel used by Consultant in performing its duties hereunder shall
be employees of Consultant. In no event shall such personnel be deemed in any
way to be employees of Company. Consultant acknowledges and agrees that this
consulting arrangement shall not give or extend to Consultant any rights with
respect to contributions by the Company to any deferred compensation plan, bonus
plans, or fringe benefits (including, but in no way limited to holiday pay,
medical or life insurance benefits, sick pay or paid vacation), and further
agrees to hold the Company harmless from any employment, income or other taxes
or any other damages which may be assessed in connection with payments to
Consultant or which may be suffered by Company due to any breach of the
foregoing warranties.
14. Miscellaneous. This Agreement and the Confidentiality Agreement contain
-------------
the entire agreement between the parties hereto and supersedes all prior and
contemporaneous agreements, arrangements, negotiations and understandings
between the parties hereto, relating to the subject matter hereof. There are no
other understandings, statements, promises or inducements, oral or otherwise,
contrary to the terms of these agreements. No waiver of any term, provision, or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or shall constitute, a waiver of any other
provision hereof, whether or not similar, nor shall such waiver constitute a
continuing waiver, and no waiver shall be binding unless executed in writing by
the party making the waiver. Consultant's obligations in Sections 5, 6 and 7
shall survive termination of this Agreement.
No supplement, modification or amendment of any term, provision or
condition of these agreements shall be binding or enforceable unless executed in
writing by the parties hereto. The subject headings of the articles, paragraphs
and subparagraphs of this Agreement are included solely for purposes of
convenience and reference only, and shall not be deemed to explain, modify,
limit, amplify or aid in the meaning, construction or interpretation of any of
the provisions of this Agreement. Should any part, term or provision of this
Agreement or any document required herein to be executed be declared invalid,
void or unenforceable, all remaining parts, terms and provisions hereof shall
remain in full force and effect and shall in no way be invalidated, impaired or
affected thereby. These agreements shall be governed by and construed and
enforced in accordance with and subject to the internal laws of the Commonwealth
of Massachusetts. Each party hereby submits to the exclusive jurisdiction of the
appropriate state or federal courts in Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement by duly
authorized officers thereof as of the date first above written.
FOCUS Enhancements, Inc. Consultant
By: /s/ Christopher P. Ricci By: /s/ William B. Coldrick
--------------------------- ------------------------------
Print: Christopher P. Ricci Print: William B. Coldrick
----------------------- ---------------------------
Title: Sr. Vice President Title:
----------------------- ---------------------------
<PAGE>
EXHIBIT 10.2
CONSULTING AGREEMENT
AGREEMENT effective as of May 1, 2000, by and between FOCUS Enhancements,
Inc., a Delaware corporation, having as its principal business address 600
Research Drive, Wilmington, Massachusetts 01887 (hereinafter referred to as the
"Company") and Thomas L. Massie, having a residence at 6 Jonas Stone Circle,
Lexington, MA 02173 (hereinafter referred to as "Consultant").
RECITALS:
WHEREAS, Consultant has certain skills and abilities that may be useful to
the Company.
WHEREAS, Consultant is an independent contractor willing to provide
services to the Company for the period contemplated by this Agreement.
TERMS AND CONDITIONS:
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, receipt and
adequacy whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Retention of Consultant. The Company hereby retains Consultant solely as
-----------------------
an independent contractor and not as an employee, and Consultant hereby accepts
such retention upon the terms and conditions hereinafter set forth. Company
shall provide Consultant with a laptop computer, access to reasonable
secretarial support adequate for the performance of his/her duties hereunder as
well as pay for a telephone line and a facsimile line located at Consultant's
home for use in Company business, but is not responsible for permanent office
space.
2. Term. Subject to the provisions for termination as hereinafter
----
provided, the term of this Agreement shall begin as set forth above and shall
terminate no later than one year from such date unless extended by Company and
Consultant. All work performed under such an extension shall remain subject to
these terms and conditions.
3. Compensation. For all services rendered by Consultant under this
------------
Agreement, the Company shall pay Consultant eleven thousand ($11,000) dollars
per month paid semi-monthly. Travel costs, if any, that exceed the travel budget
established by the Company for Consultant must be pre-approved by an officer of
Company and all travel and related expenses must comply with Company's travel
and expense policies. In addition, Consultant's options, as evidenced by the
optionee statement attached hereto as Exhibit A, shall continue to vest during
the term of this Agreement or while Consultant is a member of the Board of
Directors, whichever is longer. If payment is not transmitted to Consultant
within thirty (30) days following the last day of the calendar month for which
the compensation is owed, Company agrees to prepay the balance of payments to
Consultant in lump sum through April 30, 2001. The obligation to pay Employee
$120,000 in accordance with the terms hereof shall be absolute.
4. Duties. The Consultant is being retained to provide consultation to
------
Company. Consultant shall during the term hereof use his best efforts to assist
the Company in all financial matters for which the Company requests his
assistance including, but not limited to, long term raising capital, financial
planning, product planning, mergers and acquisitions, chairing the Company's
Product Committee, and recruit a new president for Company. It is required that
Consultant be available to perform its duties under this Agreement at such times
as the Company reasonably requires from time to time. Company agrees, however,
that nothing herein shall limit Consultant from accepting full-time employment
or other consulting assignments with third party companies provided that in such
engagements Consultant complies with Sections 2.2 through 2.6 of the employment
contract between Consultant and Company which has been terminated as of the date
hereof.
