UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,United States Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant To Section 14(A) OF THE
SECURITIES EXCHANGE ACT OFof the
Securities Exchange Act Of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DIRECT FOCUS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registrant statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1999
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To the Stockholders of Direct Focus, Inc.:
The Annual MeetingOur annual meeting of the shareholders of Direct Focus, Inc. will be held at the Heathman Lodge,
7801 N.E. Greenwood Drive, Vancouver, Washington on June 25, 1999,26, 2000, beginning at
10:00 a.m. PDT, for the following purposes:
1. To elect a board of seven directors, to the Company's Board of Directors, each for a one year term;
2. To approve an amendment to our Stock Option Plan to increase the
number of shares of common stock issuable thereunder by 500,000
shares;
3. To approve an amendment to our Articles of Incorporation to
delete the requirement that certain action by our shareholders
must receive two-thirds approval; and
2.4. To consider and act upon any other matter which may properly
come before the Annual Meeting or any adjournment thereof.
Only shareholders who held their shares at the close of business on
May
21, 1999,April 27, 2000, the record date, are entitled to notice of and to vote at the
Annual Meetingannual meeting or any adjournment or postponement thereof.
All shareholders are cordially invited to attend the Annual Meeting,annual meeting, at
which management will present a review of the Company'sour operations for the year ended
December 31, 1998.1999. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD, WHICH YOU MAY REVOKE AT ANY
TIME PRIOR TO ITS USE. A prepaid, self-addressed envelope is enclosed for your
convenience. Your shares will be voted at the Annual
Meetingannual meeting in accordance with
your proxy. If you attend the meeting, you may
revoke your proxy and vote in person.
By Order of the Board of Directors
/s/ Rod W. Rice
ROD W. RICE
CHIEF FINANCIAL OFFICER AND SECRETARY
VANCOUVER, WASHINGTON
MAY 27, 19991, 2000
DIRECT FOCUS, INC.
2200 N.E. 65TH AVENUE
VANCOUVER, WASHINGTON 98661
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 25, 1999
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The Board26, 2000
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Our board of Directors of Direct Focus, Inc. (the "Company")directors is furnishing this Proxy Statementproxy statement and the
accompanying Annual Report to Shareholders, Noticenotice of Annual Meetingannual meeting and proxy
card in connection with its solicitation of proxies for use at the Company's 1999our 2000 Annual
Meeting of Shareholders or any adjournment thereof (the "Annual Meeting").thereof. The Annual
Meetingannual meeting will be
held on June 26, 2000, beginning at 10:00 a.m., Pacific Daylight Savings Time at
the following location:
Heathman Lodge
7801 N.E. Greenwood Drive
Vancouver, Washington
on June 25, 1999, at 10:00 a.m., Pacific Daylight
Savings Time. The Company isWe are bearing all expenses associated with this solicitation. The Company'sOur
officers or regular employees, without additional remuneration, may follow this
written proxy solicitation with personal solicitation of certain shareholders in person
or by telephone or facsimile transmission.
The BoardOur board of Directorsdirectors has designated the two persons named on the
enclosed proxy card, Brian R. Cook and Rod W. Rice, to serve as proxies in
connection with the Annual Meeting.annual meeting. These proxy materials and the accompanying
Annual Report to Shareholders are being mailed on or about May 27, 1999,3, 2000 to the Company'sour
shareholders of record on May 21, 1999.April 27, 2000.
REVOCABILITY OF PROXIES
Any shareholder who executes aYou may revoke any proxy is entitled to revoke ityou execute at any time prior to its use at
the Annual Meetingannual meeting by:
- Deliveringdelivering written notice of revocation to the Company'sour Secretary;
- Deliveringdelivering an executed proxy bearing a later date to the Company'sour
Secretary; or
- Attendingattending the Annual Meetingannual meeting and voting in person.
RECORD DATE
The BoardOur board of Directorsdirectors has fixed the close of business on May 21, 1999,April 27,
2000, as the record date for determining which of the Company'sour shareholders are entitled
to notice of and to vote at the Annual Meeting.annual meeting. At the close of business on the
record date, 10,452,10010,410,701 shares of the Company'sour common stock were outstanding and held of record by approximately 80 shareholders.
VOTING AT THE ANNUAL MEETINGoutstanding.
VOTING; QUORUM
Each share of common stock outstanding on the record date is entitled
to one vote per share
1
at the Annual Meeting.annual meeting. Shareholders are not entitled to cumulate their votes.
The presence, in person or by proxy, of the holders of a majority of the Company'sour
outstanding shares of common stock is
3
necessary to constitute a quorum at the
Annual Meeting.annual meeting.
VOTE REQUIRED TO APPROVE THE PROPOSALS
If a quorum is present at the Annual Meeting:
- the seven nominees who receive the greatest number of votes cast
for the election of directors by the shares present and voting
in person or by proxy will be elected as directors.directors;
- proposal 2 will be approved if it receives the affirmative vote
of the holders of a majority of the shares present in person or
by proxy at the annual meeting and entitled to vote; and
- proposal 3 will be approved if it receives the affirmative vote
of two-thirds of the votes entitled to be cast on the proposal
at the annual meeting.
EFFECT OF ABSTENTIONS
If you abstain from voting, your shares will be deemed present at the
annual meeting for purposes of determining whether a quorum is present.
Directors are elected by a plurality of the votes cast and only votes cast in
favor of a nominee will have an effect on the outcome. Therefore, abstention
from voting or nonvoting by brokers
will not affect the outcome of the election. Abstentions will have
the same effect as a vote against proposals 2 and 3.
EFFECT OF BROKER NON-VOTES
If a broker holds your shares in street name, you should instruct your
broker how to vote. If you do not provide voting instructions, the broker will
have discretionary voting authority with respect to proposal 1, but not with
respect to proposals 2 or 3. Broker non-votes are deemed present at the annual
meeting for purposes of determining whether a quorum is present. However,
broker-non-votes are not counted as votes "for" or "against" proposals 1, 2 and
3 and are not counted in determining the number of votes cast on these
proposals. In addition, broker non-votes are not entitled to vote on proposals 2
and 3. Accordingly, broker non-votes will have no effect on proposals 1, 2 or 3.
PROXY PROCEDURE
When a proxy card is properly dated, executed and returned, the shares
it represents will be voted at the Annual Meetingannual meeting in accordance with the
instructions specified in the proxy. If no specific instructions are specified,
the shares will be voted FOR the election of the director nominees described
below.below and FOR proposals 2 and 3. If other matters properly come before the
Annual Meeting,annual meeting, the persons named in the accompanying proxy will vote in
accordance with their best judgment with respect to such matters.
42
ELECTION OF DIRECTORS
(PROPOSAL 1)
In accordance with the Company'sour Amended and Restated Bylaws, the Boardour board of
Directorsdirectors shall be comprised of no less than five and no more than fifteen
directors, with the specific number to be determined by the Boardour board of Directors.directors.
