<PAGE>
EXHIBIT 10.6
SEPARATION AGREEMENT
THIS AGREEMENT is made effective the 10th day of July, 2000, by and between
FOCUS Enhancements, Inc., A Delaware Corporation, hereinafter referred to as the
"Company", and J. Stephen Wood and Red & White Enterprises, Inc., a California
corporation having a principal place of business at 455 LaPaz Court, Morgan
Hill, California 95122, hereinafter referred to collectively as "Employee".
RECITALS:
WHEREAS, on or about August 1, 1998, Company and Employee entered into an
employment agreement, which was subsequently amended on April 1, 1999 and July
15, 1999 (collectively, the "Employment Contract"); and
WHEREAS, on or about July 29, 1998, Company and Employee entered into a
Promissory Note which was secured through a Security Agreement of equal date
therewith (collectively, the "Note") on which there is a current balance (total
balance less Overdue Amount) of $380,927.12 ("Balance") and overdue payments in
the amount of $146,510.32 ("Overdue Amount"); 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 terminated
effective July 10, 2000 ("Termination Date"). As of the Termination Date,
the Employment Contract shall be considered terminated by mutual agreement.
2. Notwithstanding anything to the contrary herein, Employee's obligations in
Sections 2.3-2.6 of the Employment Agreement shall survive termination and
remain fully effective. On the Termination Date, Company delivered to
Employee all of the remuneration, including salary earned and owed to
Employee with vacation pay of 5 1/2 days, less appropriate withholdings,
through such date. 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)
August 1, 2001, whichever is earlier.
3. Following the Termination Date, Company and Employee agree that Employee
shall only be restricted from entering into employment, consulting or other
business relationship with the following:
Communications Specialties Vidikron
Dwinn Electronics JVC Presentation Division
JVC Broadcast Division Inline
DreamVision Seleco
Audio Plus Services Barco
Keywest Technologies Christie Digital
Extron Analog Way
NEC Chromatek
Sony Professional division Madrigal
DVDO Miranda
Faroudja RGB Spectrum
AV Source Folsom
AV Science
<PAGE>
In Addition, Employee agrees and warrants that, for a period of one (1) year
from the date hereof, he/she will not directly or indirectly own, sponsor,
operate, join, control or participate in, or be connected as a partner,
officer, director, employee, consultant, adviser, sponsor or otherwise with,
or permit its or his name to be used in connection with, any business
engaged in the marketing, brokering, selling, reselling, or distribution of
ISA scan converter products.
If at any time any of the foregoing agreements or covenants shall be deemed
invalid or unenforceable by the laws of the jurisdiction wherein it is to be
enforced, by reason of being vague or unreasonable as to duration, or
geographic scope, or scope of activities restricted, or for any other
reason, such agreements or covenants shall be considered divisible as to
such portion and shall become and be immediately amended and reformed to
include only such agreements or covenants as are enforceable by the court or
other body having jurisdiction of this Agreement; and the parties agree that
such agreements or covenants, as so amended and reformed, shall be valid and
binding as though the invalid or unenforceable portion had not been included
herein.
4. Company agrees to pay within five business days following execution hereof
by all parties hereto, one hundred thousand ($100,000) dollars of the
Overdue Amount in cash or cash equivalents. Also, within five business days
following shareholder approval of an increase in authorized shares of
Employer ("Conversion Date"), Company agrees to convert the Balance and any
remaining portion of the Overdue Amount, if any, as of the effective date
hereof to Company common stock at a conversion rate of ninety-three percent
(93%) of the average closing price of the Company common stock on the NASDAQ
Small-Cap Market (as reported by Bloomberg L.P.) on the five trading days
prior to the Conversion Date, up to a maximum of 500,000 shares of common
stock. On the Conversion Date, Employer shall give Employee written notice
("Conversion Notice") of the number of shares of common stock that result
from application of the five-day average conversion rate to the Balance and
any remaining portion of the Overdue Amount, as described herein above. If
the Conversion Notice indicates that the conversion rate results in a
conversion into greater than 500,000 shares of common stock then Employer
shall only be required to convert into 500,000 shares of common stock.
However, if the Conversion Notice indicates that the conversion rate results
in a conversion into greater than 500,000 shares of common stock Employee
may, at his sole discretion, choose to terminate the conversion and maintain
the secured creditor rights under the Note. In the event Employee chooses to
terminate the conversion, all provisions hereof inconsistent with Employee's
secured creditors' rights under the Note shall be void. Employee's election
to terminate shall be made within two business days following transmission
of the Conversion Notice, if sent by facsimile, or five business days if
sent by U.S. mail. On the Conversion Date, the debt represented by the Note
shall be considered converted into equity and the
2
<PAGE>
Note shall be considered terminated. Ninety days after the Conversion Date,
employee shall provide employer with a UCC-2 for release of each of the UCC-
1's recorded in Massachusetts and California as security for the Note. All
interest under the Note shall cease to accrue as of the effective date
hereof.
5. Employee agrees that seventeen and one half (17 1/2%) of the Securities
shall be held in escrow by the Company until such time as design problems
with the ProAV 1600 board and the Quadscan are in Company's sole opinion
operating satisfactorily and all supporting design and production
documentation is supplied, both in accordance with the specifications
attached hereto as Exhibit A. The foregoing notwithstanding, all stock held
in escrow shall be released to Employee no later than July 28, 2001. An
escrow agent shall be mutually selected by the parties.
6. All stock issued hereunder shall, unless required by Employer's counsel, be
registered in the same registration statement as that of the recent equity
financing with AMRO International, S.A. and in all event the registration
statement shall be filed not later than forty-five days hereafter.
7. The Company agrees to and does deliver herewith to Employee in a certain
Consulting Agreement between Focus Enhancements, Inc., and Employee, dated
as of the Effective Date hereof, and this Agreement is subject to all of the
terms and provisions of the Consulting Agreement.
8. 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 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.
9. 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.
3
<PAGE>
10. 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.
11. Unless required to perform the consulting described in the Consulting
Agreement executed contemporaneously herewith, 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. All of the
aforementioned and all copies thereof shall be returned to Employer no
later than upon termination of the Consulting Agreement.
12. 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.
13. 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.
14. 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.
15. 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.
16. Unless otherwise provided above, each certificate representing Securities
will bear the following legend or equivalent:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
4
<PAGE>
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
17. 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. 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.
18. 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.
19. 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.
20. This Agreement shall bind and inure to the benefit of each party and each
party's agents, representatives, successors, heirs and assigns.
21. 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.
22. 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.
5
<PAGE>
23. 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.
24. 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.
25. This Agreement may be executed in multiple counterparts, each of which may
be executed by less than all of the parties and shall be deemed to be an
original instrument which shall be enforceable against the parties actually
executing such counterparts and all of which together shall constitute one
and the same instrument. Except as otherwise stated herein, in lieu of the
original documents, a facsimile transmission or copy of the original
documents shall be as effective and enforceable as the original.
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. J. Stephen Wood
By: _____________________________ By: _____________________________
Printed: Brett Moyer Printed: J. Stephen Wood
Executive Vice President
Date: July ____, 2000 Date: ____________________________
Red & White Enterprises, Inc.
By: _____________________________
Printed: J. Stephen Wood
Title: President
Date: ____________________________
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: _____________________________ Dated: _____________
Print
Name: __________________________
Spouse of J. Stephen Wood
6