<PAGE>
5. Extent of Services: Confidentiality. Consultant shall devote such time,
-----------------------------------
attention and energies to its duties hereunder as are required. In connection
with the performance of consulting services for Company, it is understood that
the Company may disclose to Consultant, or Consultant may have access to
Company's "Confidential Information" (as hereinafter defined). As used herein,
the term "Confidential Information" shall mean any and all proprietary or
confidential information, whether or not developed by Consultant, including,
without limitation: (i) any and all software programs, derivative works,
products and other results of the services performed by Consultant on a Company
project (together the "Work Product"); (ii) any and all technical information of
Company, including, without limitation, product data and specifications, know-
how, formulae, the source code, and other software information, processes,
inventions, research projects, and product development; (iii) any and all
business information of or relating to Company that is not known to the general
public, including, without limitation, accounting and financial information,
sales and marketing information, research, investment analyses, investment
strategies and techniques, investment transactions and holdings, clients,
personnel, shareholders, and information concerning funds and clients advised by
Company, "know-how" and information, data and material used or licensed by the
Company, including, but not limited to computer software, programming, research,
financial information and analyses, and the like and documentation relating
thereto; (iv) any and all employee information of Company; and (v) confidential
information disclosed to Company by third parties. Consultant acknowledges and
agrees that the Confidential Information constitutes valuable trade secrets of
Company. Company and Consultant agree that a separate confidentiality agreement
has been executed between the parties and that to the extent there is a conflict
between the provisions of this Agreement and the confidentiality agreement, the
terms of the confidentiality agreement shall apply.
Consultant shall not disclose any Confidential Information to any third
party, nor shall Consultant use any Confidential Information for any purpose
other than the performance of Consultant's services for the Company. All
materials furnished to Consultant by the Company shall be considered
Confidential Information, shall remain the property of the Company and shall be
returned to the Company promptly upon the termination of this Agreement or at
the Company's earlier request. Consultant shall not copy, reproduce or
appropriate for its benefit or the benefit of any third party, any of the
Confidential Information.
Consultant's obligations under this section will continue for each item of
Confidential Information until such time as Consultant can show that such item
of Confidential Information (i) is or becomes publicly available other than as a
result of any act or failure to act by Consultant; (ii) was known to Consultant,
without an obligation to keep it confidential, prior to Consultant's receipt of
such item of Confidential Information from Company; or (iii) has legally and
properly been received by Consultant from a person other than Company, through
no breach of any agreement with Consultant or Company and without an obligation
to keep it confidential. Consultant acknowledges that the Company or any other
owner of any Confidential Information may suffer irreparable harm if Consultant
were to violate any of the foregoing undertakings and therefore agrees that, in
addition to any other remedies such party may have, it shall be entitled
(without the requirement of posting any bond) to seek from a court of competent
jurisdiction an injunction restraining the violation of any such undertaking (or
any participation therein).
6. Ownership of Work Product. While working on assignments for Company, all
-------------------------
items, programs, ideas and the like and all work product, each relating to video
technology, including source code, table structures, forms, reports and
programming tools created by or with the assistance of Consultant pursuant to
this Agreement, whether prepared on or off Company premises, shall be and remain
the property of the Company alone, and shall be deemed to be works made for
hire. To the extent that any items may not, by operation of law, be works made
for hire, Consultant hereby assigns to Company the ownership of all rights,
titles and interests in such items, including but not limited to copyrights, and
the Company shall have the right to obtain and hold in its own name copyright or
other protection which may be available or become available in the items.
Consultant agrees to give Company, its designees, or assignees all assistance
reasonably required to perfect such rights, titles and interests. Consultant
agrees to disclose promptly to Company all inventions, discoveries, formulas,
processes, designs, trade secrets and other useful information and know-how
made, discovered or developed by Consultant alone or in conjunction with any
other person or entity during the term of this Agreement that are based on,
derived from or make use of any Confidential Information or any other
information disclosed to or acquired by Consultant during the term of the
Agreement and all such information shall be deemed Confidential Information.
7. Termination. Consultant may cancel this Agreement forthwith upon written
-----------
notice. At such time as Company has made final payment of the full $120,000
amount provided for in paragraph 3, Company will have no further obligation or
liability to Consultant, under this Agreement.
<PAGE>
9. Notices. All notices under this Agreement shall be made in writing and
-------
shall be deemed properly delivered when (i) delivered personally, or (ii) by the
mailing of such notice to the parties entitled thereto, registered or certified
mail, postage prepaid to the parties at the addresses set forth above, and in
the case of Company, to the attention of the General Counsel.
10. Nonassignability. Consultant shall not subcontract or assign the
----------------
Agreement, or otherwise dispose of its right, title, or interest therein or any
part thereof to any third party, without obtaining the prior written consent of
the Company. Consent by the Company to any assignment or the Agreement shall not
be deemed to create a contractual relationship between the Company and the
subcontracting party or assignee.
11. Compliance with Law and Company Policies; Personal Securities
-------------------------------------------------------------
Transactions. Consultant shall perform its duties hereunder in accordance with
- ------------
all applicable federal, state and local laws, rules, regulations and codes.
Consultant shall comply with all Company standards, rules, procedures and
policies relating to or affecting the conduct of Consultant's personnel.
Without limiting the foregoing, Consultant will comply with Company's rules
and policies with respect to security of and access to Company's premises and
telephone and electronic mail facilities. Any software Consultant wishes to load
onto Company's computers or computer system must be approved in writing by
Company prior to Consultant loading such software. Company agrees to inform
Consultant of and Consultant agrees to follow all Company standards and policies
related to the Company computer systems (e.g., security, environmental, disaster
recovery, virus detection and removal). Consultant shall use Company software,
hardware and data solely for the purposes contemplated hereby.
Without limiting the foregoing, Consultant will comply with Company's Code
of Ethics which restricts personal securities transactions executed, directly or
indirectly, by or on behalf of any person (including Consultant and Consultant's
directors, officers, employees, agents, consultants and representatives) with
access to Company's Confidential Information. In the event Consultant desires to
engage in any personal securities transaction within the scope of Company's Code
of Ethics during the term of this Agreement, it shall first contact Company's
General Counsel in order to ensure that Consultant is in full compliance with
Company's Code of Ethics.
Consultant shall indemnify Company for any loss or damage that may be
sustained by Company by reason of Consultant's failure to comply with this
Section 12.
12. Subcontracting, Responsibility for Employees and Agents The hiring or
-------------------------------------------------------
use of outside services, subcontractors or consultants by Consultant in
connection with this Agreement shall not be permitted without the prior written
approval of Company. Consultant shall be fully responsible for all acts or
omissions of its employees, officers, directors, agents, consultants and
representatives, including without limitation their compliance with the terms of
this Agreement.