By resolution adopted on May 7, 1999, the Boardour board of Directorsdirectors set the number of
directors at seven.
NOMINEES
At the Annual Meeting, theannual meeting, our shareholders will elect a board of seven
directors to serve until the 20002001 annual meeting or until their respective
successors are elected and qualified. The BoardOur board of Directorsdirectors has nominated the
individuals listed below to serve on the Board.our board. All nominees other than Paul F. Little are current directors of the Company.Randal
R. Potter currently serve on our board. As of the date of this Proxy Statement,proxy statement,
each nominee has consented to serve as a director. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the Boardannual meeting, our board of
Directorsdirectors may provide for a lesser number of directors or designate a
substitute. If the Boardour board of Directorsdirectors designates a substitute, the proxy holders
will have the discretionary authority to vote for the substitute.
Proxies may not be voted for more than seven nominees.
NAME AGE HAS BEEN A DIRECTOR SINCE
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Kirkland C. Aly 4243 1996
C. Reed Brown 52 1998
Brian R. Cook 4950 1986
Gary L. Hopkins 51 1993C. Rowland Hanson 48 1999
Paul F. Little 56 N.A.1999
Randal R. Potter 32 -
Roger J. Sharp 4344 1995
Roland E. Wheeler 5051 1986
KIRKLAND C. ALY has been a directorserved on our board of Direct Focusdirectors since 1996. Mr.
Aly was namedjoined Zilkah Capital Partners, LP, a private equity investment company, as
a partner in March 2000. Previously, Mr. Aly served as Senior Vice President of
Webforia, Inc. infrom May 1999 with
responsibility for managing and developing webforia.com.to February 2000. Commencing in 1997, Mr. Aly was
Executive Vice President of Softbank Content Services, Inc., and subsequently
served as Vice President of Worldwide Sales & Marketing at Software Logistix
Corporation following its acquisition of Softbank in 1998. Logistix develops, implements and manages integrated supply chains for high
technology companies. From 1996 to 1997,
Mr. Aly was a principal in KDI Capital, LLC, and from 1995 to 1997, Mr. Aly was
the President and Chief Executive Officer of Atrieva Corporation. Throughout 1994, Mr. Aly was the
President of Prism Group, Inc. Mr. Aly
received his B.A. in Communications from Washington State University.
C. REED BROWN joined Direct Focus in 1998 as the Director of Business/Legal
Affairs and has served as a director since 1998. From 1996 to 1997, Mr. Brown
served as Vice President/General Counsel and Director of Business Affairs at
Williams Worldwide Television, and also served briefly as President and Chief
Operating Officer of Stilson & Stilson Advertising and Marketing. From 1992 to
1996, Mr. Brown held various positions at HealthRider, Inc.,
5
including General Counsel/Vice President, Executive Vice President, Corporate
Secretary and President of HealthRider Kiosk, Inc. Mr. Brown received his
J.D. in 1973 from the University of Utah College of Law. Mr. Brown also
serves as a director of Pen Interconnect, Inc.
BRIAN R. COOK has served on our board of directors and as a director and theour President
and Chief Executive Officer of Direct Focus since 1986. Mr. Cook received his B.A. in Business
Administration, with a major in accounting, from Western Washington University.
He is a Certified Public Accountant.
C. ROWLAND HANSON has served on our board of directors since October
1999. Mr. Cook is marriedHanson, founder of C.R.H. & Associates, provides consulting services
in strategic planning with emphasis on maximizing the perceived value of a
company through effective brand development
3
and corporate communications. Prior to the
sister ofconsulting, Mr. Hopkins' wife.
GARY L. HOPKINS has been a director of Direct Focus since January 1993.
Mr. Hopkins is currently the Branch Operations Manager of Qpoint Mortgage, a
position he has held since March 1998. Mr. Hopkins previouslyHanson served as Vice
President of Worldwide Marketing at Neutrogena Corporation and Vice President of
Corporate Communications at Microsoft. Currently, Mr. Hanson serves on the board
of directors of Webforia, Inc. and on the advisory board of Onvia.com., Internet
Capital Group, PTEK Ventures, and IncubASIA. Mr. Hanson holds a Senior Lending Officer at Olympic NW MortgageB.A. from 1996 to 1998, a Senior
Loan Officer at Emerald MortgageLoyola
University and an M.B.A. from 1994 to 1996, and as President and CEOthe Wharton School of Merit Escrow from 1990 to 1994. Mr. Hopkins is married to the sisterBusiness, University of
Mr. Cook's wife.Pennsylvania.
PAUL F. LITTLE has beenserved on our board of directors since 1999. In
2000, Mr. Little began independent financial consulting in western Canada in
addition to being a principal in a CanadianToronto-based merchant banking group,
Gornitzki, Thompson & Little ("GTL"), since its inception in 1986. GTL provides
development capital for entrepreneurial companies that desire access to the
public market. Mr. Little is a Chartered Accountant and holds ana M.B.A. from the
University of British Columbia.
RANDAL R. POTTER has been nominated as a new director. Mr. Potter
joined Direct Focus in 1991 as a Creative Director and Marketing Manager and was
named Vice President of Marketing in December 1995. Mr. Potter, who received his
B.S. in Social Science from Washington State University, has been involved in
the direct marketing industry since 1986.
ROGER J. SHARP has been a directorserved on our board of Direct Focusdirectors since 1995. Since
1993, he has served as the President of Thethe Sharp Law Firm, in Vancouver,
Washington, a general civil
legal practice. He received his J.D. from the University of Washington School of
Law in 1981. Mr. Sharp has provided, and from time to time may continue to
provide, us with legal services to Direct Focus.services.
ROLAND E. "SANDY" WHEELER has served as a directoron our board of Direct Focusdirectors since
1986. Mr. Wheeler is currently Chairman of the Board for ID Certify, an internet
infrastructure company. Since 1998, he has served as the President and CEO of
DynaMed, Inc., a cancer research company. In addition, since 1996, he has served
as the President of V-Care Health Systems, Inc., a medical equipment company.
From 1994 to 1995, Mr. Wheeler served as theour Vice President of Marketing of Direct
Focus.Marketing.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1998, the Board1999, our board of Directorsdirectors held four (4)six (6) meetings and took
action pursuant to three (3)five (5) unanimous written consents. No director while in
office attended fewer than 75% of the Boardboard meetings.