13. Consultant's Employees Consultant represents, warrants and covenants
----------------------
that all personnel used by Consultant in performing its duties hereunder shall
be employees of Consultant. In no event shall such personnel be deemed in any
way to be employees of Company. Consultant acknowledges and agrees that this
consulting arrangement shall not give or extend to Consultant any rights with
respect to contributions by the Company to any deferred compensation plan, bonus
plans, or fringe benefits (including, but in no way limited to holiday pay,
medical or life insurance benefits, sick pay or paid vacation), and further
agrees to hold the Company harmless from any employment, income or other taxes
or any other damages which may be assessed in connection with payments to
Consultant or which may be suffered by Company due to any breach of the
foregoing warranties.
14. Miscellaneous. This Agreement and the Confidentiality Agreement contain
-------------
the entire agreement between the parties hereto and supersedes all prior and
contemporaneous agreements, arrangements, negotiations and understandings
between the parties hereto, relating to the subject matter hereof. There are no
other understandings, statements, promises or inducements, oral or otherwise,
contrary to the terms of these agreements. No waiver of any term, provision, or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or shall constitute, a waiver of any other
provision hereof, whether or not similar, nor shall such waiver constitute a
continuing waiver, and no waiver shall be binding unless executed in writing by
the party making the waiver. Consultant's obligations in Sections 5, 6 and 7
shall survive termination of this Agreement.
This Agreement shall bind and inure to the benefit of each party and each
party's agents, representatives, successors, heirs and assigns.
<PAGE>
This Agreement may be executed in any number or counterparts, each of which
shall be deemed to be an original, and all of which together shall be deemed one
and the same instrument.
Notwithstanding any other provision of this Agreement, each party hereto,
as a part of the consideration for this Agreement, agrees that any controversy
or claim arising out of this agreement or a breach thereof shall, on written
request or either party served on the other, be submitted to binding
arbitration. Judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction. The parties shall each appoint one person to
hear and determine the dispute, and if they shall be unable to agree, then the
two persons so chosen shall select a third impartial arbitrator whose decision
shall be final and conclusive upon both parties. The cost of such arbitration
shall be borne by the losing party, or in such proportions as the arbitrators
shall decide. Arbitration shall take place in Boston, Massachusetts and shall
be conducted in accordance with the Rules of the American Arbitration
Association.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by duly
authorized officers thereof as of the date first above written.
FOCUS Enhancements, Inc. Consultant
By: /s/ William B. Coldrick By: /s/ Thomas L. Massie
----------------------------- --------------------------------
Print: William B. Coldrick Print: Thomas L. Massie
-------------------------- -----------------------------
Title: Vice Chairman of the Board
--------------------------
<PAGE>
EXHIBIT 10.3
CONSULTING AGREEMENT
AGREEMENT effective as of April 28, 2000, by and between FOCUS Enhancements,
Inc., a Delaware corporation, having as its principal business address 600
Research Drive, Wilmington, Massachusetts 01887 (hereinafter referred to as the
"Company") and Gary M. Cebula, having a residence at 10 Nicole Circle, East
Hampstead, NH 03826 (hereinafter referred to as "Consultant").
RECITALS:
WHEREAS, Consultant has certain skills and abilities that may be useful to
the Company.
WHEREAS, Consultant is an independent contractor willing to provide
services to the Company for the period contemplated by this Agreement.
TERMS AND CONDITIONS:
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, receipt and
adequacy whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Retention of Consultant. The Company hereby retains Consultant solely as
-----------------------
an independent contractor and not as an employee, and Consultant hereby accepts
such retention upon the terms and conditions hereinafter set forth. This
Agreement shall describe a "business relationship" as that term is used in
Employee Stock Option Agreements with the Company.
2. Term. Subject to the provisions for termination as hereinafter
-----
provided, the term of this Agreement shall begin as set forth above and shall
terminate no later than December 31, 2000. All work performed under such an
extension shall remain subject to these terms and conditions.
3. Compensation. For all services rendered by Consultant under this
------------
Agreement, the Company shall pay Consultant one dollar plus other good and
valuable consideration. Travel costs, if any, must be pre-approved by an officer
of Company and must be documented by receipts showing all expenses over $25.00.
All air travel shall be made by coach or economy class and any hotels must be
pre-approved by Company.
4. Duties. The Consultant is being retained to provide consultation to
------
Company. Consultant shall during the term hereof use his best efforts to assist
the Company in all financial matters for which the Company requests his
assistance. It is required that Consultant be available to perform its duties
under this Agreement at such times as the Company requires from time to time,
except that if Consultant shall accept full-time employment from a third-party
employer then Consultant's obligations to the Company shall be limited to phone
consultation outside of Consultant's normal working hours with the new employer.
5. Extent of Services: Confidentiality. Consultant shall devote such time,
-----------------------------------
attention and energies to its duties hereunder as are required. In connection
with the performance of consulting services for Company, it is understood that
the Company may disclose to Consultant, or Consultant may have access to
Company's "Confidential Information" (as hereinafter defined). As used herein,
the term "Confidential Information" shall mean any and all proprietary or
confidential information, whether or not developed by Consultant, including,
without limitation: (i) any and all software programs, derivative works,
products and other results of the services performed by Consultant on a Company
project (together the "Work Product"); (ii) any and all technical information of
Company, including, without limitation, product data and specifications, know-
how, formulae, the source code, and other software information, processes,
inventions, research projects, and product development; (iii) any and all
business information of or relating to Company that is not known to the general
public, including, without limitation, accounting and financial information,
sales and marketing information, research, investment analyses, investment
strategies and techniques, investment transactions and holdings, clients,
personnel, shareholders, and information concerning funds and clients advised by
Company, "know-how" and information, data and material used or licensed by the
Company, including, but not limited to computer software, programming, research,
financial information and analyses, and the like and documentation relating
thereto; (iv) any and all employee information of Company; and (v) confidential
information disclosed to Company by third parties. Consultant acknowledges and
agrees that the Confidential Information constitutes valuable trade secrets of
Company. Company and Consultant agree that a separate confidentiality agreement
has been executed between the parties and that to the extent there is a conflict
between the provisions of this Agreement and the confidentiality agreement, the
terms of the confidentiality agreement shall apply.
<PAGE>
Consultant shall not disclose any Confidential Information to any third
party, nor shall Consultant use any Confidential Information for any purpose
other than the performance of Consultant's services for the Company. All
materials furnished to Consultant by the Company shall be considered
Confidential Information, shall remain the property of the Company and shall be
returned to the Company promptly upon the termination of this Agreement or at
the Company's earlier request. Consultant shall not copy, reproduce or
appropriate for its benefit or the benefit of any third party, any of the
Confidential Information.
Consultant's obligations under this section will continue for each item of
Confidential Information until such time as Consultant can show that such item
of Confidential Information (i) is or becomes publicly available other than as a
result of any act or failure to act by Consultant; (ii) was known to Consultant,
without an obligation to keep it confidential, prior to Consultant's receipt of
such item of Confidential Information from Company; or (iii) has legally and
properly been received by Consultant from a person other than Company, through
no breach of any agreement with Consultant or Company and without an obligation
to keep it confidential. Consultant acknowledges that the Company or any other
owner of any Confidential Information may suffer irreparable harm if Consultant
were to violate any of the foregoing undertakings and therefore agrees that, in
addition to any other remedies such party may have, it shall be entitled
(without the requirement of posting any bond) to seek from a court of competent
jurisdiction an injunction restraining the violation of any such undertaking (or
any participation therein).
6. Ownership of Work Product. All items, programs, ideas and the like and
-------------------------
all work product, including source code, table structures, forms, reports and
programming tools created by or with the assistance of Consultant pursuant to
this Agreement, whether prepared on or off Company premises, shall be and remain
the property of the Company alone, and shall be deemed to be works made for
hire. To the extent that any items may not, by operation of law, be works made
for hire, Consultant hereby assigns to Company the ownership of all rights,
titles and interests in such items, including but not limited to copyrights, and
the Company shall have the right to obtain and hold in its own name copyright or
other protection which may be available or become available in the items.
Consultant agrees to give Company, its designees, or assignees all assistance
reasonably required to perfect such rights, titles and interests. Consultant
agrees to disclose promptly to Company all inventions, discoveries, formulas,
processes, designs, trade secrets and other useful information and know-how
made, discovered or developed by Consultant alone or in conjunction with any
other person or entity during the term of this Agreement that are based on,
derived from or make use of any Confidential Information or any other
information disclosed to or acquired by Consultant during the term of the
Agreement and all such information shall be deemed Confidential Information.
7. Termination. Consultant may cancel this Agreement forthwith upon written
-----------
notice.
8. Insurance. Consultant covenants and agrees that it has, in full force
---------
and effect, Workers' Compensation, Public Liability and Property Damage
insurance, and that Consultant further indemnifies Company against loss
resulting from injury to Consultant during the course of performance of service
work under this Agreement. Consultant further assumes full responsibility for
any acts of damage or destruction, including personal injury, caused by the
Consultant during the course of such work. Consultant is not responsible for and
shall not indemnify Company for injury or damage caused by negligence of
Company.
9. Notices. All notices under this Agreement shall be made in writing and
-------
shall be deemed properly delivered when (i) delivered personally, or (ii) by the
mailing of such notice to the parties entitled thereto, registered or certified
mail, postage prepaid to the parties at the addresses set forth above, and in
the case of Company, to the attention of the General Counsel.
10. Nonassignability. Consultant shall not subcontract or assign the
----------------
Agreement, or otherwise dispose of its right, title, or interest therein or any
part thereof to any third party, without obtaining the prior written consent of
the Company. Consent by the Company to any assignment or subcontract of the
Agreement shall not be deemed to create a contractual relationship between the
Company and the subcontracting party or assignee.
11. Compliance with Law and Company Policies; Personal Securities
-------------------------------------------------------------
Transactions. Consultant shall perform its duties hereunder in accordance with
- ------------
all applicable federal, state and local laws, rules, regulations and codes.
Consultant shall comply with all Company standards, rules, procedures and
policies relating to or affecting the conduct of Consultant's personnel.
<PAGE>
Without limiting the foregoing, Consultant will comply with Company's rules
and policies with respect to security of and access to Company's premises and
telephone and electronic mail facilities. Any software Consultant wishes to load
onto Company's computers or computer system must be approved in writing by
Company prior to Consultant loading such software. Company agrees to inform
Consultant of and Consultant agrees to follow all Company standards and policies
related to the Company computer systems (e.g., security, environmental, disaster
recovery, virus detection and removal). Consultant shall use Company software,
hardware and data solely for the purposes contemplated hereby.
Without limiting the foregoing, Consultant will comply with Company's Code
of Ethics which restricts personal securities transactions executed, directly or
indirectly, by or on behalf of any person (including Consultant and Consultant's
directors, officers, employees, agents, consultants and representatives) with
access to Company's Confidential Information. In the event Consultant desires to
engage in any personal securities transaction within the scope of Company's Code
of Ethics during the term of this Agreement, it shall first contact Company's
General Counsel in order to ensure that Consultant is in full compliance with
Company's Code of Ethics.
Consultant shall indemnify Company for any loss or damage that may be
sustained by Company by reason of Consultant's failure to comply with this
Section 12.
12. Subcontracting, Responsibility for Employees and Agents The hiring or
-------------------------------------------------------
use of outside services, subcontractors or consultants by Consultant in
connection with this Agreement shall not be permitted without the prior written
approval of Company. Consultant shall be fully responsible for all acts or
omissions of its employees, officers, directors, agents, consultants and
representatives, including without limitation their compliance with the terms of
this Agreement.
13. Consultant's Employees Consultant represents, warrants and covenants
----------------------
that all personnel used by Consultant in performing its duties hereunder shall
be employees of Consultant. In no event shall such personnel be deemed in any
way to be employees of Company. Consultant acknowledges and agrees that this
consulting arrangement shall not give or extend to Consultant any rights with
respect to contributions by the Company to any deferred compensation plan, bonus
plans, or fringe benefits (including, but in no way limited to holiday pay,
medical or life insurance benefits, sick pay or paid vacation), and further
agrees to hold the Company harmless from any employment, income or other taxes
or any other damages which may be assessed in connection with payments to
Consultant or which may be suffered by Company due to any breach of the
foregoing warranties.