The BoardOur board of Directors hasdirectors had two committees:committees in 1999: an Audit Committee
and a Year 2000 Committee. Kirkland C. Aly, Roger J. Sharp, and C. Reed Brown
serveserved on the Audit Committee. Paul F. Little replaced Mr. Brown on the Audit
Committee in 2000. The Audit Committee hashad authority to: (1) make
recommendations to the Boardboard of Directorsdirectors regarding the selection of independent
auditors; (2) review the results and scope of audits and other services provided
by the Company'sour independent auditors; and (3) review and evaluate the Company'sour audit and control
functions. C. Reed Brown and Roland Wheeler serveserved on the Year 2000 Committee,
which iswas charged with developing, overseeing and reviewing the Company'sour Year 2000
response and contingency plan. In 1998,1999, the full Boardboard of Directorsdirectors considered
and
6
took action on matters within the jurisdiction of the Audit Committee and
Year 2000 Committee. Consequently, neitherthus the Audit Committee nor thedid not meet in 1999. The
4
Year 2000 Committee met twice in 1998.1999. The Company doesYear 2000 Committee was disbanded in
2000.
Our board of directors did not have a nominating committee or a
compensation committee.committee in 1999. Instead, the full Boardboard of Directors considersdirectors considered
and determinesdetermined nomination and compensation issues. No officer or employeesemployee who is
a director participatesparticipated in Boardboard deliberations regarding their own compensation.
DIRECTOR COMPENSATION
The Company paysWe pay all of itsour non-employee directors $500 per day plus travel
expenses for each Boardboard meeting they attend in person, and $150 per day for each
Boardboard meeting they attend telephonically. On February 27, 1998,
the BoardJune 26, 1999, our board of
Directorsdirectors granted to each non-employee director an option to purchase 5,0002,520
shares of the Company'sour common stock at an exercise price equal to our initial United
States public offering price of $20.50 per share. This exercise price was higher
than market price of our common stock at close of trading on the NASDAQ National
Market System on the date of grant.
Our board of directors granted Mr. Hanson an option to purchase 26,400
and 1,680 shares of our common stock on October 1 and October 22, 1999,
respectively, each at an exercise price equal to the market price of the Company'sour common
stock at the close of trading on the Toronto Stock ExchangeNASDAQ on the date of grant. On May 8, 1998,
the Board of Directors granted to Mr. Brown an option to purchase 5,000
shares of the Company's common stock under the same terms.such dates. In addition, on May 8, 1998, the BoardFebruary
18, 2000, our board of Directorsdirectors granted a $10,000$20,000 bonus to eachMessrs. Aly, Sharp
and Wheeler, a $5,000 bonus to Mr. Hanson and a $15,000 bonus to Mr. Little. The
bonus amount was determined by our directors' length of service as a director other than C. Reed Brown and Brian R. Cook.in
calendar year 1999.
BOARD RECOMMENDATION
The BoardOur board of Directorsdirectors unanimously recommends a vote in favor ofFOR each of the
nominees named in this Proxy Statement.proxy statement.
5
AMENDMENT TO THE DIRECT FOCUS, INC.
STOCK OPTION PLAN
(PROPOSAL 2)
THE PROPOSAL
Our board of directors has approved an amendment to the Direct Focus,
Inc. Stock Option Plan to increase the number of shares of Direct Focus common
stock available for issuance by 500,000, from 1,857,961 to 2,357,961. For
information regarding the material features of our Stock Option Plan, see
"-Summary Description of Our Stock Option Plan" below.
REASONS FOR THE AMENDMENT
Our stock incentive plan is, and will continue to be, an important tool
in attracting and retaining key personnel. As of the date of this proxy
statement, we have issued options to purchase an aggregate of 1,345,746 of the
1,857,961 shares authorized and reserved for issuance under the Stock Option
Plan, leaving 512,215 shares available for future option grants. Our board of
directors desires to increase the number of shares authorized for issuance under
the Stock Option Plan, principally to ensure sufficient flexibility in retaining
and attracting key personnel as we pursue our growth objectives.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the
shares of Direct Focus common stock present in person or represented by proxy at
the annual meeting is required to approve the amendment. In the absence of
contrary specifications, shares represented by proxies will be voted FOR
approval of the amendment to out Stock Option Plan.
BOARD RECOMMENDATION
Our board of directors unanimously recommends a vote FOR approval of
the amendment to our Stock Option Plan.
SUMMARY DESCRIPTION OF OUR STOCK OPTION PLAN
In 1995, our board of directors and shareholders adopted the Direct
Focus, Inc. Stock Option Plan, which was amended in 1998 and 1999. The principal
purpose of the Stock Option Plan is to enhance shareholder value by offering our
employees, officers, directors and consultants a financial incentive to
stimulate our continued growth and success. Our board of directors has reserved
a total of 1,857,961 shares of Direct Focus common stock for issuance upon the
exercise of options granted under the Stock Option Plan. The amendment, if
approved, would increase this number by 500,000, to a total of 2,357,961 shares.
As of April 15, 2000, options to purchase 439,052 shares of Direct
Focus common stock were outstanding, of which options to purchase 180,133 shares
were fully vested and exercisable. The weighted average exercise price of
outstanding options was $11.90 per share, with actual exercise prices ranging
between $0.24 and $23.56 per share.
6
The current plan administrator is our board of directors, although the
board may appoint a committee of two or more directors to administer the Stock
Option Plan. The plan administrator may grant incentive stock options to any
employee of Direct Focus or its subsidiaries and non-qualified stock options to
any employee, officer, director or consultant of Direct Focus or its
subsidiaries. The plan administrator has the exclusive authority to administer
the Stock Option Plan in accordance with the terms thereof, including the
authority to:
- select which employees, if any, will be granted incentive stock
options;
- select which employees, officers, directors and/or consultants,
if any, will be granted non-qualified stock options;
- specify the terms and conditions of each option granted;
- designate the number of shares subject to each option granted;
- designate the exercise price of each option granted, which, for
incentive stock options, must be at least equal to the fair
market value of Direct Focus common stock on the grant date; and
- designate the vesting schedule.
Unless the plan administrator establishes a shorter term or the holder
of an incentive stock option dies or ceases to be an employee of Direct Focus or
one of our subsidiaries, all incentive stock options granted to persons who
beneficially own more than 10.0% of our outstanding common stock terminate five
years after the grant date, and all other options terminate at most ten years
after the grant date. If the holder of an incentive stock option dies or
ceases to be an employee of Direct Focus or one of our subsidiaries due to a
disability, his or her option will terminate six months after the date of
death or cessation of employment. If the holder of an incentive stock option
ceases to be an employee of Direct Focus or one of our subsidiaries for any
reason other than a disability, the plan administrator may designate a
termination date between 30 days and three months after the cessation of
employment.
The plan administrator is required to make proportional adjustments to
the aggregate number of shares issuable under the Stock Option Plan and pursuant
to outstanding options in the event of stock splits or other capital
adjustments. In addition, certain corporate transactions, such as a merger or
consolidation that would cause our shareholders to own less than a majority of
the surviving entity, will cause all outstanding options to become immediately
exercisable without regard for any vesting schedule or other vesting
contingencies. Similarly, all outstanding options will become immediately
exercisable if a person becomes the beneficial owner of 50.0% or more of our
voting securities.
Our board of directors may terminate, amend or suspend the terms of the
Stock Option Plan at any time. However, our board may not take any of the
following actions without obtaining shareholder approval within 12 months either
before or after adopting a resolution authorizing such action:
- increase the aggregate number of shares which may be issued under
the Stock Option Plan;
- materially modify the eligibility requirements for participation
in the Stock Option Plan, or alter the class of persons eligible
to receive incentive stock options under the
7
Stock Option Plan;
- materially increase the benefits accruing to participants under
the Stock Option Plan; or
- make any change in the terms of the Stock Option Plan that would
cause outstanding incentive stock options to lose their
qualification as such under Section 422 of the Internal Revenue
Code.
Under federal income tax law currently in effect, incentive stock
option holders will recognize no income, and we will not be entitled to a
deduction, upon grant or upon a proper exercise of an incentive stock option.
The excess of the fair market value of the shares on the exercise date over the
exercise price will, however, be taken into account in calculating the option
holder's alternative minimum taxable income. If an employee exercises an
incentive stock option and does not dispose of any of the option shares within
two years following the grant date and within one year following the date of
exercise, then any gain realized upon subsequent disposition of the shares will
be treated as income from the sale or exchange of a capital asset. If an
employee disposes of shares acquired upon exercise of an incentive stock option
before the expiration of either the one-year holding period or the two-year
waiting period, any amount realized will be taxable as ordinary compensation
income in the year of such disqualifying disposition to the extent of the lesser
of the excess of the fair market value of the shares on the exercise date over
the exercise price or the excess of the fair market value of the shares on the
date of disposition over the employee's tax basis in the shares. If the employee
disposes of the shares in a transaction in which loss would not be recognized,
the amount realized will be taxable as ordinary compensation income to the
extent that the fair market value of the shares on the exercise date exceeds the
exercise price. We will not be allowed any deduction for federal income tax
purposes at either time of the grant or exercise of an incentive stock option.
Upon any disqualifying disposition by an employee, we would generally be
entitled to a deduction to the extent the employee realized ordinary income.
Under federal income tax law presently in effect, non-qualified stock
option holders will not realize income until such holders exercise the option.
At the time a non-qualified stock option is exercised, the holder will realize
ordinary compensation income, and we will generally be entitled to a deduction,
in the amount by which the market value of the shares subject to the option at
the time of exercise exceeds the exercise price. Our deduction is conditioned
upon withholding on the income amount. Upon the sale of shares acquired upon
exercise of a non-qualified stock option, the excess of the amount realized from
the sale over the employee's tax basis in the shares will be taxable.
8
AMENDMENT TO THE DIRECT FOCUS, INC.
ARTICLES OF INCORPORATION
(PROPOSAL 3)
THE PROPOSAL
Our board of directors has unanimously approved an amendment to Article
VII of our Articles of Incorporation to delete Section 7.1 thereof. Section 7.1
presently provides that, if shareholder action is taken with respect to certain
matters, approval of the action requires the affirmative vote of at least
two-thirds of the votes entitled to be cast. Specifically, Section 7.1 reads as
follows:
7.1 TO BE ADOPTED BY OUR SHAREHOLDERS, THE FOLLOWING ACTIONS MUST
BE APPROVED BY TWO-THIRDS OF THE VOTES ENTITLED TO BE CAST:
(a) AMENDMENT OF THE ARTICLES OF INCORPORATION;
(b) A PLAN OF MERGER OR SHARE EXCHANGE;
(c) THE SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ALL
OR SUBSTANTIALLY ALL OF THE CORPORATION'S ASSETS,
OTHER THAN IN THE USUAL AND REGULAR COURSE OF
BUSINESS; OR
(d) DISSOLUTION OF THE CORPORATION.
If our shareholders approve the proposal to eliminate Section 7.1, the
default provisions of the Washington Business Corporation Act would govern
voting with respect to each of the enumerated actions. Thus, such actions could
be approved by a simple majority of the votes cast on the action at an annual or
special shareholders' meeting.
REASONS FOR THE AMENDMENT
Our adoption of this supermajority voting requirement in 1992 reflected
widespread concern at the time over the use of abusive techniques by corporate
"raiders" and others who engaged in hostile and non-negotiated attempts to
acquire corporations to the disadvantage of the shareholders. A supermajority
voting requirement was widely viewed as discouraging hostile tender offers,
particularly those by which an outsider may acquire with a view to a subsequent
business combination only that portion of a corporation's stock necessary to
control the corporation or effect a business combination.
More recently, the ability of boards of directors to exercise their
fiduciary responsibilities to shareholders in the context of proposed
acquisitions has been strengthened by the continuing development of basic
principles of corporate law and practice. Further, some investors now view
supermajority voting requirements as having the effect of insulating directors
from a corporation's shareholders. Consequently, a number of corporations have
determined that, regardless of the merits of a supermajority voting requirement
in deterring coercive takeover attempts, principles of good corporate governance
dictate that such a requirement be eliminated.
Our board of directors also believes the proposal will facilitate more
efficient and equitable corporate governance, as approval of certain corporate
actions would be possible by a
9
simple majority of votes cast on the action at an annual or special
shareholders' meeting. As a result, holders of a minority of the voting power
will no longer have de facto veto power over a business combination that is
attractive or beneficial to the holders of a majority of our common stock.
VOTE REQUIRED
Assuming a quorum is present at the special meeting, proposal 3 will be
adopted if it receives the affirmative vote of two-thirds of the votes entitled
to be cast on the proposal. In the absence of contrary specifications, shares
represented by proxies will be voted FOR approval of the amendment to our
Restated Articles of Incorporation
BOARD RECOMMENDATION
Our board of directors unanimously recommends a vote FOR the approval
of proposal 3, to amend our Articles of Incorporation to delete Section 7.1
thereof.
10
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information regarding the
beneficial ownership of the Company'sour outstanding common stock as of May 21,
1999,April 10, 2000, by:
(1) each director and director nominee; (2) each executive officer whose name
appears in the summary compensation table; (3) all persons that the Company knowswe know are
beneficial owners of more than 5% of the Company'sour common stock, and (4) all directors and
executive officers as a group.
SHARES
BENEFICIALLY OWNED
----------------------------------------------------------------
DIRECTORS, EXECUTIVE OFFICERS AND 5% SHAREHOLDERS(1) NUMBER PERCENTAGE(2)
- ---------------------------------------------------- ----------- --------------------------------------------------------------------------- ------------------ ------------------
Brian R. Cook(3) 671,071 6.4%638,671 6.1%
Randal R. Potter(4) 160,666 1.5130,467 1.3
Rod W. Rice(5) 105,999 1.0121,000 1.2
C. Reed Brown(6) 15,00010,000 *
Kirkland C. Aly(7) 14,0008,020 *
Gary L. Hopkins(8) 44,000C. Rowland Hanson(8) 20,920 *
Paul F. Little(9) 352,610 3.4514,800 4.9
Roger J. Sharp(10) 33,72335,493 *
Roland E. Wheeler(11) 324,586 3.1316,906 3.0
All directors and executive officers as a group (9 persons) 1,721,655 16.51,796,277 17.3
* Less than 1%.