14. Miscellaneous. This Agreement and the Confidentiality Agreement contain
-------------
the entire agreement between the parties hereto and supersedes all prior and
contemporaneous agreements, arrangements, negotiations and understandings
between the parties hereto, relating to the subject matter hereof. There are no
other understandings, statements, promises or inducements, oral or otherwise,
contrary to the terms of these agreements. No waiver of any term, provision, or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or shall constitute, a waiver of any other
provision hereof, whether or not similar, nor shall such waiver constitute a
continuing waiver, and no waiver shall be binding unless executed in writing by
the party making the waiver. Consultant's obligations in Sections 5, 6 and 7
shall survive termination of this Agreement.
No supplement, modification or amendment of any term, provision or
condition of these agreements shall be binding or enforceable unless executed in
writing by the parties hereto. The subject headings of the articles, paragraphs
and subparagraphs of this Agreement are included solely for purposes of
convenience and reference only, and shall not be deemed to explain, modify,
limit, amplify or aid in the meaning, construction or interpretation of any of
the provisions of this Agreement. Should any part, term or provision of this
Agreement or any document required herein to be executed be declared invalid,
void or unenforceable, all remaining parts, terms and provisions hereof shall
remain in full force and effect and shall in no way be invalidated, impaired or
affected thereby. These agreements shall be governed by and construed and
enforced in accordance with and subject to the internal laws of the Commonwealth
of Massachusetts. Each party hereby submits to the exclusive jurisdiction of the
appropriate state or federal courts in Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement by duly
authorized officers thereof as of the date first above written.
FOCUS Enhancements, Inc. Consultant
By: /s/ Christopher P. Ricci By: /s/ Gary M. Cebula
---------------------------- -----------------------
Print: Christopher P. Ricci Print: Gary M. Cebula
------------------------- --------------------
Title: Sr. Vice President Title:
------------------------- --------------------
<PAGE>
EXHIBIT 10.4
SEPARATION AGREEMENT
THIS AGREEMENT is made this first day of May, 2000, by and between FOCUS
Enhancements, Inc., A Delaware Corporation, hereinafter referred to as the
"Company", and Thomas L. Massie, hereinafter referred to as "Employee".
RECITALS:
WHEREAS, beginning on or about December 18, 1992, Company and Employee
entered into an employment agreement, which was subsequently amended on March
22, 1993, December 16, 1993, and restated on January 1, 1998 (collectively, the
"Employment Contract"); and
WHEREAS, Employee owes to Company $140,000, plus interest, pursuant to
promissory notes dated January 6, 1996 and December 1, 1998 (collectively, the
"Notes");
WHEREAS, Employee has voluntarily chosen to sever the employment
relationship; and
WHEREAS, Employee and Company now desire to avoid any disputes or
differences regarding any prospective claims which may be asserted by Employee
regarding any entitlement to continuation of his employment with the Company;
NOW, THEREFORE, in consideration of the above recitals, which are
incorporated herein by this reference, and in further consideration of the
covenants, promises and conditions hereinafter set forth, Employee and Company
agree as follows:
1. Employee's employment with the Company shall be considered as and was
terminated effective April 28, 2000 ("Termination Date"). As of the
Termination Date, the Employment Contract shall be considered terminated by
Employee. Company acknowledges that termination of the Employment Contract
shall not contravene any rights that Employee may otherwise have to
continue to serve as Chairman of Company's Board of Directors for the
remainder of his elected term. Notwithstanding the foregoing, sections 2.3,
2.4, 2.5 and 2.6 of the Employment Contract shall survive termination of
this Agreement.
2. On the Termination Date, Company delivered to Employee all salary earned
and owed to Employee, less appropriate withholdings, through such date. All
remaining remuneration consisting of vacation pay (11 days totaling
$6,346.56) and unpaid bonus pay ($14,999.68.00) amounting to twenty-one
thousand three hundred forty-six dollars ($21,346.24) fifty-seven cents is
paid in hand herewith.
3. The Company agrees to and does deliver herewith to Employee in a certain
Consulting Agreement between Focus Enhancements, Inc., and Employee, dated
contemporaneously herewith, and is subject to all of the terms and
provisions of the Consulting Agreement. Company agrees that during the term
of the Consulting Agreement, all non-qualified stock options held by
Employee as of the date hereof, shall continue to vest and shall continue
to do so while Employee is a member of the Board of Directors.
4. This Separation Agreement is entered into voluntarily by the parties
without cause. The Company acknowledges that pursuant to extensive
investigation conducted during February-April 2000 by a Special Committee
of the Board of Directors and independent accounting firms, the Special
Committee made no findings that Employee had personal knowledge of or
involvement in inventory misstatements made by a company accounting
manager. The Company further acknowledges that Employee has fully performed
the duties and obligations of his employment with Company as defined in
Article 2 of the Employment Contract.
<PAGE>
5. The Company agrees to reimburse Employee for COBRA expenses until (i)
Employee accepts employment with another company where employee is eligible
to participate in that company's health plan, or (ii) April 28, 2001,
whichever is earlier.
6. Employee shall have the right to retain all Company records currently in
his possession to assist him in his role as a member of the Board of
Directors.
7. The Company agrees to forgive all outstanding balances due to the Company
under the Notes, including interest, at a rate of one eighth (1/8) per
Company's fiscal quarter on the last day of each such quarter beginning
September 30, 2000, and continuing for eight fiscal quarters until such
Notes are paid in full. Further, as of the date hereof, all interest on the
Notes shall cease to accrue. Employee agrees, however, that should he
voluntarily resign from his position as a member of the Company's Board of
Directors for any reason prior to June 1, 2002, then any remaining
unforgiven portion of the Notes shall become immediately due and payable
and all interest that would have accrued but for this Agreement shall
accelerate and become due. Company agrees that in no event shall the amount
forgiven under the Note for which Employee shall receive an IRS form 1099
exceed $168,200.03.