(1) The address of all directors and executive officers is the Company'sour address: 2200
N.E. 65th Avenue, Vancouver, Washington 98661.
(2) All percentages have been calculated assuming that 10,452,10010,415,701 shares of
the
Company'sour common stock are issued and outstanding. In accordance with SEC
regulations, each percentage calculation with respect to a shareholder
assumes the exercise of all outstanding options that such shareholder
holds and that can be exercised within 60 days after the date of this
proxy statement.
(3) Includes 80,000 shares issuable upon the exercise of options.
(4) Includes 39,16616,667 shares issuable upon the exercise of options.
(5) Includes 18,33311,667 shares issuable upon the exercise of options.
(6) Includes 15,00010,000 shares issuable upon the exercise of options.
(7) Includes 5,0002,520 shares issuable upon the exercise of options.
(8) Includes 15,00020,920 shares issuable upon the exercise of options.
(9) Includes 2,520 shares issuable upon the exercise of options, and 202,810
shares held by Westover Investments, Inc., of which Mr. Little is the
sole shareholder and director. Mr. Little's address is 211
Queen's Quay West, Suite 911, Toronto, Ontario,2707 Carleton
Street, SW Calgary, Alberta Canada M5J 2M6.T2T 3L1.
(10) Includes 5,0002,520 shares issuable upon the exercise of options, 4,000
shares held by Mr. Sharp's spouse, and 1,9001,100 shares held jointly by Mr.
Sharp's children.Sharp and Mr. Sharp's spouse is the custodian for allchildren, 1,400 shares held by their children.in trust for the
children with Mr. Sharp as Co-Trustee, and 7,850 shares held jointly
with Mr. Sharp's spouse.
(11) Includes 5,0002,520 shares issuable upon the exercise of options and 18,90017,500
shares held by Mr. Wheeler's daughter.
811
EXECUTIVE OFFICERS
The following table identifies the Company'sour current executive officers, the
positions they hold and the year in which they began serving in their respective
capacities. The Boardboard of Directorsdirectors elects all officers, who hold office until
their respective successors are elected and qualified.
Position
Name Age Position(s) with the CompanyWith Direct Focus Held Since
---------------- ---------------- --- --------------------------------------------------------- ----------
Brian R. Cook 4950 President and Chief Executive Officer, Director 1986
Director
Randal R. Potter 3132 Vice President of Marketing 1995
Rod W. Rice 3536 Chief Financial Officer, Treasurer and Secretary 1995
Secretary
For information on Brian R. Cook's business background, see "Nominees
for Director" above.
RANDALFor information on Randal R. POTTER joined Direct Focus in 1991 as a Creative Director and
Marketing Manager and was named Vice President of Marketing in December 1995.
Mr. Potter, who received his B.S. in Social Science from Washington State
University, has been involved in the direct marketing industry since 1986.Potter's business background, see
"Nominees for Director" above.
ROD W. RICE joined Direct Focus in 1994 as Controller and was named
Chief Financial Officer, Treasurer and Secretary in 1995. From 1992 to 1994, Mr.
Rice was a senior assistant accountantan auditor with Deloitte & Touche LLP. Mr. Rice received his B.S. in
Business Administration, with a major in Accounting and Economics, from Portland
State University. He is a Certified Public Accountant.
912
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation the Companywe paid to itsour Chief Executive Officer and other executive officers
whose salary and bonus together exceeded $100,000 in 1999 and 1998. These
individuals are referred to collectively in this Proxy Statementproxy statement as the "Named
Executive Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- -----------------------------------------------------------------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($)(2) UNDERLYING OPTIONS (#)
- ---------------------------- ---- ------------- ------------------------------------------- ---------- ----------------- ----------------- ----------------------
Brian R. Cook, President & 1999 $225,000 $225,000 -
CEO 1998 $175,000 $175,000 30,000
CEO
Randal R. Potter, Vice 1999 $150,000 $150,000 10,000
President, Marketing 1998 $105,000 $105,000 20,000
President, Marketing
Rod W. Rice, Chief 1998 $ 90,000 $ 90,000 25,0001999 $120,000 $120,000 10,000
Financial Officer, Treasurer 1998 $90,000 $90,000 25,000
and Secretary
(1) In February 1999,2000, the Boardboard of Directorsdirectors approved salary increases for each
of the Named Executive Officers. The 19992000 salaries for Messrs. Cook, Potter
and Rice are $225,000, $150,000$295,000, $195,000 and $120,000,$160,000, respectively.
(2) The Boardboard of Directorsdirectors has sole discretion in establishing bonus awards.
All bonuses awarded in 1999 and 1998 were in accordance with the
performance-based criteria established by the Boardboard of Directorsdirectors in
February 1998.1999 and February 1998, respectively.
OPTION GRANTS
The following table sets forth information concerning stock option
grants to the Named Executive Officers during 1998.
OPTION GRANTS IN 19981999.
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS GRANT DATE VALUE
------------------------------------------------------------------------------------------------------------------------------------------ --------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE GRANT DATE
NAME GRANTED(1)(#) IN 1998(2)1999(2) PRICE ($/Sh)SH)(3) EXPIRATION DATE PRESENT VALUE(4)($)
- -------------------- ---------------- --------------- ------------------ --------------- ---------------------------------- ----------------- ---------------- --------------------
Brian R. Cook 30,000 16.0% $4.62 2/28/2003 $90,000- - N/A N/A N/A
Randal R. Potter 20,000 10.6% $4.62 2/28/2003 $60,00010,000 5.9% $20.50 6/26/2004 $120,900
Rod W. Rice 25,000 13.3% $4.62 2/28/2003 $75,00010,000 5.9% $20.50 6/26/2004 $120,900
(1) The options were granted on February 27, 1998. Mr. Cook's option vested in
full on the date of grant.June 26, 1999. Mr. Potter's and Mr. Rice's
options vest in one-thirdone-
13
third increments on each of the first
10
three anniversaries of the grant
date.
(2) During 1998,1999, the Boardboard of Directorsdirectors granted options to purchase a total of
188,000169,680 shares of Direct Focus common stock.
(3) In accordance with the Company's Stock Option Plan, theThe exercise price per share equalsequaled the closing price of the Company's commonshares we sold on May
5, 1999 as part of our initial U.S. public offering of shares. The price of
the stock on the option grant date.date was below the grant price. The exercise
price may be adjusted only upon the occurrence of specific events that
would dilute the Company'sour share capital.
(4) The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: (a) all options granted will vest as scheduled; (b) no
dividend yield; (c) a risk-free interest rate of 5%6.4%; and (d) an expected
volatility of 76%60%.
The following table summarizes the number and value of options
exercised by the Named Executive Officers during 19981999 and the value of options
held by such persons as of May 17,December 31, 1999.
AGGREGATED OPTION EXERCISES IN 19981999 AND
YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT YEAR END (#) MONEY OPTIONS AT YEAR END ($)
--------------------------- -------------------------------------------------------------------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- ------------ ----------- ------------- ----------- ---------------------------------- -------------- -------------- -------------- --------------- -------------- ----------------
Brian R. Cook -- $ -- 80,000 -- $1,026,300$ 2,033,400 $ --
Randal R. Potter 63,500 $333,688 107,500 20,000 $1,581,675 $211,20075,000 $ 333,688 39,166 23,334 $ 1,024,860 $ 380,915
Rod W. Rice 37,213 $100,705 36,666 48,33446,666 $ 527,791 $603,009100,705 21,667 26,667 $ 549,960 $ 458,008
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
BRIAN R. COOK is employed as the Company'sour President and Chief Executive Officer
pursuant to an employment agreement dated as of January 1, 1998 (the "Cook
Agreement"). Mr. Cook's current salary is $225,000$295,000 per year, and is subject to
increase at the discretion of the Boardboard of Directors.directors. He is also entitled to
reimbursement for reasonable out-of-pocket expenses. The Cook Agreement had an
initial term of one year, with automatic renewals for subsequent one-year terms.
The CompanyWe may terminate the Cook Agreement by providing Mr. Cook with at least six
months' notice of such termination. Upon the receipt of such notice, all unpaid
salary that would have been paid to Mr. Cook during the remaining term of his
employment would become immediately due and payable.
RANDAL R. POTTER is employed as the Company'sour Vice President of Marketing
pursuant to an employment agreement dated as of January 1, 1998 (the "Potter
Agreement"). Mr. Potter's current salary is $150,000$195,000 per year, and is subject to
increase at the discretion of the Boardboard of Directors.directors. He is also entitled to
reimbursement for reasonable out-of-pocket expenses. The Potter Agreement had an
initial term of one year, with automatic renewals for subsequent one-
11
yearone-year terms.
The CompanyWe may terminate the Potter Agreement by providing Mr. Potter with at least six
14
months' notice of such termination. Upon the receipt of such notice, all unpaid
salary that would have been paid to Mr. Potter during the remaining term of his
employment would become immediately due and payable.
ROD W. RICE is employed as the Company'sour Chief Financial Officer pursuant to an
employment agreement dated as of January 1, 1998 (the "Rice Agreement"). Mr.
Rice's current salary is $120,000$160,000 per year, and is subject to increase at the
discretion of the Boardboard of Directors.directors. He is also entitled to reimbursement for
reasonable out-of-pocket expenses. The Rice Agreement had an initial term of one
year, with automatic renewals for subsequent one-year terms. The CompanyWe may terminate
the Rice Agreement by providing Mr. Rice with at least six months' notice of
such termination. Upon the receipt of such notice, all unpaid salary that would
have been paid to Mr. Rice during the remaining term of his employment would
become immediately due and payable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The BoardOur board of Directors doesdirectors did not have a compensation committee.committee in 1999.
During 1998,1999, director Brian R. Cook, who is also the Company'sour President and Chief
Executive Officer, participated in Boardboard deliberations regarding the
compensation of all executive officers other than himself.
REPORT ON EXECUTIVE COMPENSATION
The following report of the Company's Boardour board of Directorsdirectors describes the
compensation policies and rationale with respect to the Company'sour executive officers
during 1998.1999. The information contained in the report shall not be deemed
"soliciting material" or "filed with the SEC," and such information shall not be
incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Exchange Act except to the extent that the Companywe specifically
incorporatesincorporate such information by reference.
The BoardOur board of Directorsdirectors administers the Company'sour executive compensation program.
As part of its mandate, the Board of Directorsboard is responsible for: (1) determining the most
effective overall executive compensation strategy based upon the Company'sour needs and
consistent with shareholder interests; (2) administering the Company'sour executive
compensation program and policies; (3) monitoring the Company'sour performance and its
relationship to executive compensation; and (4) reviewing and making appropriate
changes to executive compensation as warranted.
COMPENSATION PHILOSOPHY
The Board'sboard's executive compensation program is designed to encourage,
compensate and reward employees on the basis of individual and corporate
performance, both in the short and long term. Each executive compensation
package is comprised of a base salary and an annual incentive bonus tied to
corporate performance, and is supplemented by long-term incentives in the form
of stock options. AsHistorically, as an executive officer's level of
responsibility increases, a greater percentage of total compensation is based on
performance, and the mix of total compensation 12
shifts toward stock options. The
Boardboard of Directorsdirectors believes that this compensation program increases the
mutuality of interest between the
Company'sour executive officers and shareholders. In 1999,
stock options granted to the named executive officers were substantially reduced
as each has a substantial ownership interest in Direct Focus giving them
long-term performance
15
incentive. In 1999, the board retained two independent compensation consultants
to supply the board with competitive compensation information to facilitate the
establishment of executive compensation levels for 2000. The Board established
executive compensation for 2000 within the guidelines of the independent
consultants.
BASE SALARY
The Boardboard of Directorsdirectors sets base salaries for its executive officers at
levels it believes are competitive with the base salaries paid by leading,
comparably sized corporations in the direct marketing and fitness industries.
The Boardboard of Directorsdirectors approves base salary ranges for the Company'sour executive officers
based on reviews of market data from peer group, industry and national surveys.
Within each range, the Boardboard of Directorsdirectors establishes a base salary for each
executive officer based on individual performance, the executive officer's level
of responsibility and the importance of the position to us. In 1999 two
independent compensation consultants were retained to advise the Company.board
concerning wages for the executive officers.
ANNUAL BONUS
In the first quarter of each year, the Boardboard of Directorsdirectors establishes
target corporate performance goals based on actual earnings per share and other
significant factors, such as cash management, strategic business development and
personnel management. At the end of each year, the Boardboard of Directorsdirectors evaluates
corporate performance in light of these goals. If the
Company meetswe meet or surpassessurpass the
pre-established performance goals, the Boardboard of Directorsdirectors generally will award a
bonus to each executive officer equal to 100.0% of his base salary. However, the
Boardboard of Directorsdirectors has absolute discretion in awarding annual bonuses and may
award greater or lesser annual bonuses to one or more executive officers based,
whether or not the Company
achieves itswe achieve our performance goals. In 1998, the Company1999, we surpassed itsour
performance goals and each of the Company'sour executive officers were awarded a 100.0%
annual bonus.