8. Subject to approval by the Securities and Exchange Commission (SEC), the
Company agrees to make a public statement via a press release transmitted
via Business Wire, faxed to the Company's internal database, with a hard
copy to all employees in substantially the form attached hereto.
9. Employee acknowledges his continuing duties to maintain Company's
confidential information pursuant to an Employment Agreement executed
between the parties, and further expressly agrees that he/she will keep in
confidence and trust any proprietary information of the Company, which
includes, but is not limited to, trade secrets, copyrights, ideas,
techniques, know-how, inventions (whether patentable or not), and/or any
other information of any type relating to designs, configurations,
toolings, documentation, recorded data, schematics, source code, object
code, masterworks, master data bases, algorithms, flowcharts, formulae,
circuits, works of authorship, mechanisms, research, manufacture,
improvements, assembly, installation, marketing, forecasts, pricing,
customers, the salaries, duties, qualifications, performance levels and
terms of compensation of other employees, and/or costs or other financial
data concerning any of the foregoing or the Company and its operations,
generally. Employee further agrees not to use or disclose to any third
party any such information without the prior written consent of an officer
of the Company or without actual knowledge that the disclosure will be
governed by a Non-disclosure Agreement between Company and the third party.
Employee agrees that the herein covenant of confidentiality is a material
part of this Agreement.
10. Except with respect to issues related to pending class action litigation
and except as expressly provided herein to the contrary, each party hereto,
on behalf of itself and its respective servants, agents, representatives,
attorneys, insurers, predecessors, successors, administrators, trustees,
affiliated and related entities, assignors and assignees, officers,
directors, shareholders and employees, and each of them, releases the other
party hereto and its respective servants, agents, representatives,
attorneys, insurers, predecessors, successors, administrators, trustees,
affiliated and related entities, assignors and assignees, officers,
directors, shareholders and employees, and each of them, from any and all
claims, demands, expenses, losses, causes of action, liabilities,
obligations, damages, liens and/or liabilities of any kind or nature
whatsoever, arising out of or related to Employee's employment with the
Company to the date of this Agreement, the negotiations preceding such
employment, and any and all facts, events or circumstances related thereto.
In addition, Employee agrees not to instigate or otherwise cause a negative
action to exist against Company, it officers or directors, including, but
not limited to, judicial actions, administrative actions, or message boards
relating to Company, except to the extent required by law.
<PAGE>
Employee understands and expressly agrees that this Agreement extends to
all claims of every nature and kind whatsoever related to Employee's
employment with Company, known or unknown, suspected or unsuspected, past
or present, which existed before the date of execution of this Agreement,
including, but not limited to, any claims in tort or contract related to
Employee's employment or to any acts or omissions of the Company involving
Employee.
Nothing herein shall contravene Employee's rights to indemnity for prior
acts pursuant to the indemnity provisions of the Articles of Incorporation
nor shall this Agreement limit any coverage to which Employee would
otherwise be entitled under the Company's Directors and Officers Insurance.
11. The parties agree that the terms and provisions of this agreement shall
remain confidential, and each party hereto shall use their best efforts to
preserve such confidentiality.
12. The parties hereby agree that in any legal action or proceeding instituted
to enforce the terms of this Agreement, to seek a declaration of rights in
conjunction herewith, or otherwise relating to or arising out of this
Agreement, whether in tort or in contract, the prevailing or successful
party shall be entitled to recovery of its reasonable attorneys' fees,
costs, and other expenses, notwithstanding whether the action or proceeding
proceeds to trial or hearing, unless otherwise required by law.
13. This Agreement represents and contains the entire agreement and
understanding among parties hereto with respect to the subject matter of
this Agreement, and supersedes any and all prior oral and written
agreements and understandings. This Agreement may not be amended or
modified except by an agreement in writing signed by the party against whom
the enforcement of any modification or amendment is sought.
Each party to the Agreement represents that it has executed this Agreement
voluntarily and declares, warrants and represents that no promises,
inducements, or other agreements not expressly contained and set forth in
this Agreement have been made, and further, that the terms of this
Agreement are contractual and not merely a recital, and shall be construed
and enforced as such.
14. Each party hereto has been specifically advised of its right to counsel in
conjunction with the negotiation and formulation of this Agreement, and,
accordingly, this Agreement shall be construed as if negotiated and drafted
jointly by each of the parties hereto, and shall be interpreted and
construed accordingly.
Each of the parties to this Agreement, and/or their attorneys and
representatives, agree to execute any and all documents necessary to
effectuate the terms, conditions and purposes of this Agreement.
15. In the event that one or more of the provisions, or portions thereof, of
this Agreement is determined to be illegal or unenforceable, the remainder
of this Agreement shall not be affected thereby and each remaining
provision or portion thereof shall continue to be valid and effective and
shall be enforceable to the fullest extent permitted by law.
16. This Agreement shall bind and inure to the benefit of each party and each
party's agents, representatives, successors, heirs and assigns.
17. This Agreement may be executed in any number or counterparts, each of which
shall be deemed to be an original, and all of which together shall be
deemed one and the same instrument.
18. This Agreement is the result of a compromise and settlement of claims
presently asserted or potentially assertable by Employee and Company, and
the consideration paid and received therefore is not to be construed as an
admission of any obligation or liability by any party hereto or by persons
not a part of this Agreement. Notwithstanding the foregoing, Company
acknowledges that no
<PAGE>
competent finder of fact has adjudged Employee as having participated in
any intentional misconduct.
19. Notwithstanding any other provision of this Agreement, each party hereto,
as a part of the consideration for this Agreement, agrees that any
controversy or claim arising out of this agreement or a breach thereof
shall, on written request or either party served on the other, be submitted
to binding arbitration. Judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. The parties shall each
appoint one person to hear and determine the dispute, and if they shall be
unable to agree, then the two persons so chosen shall select a third
impartial arbitrator whose decision shall be final and conclusive upon both
parties. The cost of such arbitration shall be borne by the losing party,
or in such proportions as the arbitrators shall decide. Arbitration shall
take place in Boston, Massachusetts and shall be conducted in accordance
with the Rules of the American Arbitration Association.
Each party warrants and represents that this Agreement is executed by
individuals or entities on its behalf by a duly authorized partner, officer or
representative.
"Company" "Employee"
FOCUS Enhancements, Inc. Thomas L. Massie
By: /s/ William B. Coldrick By: /s/ Thomas L. Massie
------------------------ -----------------------
Printed: William B. Coldrick Printed: Thomas L. Massie
-------------------- -------------------
Vice Chairman of the Board
Date: May ____, 2000 Date: May 1, 2000
<PAGE>
EXHIBIT 10.5
SEPARATION AGREEMENT
THIS AGREEMENT is made this 30th day of April, 2000, by and between FOCUS
Enhancements, Inc., A Delaware Corporation, hereinafter referred to as the
"Company", and Gary M. Cebula, hereinafter referred to as "Employee".
RECITALS:
WHEREAS, on or about May 4, 1998, Company and Employee entered into an
employment agreement, which was subsequently amended on March 1, 1999
(collectively, the "Employment Contract"); and
WHEREAS, Employee and Company have mutually agreed to sever the employment
relationship; and
WHEREAS, Employee and Company now desire to avoid any disputes or
differences regarding any prospective claims which may be asserted by Employee
regarding any entitlement to continuation of his employment with the Company;
NOW, THEREFORE, in consideration of the above recitals, which are
incorporated herein by this reference, and in further consideration of the
covenants, promises and conditions hereinafter set forth, Employee and Company
agree as follows:
1. Employee's employment with the Company shall be considered as and was
terminated effective April 30, 2000 ("Termination Date"). As of the
Termination Date, the Employment Contract shall be considered terminated by
Employee. Notwithstanding anything to the contrary herein, any of
Employee's obligations which by their nature extend beyond termination
shall survive termination and remain fully effective.
2. On the Termination Date, Company delivered to Employee all of the
remuneration, including salary earned and owed to Employee, less
appropriate withholdings, through such date. As further consideration,
Company agrees to continue to pay Employee eight thousand three hundred
thirty three dollars thirty three cents ($8,333.33) per month payable no
later than the fifteenth day of each calendar month beginning May 1, 2000
and ending on December 31, 2000. If payment is not transmitted to Employee
within fifteen (15) days following the fifteenth day of the calendar month
for which the compensation is owed, Company agrees to accelerate all
remaining payments to Employee in lump sum.
3. The Company agrees to reimburse Employee for COBRA expenses until the
earlier of (i) Employee accepts employment with, or retained as a
consultant by, another company, or (ii) December 31, 2000.
4. All currently unvested options of Employee, totaling 69,999 options, shall
immediately vested and become exercisable.
5. Employee acknowledges his continuing duties to maintain Company's
confidential information pursuant to an Employment Agreement executed
between the parties as well as those obligations conferred by the Employee
Manuals in effect during Employees employment, and further expressly agrees
that he/she will keep in confidence and trust any
<PAGE>
proprietary information of the Company, which includes, but is not limited
to, trade secrets, copyrights, ideas, techniques, know-how, inventions
(whether patentable or not), and/or any other information of any type
relating to designs, configurations, toolings, documentation, recorded
data, schematics, source code, object code, masterworks, master data bases,
algorithms, flowcharts, formulae, circuits, works of authorship,
mechanisms, research, manufacture, improvements, assembly, installation,
marketing, forecasts, pricing, customers, the salaries, duties,
qualifications, performance levels and terms of compensation of other
employees, and/or costs or other financial data concerning any of the
foregoing or the Company and its operations, generally. Employee further
agrees not to use or disclose to any third party any such information
without the prior written consent of the President of the Company. Employee
agrees that the herein covenant of confidentiality is a material part of
this Agreement.
6. Except with respect to issues related to pending class action litigation in
which Employee is a named defendant and except as expressly provided herein
to the contrary, each party hereto, on behalf of itself and its respective
servants, agents, representatives, attorneys, insurers, predecessors,
successors, administrators, trustees, affiliated and related entities,
assignors and assignees, officers, directors, shareholders and employees,
and each of them, releases the other party hereto and its respective
servants, agents, representatives, attorneys, insurers, predecessors,
successors, administrators, trustees, affiliated and related entities,
assignors and assignees, officers, directors, shareholders and employees,
and each of them, from any and all claims, demands, expenses, losses,
causes of action, liabilities, obligations, damages, liens and/or
liabilities of any kind or nature whatsoever, arising out of or related to
Employee's employment with the Company, the negotiations preceding such
employment, and any and all facts, events or circumstances related thereto.
In addition, Employee agrees not to instigate, participate in, or otherwise
cause a negative action to exist against Company, it officers or directors,
including, but not limited to, judicial actions, administrative actions, or
message boards relating to Company.
7. From the date he receives this Agreement, Employee has twenty-two (22) days
to consider it. Should he decide to sign the Agreement, he has seven (7)
days following the signing to revoke the Agreement, and the Agreement will
not become effective and enforceable until that seven (7) day revocation
period has expired. Should Employee either decide not to sign this
Agreement or should he sign it and elect to revoke it during the seven (7)
day period, then this Agreement shall be null and void.
8. Employee further states that all property supplied by Company or otherwise
the property of Company including, but not limited to, notes, books,
engineering records, sales records, correspondence, drawings, models,
samples, tools, machinery, equipment (including computers), and any other
written, graphical or electromagnetic records in the possession or under
the control of Employee relating to the business, products or projects of
Company and/or to any inventions or other confidential information and/or
property of Company have been delivered to Company without retaining any
copies.
9. Employee understands and expressly agrees that this Agreement extends to
all claims of every nature and kind whatsoever, known or unknown, suspected
or unsuspected, past or present, which existed before the execution of this
Agreement, including, but not limited to, any claims in tort or contract
related to Employee's employment or to any acts or omissions of the Company
involving Employee.