STOCK OPTIONS
The BoardOur board of Directorsdirectors views stock options as the key long-term element
in its performance-based executive compensation program. The BoardOur board of Directorsdirectors
grants stock options to the Company'sour executive officers based on the Board'sboard's estimation
of each executive officer's contribution to the
Company'sour long-term growth and
profitability. Generally, each stock option granted to an executive officer has
an exercise price equal to the market price on the grant date and vests in
one-third increments over a three-year period. In 1999, stock options granted to
the named executive officers were substantially reduced as each has a
substantial ownership interest in Direct Focus giving them long-term performance
incentive. See "Option Grants in Last Fiscal Year" for a summary of options
granted to the Company'sour executive officers during 1998.
19981999.
OTHER BENEFITS
We also have various broad-based employee benefit plans. Executive
officers participate in these plans on substantially the same terms as eligible,
non-executive employees, subject to any legal limits on the amounts that may be
contributed or paid to executive officers under these plans. We offer a 401(k)
plan which allows employees to invest in an array of funds on a pre-tax
16
basis and which provides for employer matching contributions of up to three
percent of eligible compensation. We also maintain insurance and other benefits
for our employees.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986 limits to
$1,000,000 per person the amount that we can deduct for compensation paid to any
of our most highly paid officers in any year. We generally do not expect any of
our employee's salary and bonus levels to exceed that limit. However, depending
on individual and corporate performance, total compensation for certain
executives may be greater than $1,000,000. The limit on deductibility, however,
does not apply to performance-based compensation that meets certain
requirements. Our current policy is generally to grant stock options that meet
those requirements so that we may fully deduct option compensation recognized by
an optionee.
1999 COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Boardboard of Directorsdirectors established Mr. Cook's 19981999 base salary of
$175,000$225,000 in the manner described in "Base Salaries" above with respect to all
executive officers. Mr. Cook earned a $175,000$225,000 annual bonus based on corporate
and individual performance as described in "Annual Bonus" above.
In 1998, the Board of Directors awarded Mr. Cook an option to purchase 30,000
shares of the Company's common stock.
13
SUBMITTED BY THE BOARD OF DIRECTORS:
Kirkland C. Aly Gary L. HopkinsPaul F. Little
C. Reed Brown Roger J. Sharp
Brian R. Cook Roland E. Wheeler
C. Rowland Hanson
17
PERFORMANCE GRAPH
Set forth below is a line graph and table comparing the cumulative
total shareholder return of our common stock with the cumulative total return of
the NASDAQ Index and the Russell 2000 Index of small cap stocks for the period
commencing on May 5, 1999 (the date of our initial U.S. public offering) and
ending on December 31, 1999. The graph assumes that $100 was invested in our
common stock at the initial United States public offering price ($20.50) and
each index on May 5, 1999. The comparisons in this table are set forth in
response to Securities and Exchange Commission (SEC) disclosure requirements,
and therefore are not intended to forecast or be indicative of future
performance of the common stock.
[CHART]
Company/Index May 5, 1999 June 30, 1999 Sept 30, 1999 Dec 31, 1999
------------- ----------- ------------- ------------- ------------
Direct Focus........... 100 101.83 92.07 135.37
NASDAQ................. 100 108.09 110.50 163.75
Russell 2000........... 100 105.80 98.78 116.68
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The CompanyWe acquired the rights to itsour Bowflex technology from Tessema D.
Shifferaw, the inventor of the technology and an original shareholder, pursuant
to an agreement that provides for royalty payments to Mr. Shifferaw equal to
3.0% of the net sales of the Company'sour Bowflex products. The
Company'sOur typical royalty fees with
independent third parties range between 3.0% and 5.0% of net product sales. The CompanyWe
paid approximately $1.6$2.8 million to Mr. Shifferaw in 1998.1999. In 1992, before the
Company's common stock was publicly traded, Mr. Shifferaw negotiated a separate
royalty-based agreement with Brian R. Cook and Roland E. Wheeler to induce them
to continue their employment with the Company.us. Under this agreement, Mr. Shifferaw is
obligated to pay Messrs. Cook and Wheeler 40.0% (20.0% each) of annual royalties
in excess of $90,000. For 1998,1999, Messrs. Cook and Wheeler each expect to receive $302,765received $545,023
from Mr. Shifferaw under this arrangement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"1934 Act") requires the Company'sour
directors and executive officers, andas well as persons who own more than ten percent10% of
theour outstanding shares of the
Company's Common Stock ("ten percent stockholders"),common stock, to file with the SECSecurities and Exchange
Commission initial reports of beneficial ownership and reports of changes in
beneficial ownership of shares of Common Stockour common stock. Based solely on a review of
copies of such forms furnished to us and other equity securities of the
Company. The Company's common stock was not registered under the 1934 Act
during 1998. Consequently, none of its directors,written representations from executive
officers or 10%
shareholders were required to file anyand directors, we believe that all Section 16(a) reportsfiling requirements
during 1998.1999 were met.
SHAREHOLDER PROPOSALS
Proposals by shareholdersTo be included in our 2001 proxy statement, we must receive all
shareholder proposals intended to be presented at the Company's 2000
Annual Meetingour 2001 annual meeting of
Shareholders must be received by the Companyshareholders at itsour principal executive office no later than February 26, 2000, in order to be
included in the Company's 2000 Proxy Statement. The Company's Amended24, 2001.
Our amended and Restated Bylawsrestated bylaws require shareholders to deliver proposals they
intend to present at the Company's 2000 Annual Meetingour 2001 annual meeting to the Company'sour principal executive office
no later than sixty calendar days, (April 26, 2000) and no earlier than 90 calendar days, (March 27, 2000) prior
to the first anniversary of the Company's 1999 Annual Meeting.our 2000 annual meeting.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The CompanyWe employed Deloitte & Touche LLP as itsour independent accountants during
1998.1999. There have been no disagreements with Deloitte & Touche LLP on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make reference
to the matter in their report. Representatives of Deloitte & Touche LLP are
expected to be present at 14
the Annual Meeting.annual meeting. Each representative will be given
the opportunity to make a statement on behalf of their firm if such
representative so desires, and each representative will be available to respond
to appropriate stockholder questions.
19
TRANSACTION OF OTHER BUSINESS
As of the date of this Proxy Statement,proxy statement, the Boardboard of Directorsdirectors is not
aware of any other matters that may come before the Annual Meeting. The persons
named in the enclosed proxy card intend to vote the proxy in accordance with
their best judgment if any other matters properly come before the Annual
Meeting.
Please return the enclosed proxy card as soon as possible. Unless a
quorum consisting of a majority of the outstanding shares entitled to vote is
represented at the Annual Meeting, no business can be transacted. Therefore,
please be sure to date and sign your proxy card exactly as your name appears on
your stock certificate and return it in the enclosed postage prepaid return
envelope. Please act promptly to insure that you will be represented at this
important meeting.