<PAGE>
10. The parties agree that the terms and provisions of this agreement shall
remain confidential, and each party hereto shall use their best efforts to
preserve such confidentiality.
11. The parties hereby agree that in any legal action or proceeding instituted
to enforce the terms of this Agreement, to seek a declaration of rights in
conjunction herewith, or otherwise relating to or arising out of this
Agreement, whether in tort or in contract, the prevailing or successful
party shall be entitled to recovery of its reasonable attorneys' fees,
costs, and other expenses, notwithstanding whether the action or proceeding
proceeds to trial or hearing.
12. Each party acknowledges and assumes the risk that damages presently known
may become progressive, greater or more serious than is now known, expected
or anticipated. It is the intent of the parties to fully, finally and
forever settle and release all matters referenced in the Agreement, which
they have against the other.
13. This Agreement represents and contains the entire agreement and
understanding among parties hereto with respect to the subject matter of
this Agreement, and supersedes any and all prior oral and written
agreements and understandings. The foregoing notwithstanding, the
obligations that Employee undertook in his Employment Agreement shall
survive this Agreement. This Agreement may not be amended or modified
except by an agreement in writing signed by the party against whom the
enforcement of any modification or amendment is sought. No representation,
warranty, condition, understanding or agreement of any kind with respect to
the subject matter hereof shall be relied upon by the parties unless
incorporated herein.
Each party to the Agreement represents that it has executed this Agreement
voluntarily and declares, warrants and represents that no promises,
inducements, or other agreements not expressly contained and set forth in
this Agreement have been made, and further, that the terms of this
Agreement are contractual and not merely a recital, and shall be construed
and enforced as such.
14. Each party hereto has been specifically advised of its right to counsel in
conjunction with the negotiation and formulation of this Agreement, and,
accordingly, this Agreement shall be construed as if negotiated and drafted
jointly by each of the parties hereto, and shall be interpreted and
construed accordingly.
Each of the parties to this Agreement, and/or their attorneys and
representatives, agree to execute any and all documents necessary to
effectuate the terms, conditions and purposes of this Agreement.
15. In the event that one or more of the provisions, or portions thereof, of
this Agreement is determined to be illegal or unenforceable, the remainder
of this Agreement shall not be affected thereby and each remaining
provision or portion thereof shall continue to be valid and effective and
shall be enforceable to the fullest extent permitted by law.
16. This Agreement shall bind and inure to the benefit of each party and each
party's agents, representatives, successors, heirs and assigns.
<PAGE>
17. This Agreement may be executed in any number or counterparts, each of which
shall be deemed to be an original, and all of which together shall be
deemed one and the same instrument.
18. This Agreement is the result of a compromise and settlement of claims
presently asserted or potentially assertable by Employee and Company, and
the consideration paid and received therefore is not to be construed as an
admission of any obligation or liability by any party hereto or by persons
not a part of this Agreement.
19. Notwithstanding any other provision of this Agreement, each party hereto,
as a part of the consideration for this Agreement, agrees that any
controversy or claim arising out of this agreement or a breach thereof
shall, on written request or either party served on the other, be submitted
to binding arbitration. Judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. The parties shall each
appoint one person to hear and determine the dispute, and if they shall be
unable to agree, then the two persons so chosen shall select a third
impartial arbitrator whose decision shall be final and conclusive upon both
parties. The cost of such arbitration shall be borne by the losing party,
or in such proportions as the arbitrators shall decide. Arbitration shall
take place in Boston, Massachusetts and shall be conducted in accordance
with the Rules of the American Arbitration Association.
20. Employee has been advised to seek independent legal review and advice
concerning this Agreement, and to the extent he/she deems necessary or
advisable, has done so.
Each party warrants and represents that this Agreement is executed by
individuals or entities on its behalf by a duly authorized partner, officer or
representative.
"Company" "Employee"
FOCUS Enhancements, Inc. Gary M. Cebula
By: /s/ William B. Coldrick By: /s/ Gary M. Cebula
------------------------- ---------------------
Printed: William B. Coldrick Printed: Gary M. Cebula
-------------------- -----------------
Vice Chairman of the Board
Date: April ____, 2000 Date: 5-1-00
-------------------
CONSENT OF SPOUSE
-----------------
I acknowledge that I have read the foregoing Separation Agreement and that I
know its contents. I am aware that by its provisions my spouse has released all
claims against Focus Enhancements, Inc., including any community interest
therein. I hereby consent to such release, approve of the provisions of the
Agreement, and agree that I will not act in contravention of any of the terms
therein.
By: /s/ Carolyn Cebula Dated: 5-1-00
-------------------- ---------
<PAGE>
Exhibit 11
FOCUS ENHANCEMENTS, INC.
STATEMENT OF COMPUTATION OF INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, March 31,
2000 1999
<S> <C> <C>
Net income $(1,579,370) $ 102,990
Basic:
Weighted average number of common shares outstanding 24,335,368 18,005,090
Diluted:
Weighted average number of common shares outstanding 24,335,368 18,005,090
Weighted average common equivalent shares -- 716,815
Weighted average number of common and common equivalent
shares outstanding used to calculate per share data 24,335,368 18,721,905
Net income per share
Basic $ (0.06) $ 0.01
=========== ===========
Diluted $ (0.06) $ 0.01
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 853,279
<SECURITIES> 0
<RECEIVABLES> 2,828,709
<ALLOWANCES> (249,970)
<INVENTORY> 3,794,079
<CURRENT-ASSETS> 8,754,375
<PP&E> 1,743,857
<DEPRECIATION> (836,991)
<TOTAL-ASSETS> 13,037,638
<CURRENT-LIABILITIES> 4,052,572
<BONDS> 0
0
0
<COMMON> 248,992
<OTHER-SE> 8,434,964
<TOTAL-LIABILITY-AND-EQUITY> 13,037,638
<SALES> 3,614,271
<TOTAL-REVENUES> 3,614,271
<CGS> 2,329,632
<TOTAL-COSTS> 2,850,643
<OTHER-EXPENSES> (10,400)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,766
<INCOME-PRETAX> (1,575,370)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (1,579,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,579,370)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