By the Order of the Board of Directors:
----------------------------------------/s/ Rod W. Rice
------------------------------------------------
Rod W. Rice
Chief Financial Officer, Treasurer and Secretary
Dated: May 1, 2000.
20
DIRECT FOCUS, INC.
(FORMERLY: BOW FLEX, INC.)
STOCK OPTION PLAN
June 20, 1995, as amended June 30, 1998, and February 20, 1999
1. STATEMENT OF PURPOSE
1.1 The principal purposes of this Stock Option Plan (the "Plan") are to
secure to Direct Focus, Inc. (the "Company") the advantages of the incentive
inherent in stock ownership on the part of employees, officers, directors and
consultants responsible for the continued success of the Company and to create
in such individuals a proprietary interest in, and a greater concern for, the
welfare of the Company through the grant of options to acquire shares of the
common stock of the Company (the "Common Stock"). Each incentive stock option
("ISO") granted hereunder is intended to constitute an "incentive stock option",
as such term is defined in Section 422 of the United States Internal Revenue
Code of 1986, as the same may be amended from time to time (the "Code"), and
this Plan and each such ISO are intended to comply with all of the requirements
of said Section 422 and of all other provisions of the Code applicable to
incentive stock options and to plans issuing the same. Each non-statutory stock
option ("Non-ISO") granted hereunder is intended to constitute a non-statutory
stock option that does not comply with the requirements of Section 422 of the
Code. ISOs and Non-ISOs shall sometimes hereinafter be referred to collectively
as "Options". The Plan is expected to benefit shareholders by enabling the
Company to attract and retain personnel of the highest calibre by offering to
them an opportunity to share in any increase in the value of the Common Stock to
which such personnel have contributed.
2. ADMINISTRATION
2.1 The Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee of the Board appointed in accordance
with Section 2.2 or 2.4.2 below (the Board, or such committee, if appointed,
will be referred to in this Plan as the "Committee").
2.2 The Board may at any time appoint a Committee, consisting of not less
than two (2) of its members, to administer the Plan on behalf of the Board in
accordance with such terms and conditions not inconsistent with this Plan as the
Board may prescribe. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members, remove members (with or
without cause) and appoint new members in their place, fill vacancies, however
caused, and/or remove all members of the Committee and thereafter directly
administer the Plan.
2.3 A majority of the members of the Committee shall constitute a quorum
and, subject to the limitations in this Section 2, all actions of the Committee
shall require the affirmative vote of members who constitute a majority of such
quorum. Members of the Committee who are not Disinterested Persons (as defined
in Section 2.5) may vote on any
matters affecting the administration of the Plan or the grant of Options
pursuant to the Plan, except that no such member shall act upon the granting of
an Option to himself (but any such member may be counted in determining the
existence of a quorum at any meeting of the Committee during which action is
taken with respect to the granting of Options to him).
2.4 The Committee shall have the authority to do the following:
2.4.1 To administer the Plan in accordance with its express terms;
2.4.2 To determine all questions arising in connection with the
administration, interpretation and application of the Plan, including all
questions relating to the value of the Common Stock;
2.4.3 To correct any defect, supply any information or reconcile any
inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purposes of the Plan;
2.4.4 To prescribe, amend and rescind rules and regulations relating
to the administration of the Plan;
2.4.5 To determine the duration and purposes of leaves of absence
which may be granted to participants without constituting a termination of
employment for purposes of the Plan;
2.4.6 To do the following with respect to the granting of Options: (a)
based on the eligibility criteria in Section 3 below, to determine the
employees, officers, directors or consultants to whom Options shall be
granted; (b) to determine whether such Options shall be ISOs or Non-ISOs;
(c) to determine the terms and provisions of the Option Agreement, as
defined in Section 5 below, to be entered into with any Optionee (which
need not be identical with the terms of any other Option Agreement), and,
with the consent of such Optionee and with the prior consent of The Toronto
Stock Exchange, to modify and amend such terms and provisions; (d) to
determine when such Options shall be granted; (e) to determine the number
of shares of Common Stock subject to each Option; and
2.4.7 To make all other determinations necessary or advisable for
administration of the Plan.
2.5 The Committee's exercise of the authority set out in Section 2.6 shall
be consistent with the intent that the ISOs issued under the Plan be qualified
under the terms of Section 422 of the Code, and that the Non-ISOs shall not be
so qualified. All determinations made by the Committee in good faith on matters
referred to in Section 2.6 shall be final, conclusive and binding upon all
persons. The Committee shall have all powers necessary or appropriate to
accomplish its duties under this Plan. In addition, the Committee's
administration of the Plan shall in all respects be consistent with the policies
and rules of The Toronto Stock
Exchange (the "TSE") governing the granting of the stock options for so long
as the Common Stock is listed on the TSE.
3. ELIGIBILITY
3.1 ISOs may be granted to any employee of the Company or of an Affiliate
of the Company, as defined in Section 3.2 below. Non-ISOs may be granted to any
employee, officer or director (whether or not also an employee) or consultant of
the Company or of an Affiliate of the Company. Each employee, officer, director
or consultant selected by the Committee to receive an Option shall sometimes
hereinafter be referred to as an "Optionee".
3.2 As used in this Plan, an "Affiliate" of a corporation shall refer to a
"parent corporation" of such corporation as described in Section 424(e) of the
Code or a "subsidiary corporation" of such corporation as described in Section
424(f) of the Code. 3.3 An Optionee who is not an employee of the Company or of
an Affiliate of the Company shall not be eligible to receive an ISO under the
Plan and no ISOs shall be granted to any such non-employee Optionee.
3.4 No Option shall be granted hereunder to any Optionee unless the
Committee shall have determined, based on the advice of counsel, that the grant
of such Option (and the exercise thereof by the Optionee) will not violate the
securities law of the jurisdiction where the Optionee resides.
4. SHARES SUBJECT TO THE PLAN
4.1 The Committee, from time to time, may provide for the option and sale
in the aggregate of up to 1,857,961 shares of Common Stock, to be made available
from authorized, but unissued, or re-acquired shares of Common Stock. The number
of such shares shall be adjusted so as to take account of the events referred to
in Section 10 hereof. Notwithstanding the foregoing, for so long as the
Company's Common Stock is listed on the TSE, the maximum number of shares of
Common Stock which may be reserved for issuance under Options granted to any one
person under the Plan, shall not exceed five percent (5%) of the Common Stock
outstanding (on a non-diluted basis) less the aggregate number of shares of
Common Stock reserved for issuance to such person under any other option to
purchase Common Stock from treasury granted as a compensation or incentive
mechanism.
4.2 Upon exercise of an Option, the number of shares of Common Stock
thereafter available under the Plan and under the Option shall decrease by the
number of shares as to which the Option was exercised.
4.3 If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan.
4.4 The Company will at all times during the term of this Plan reserve and
keep available such number of shares as shall be sufficient to satisfy the
requirements of the Plan.
4.5 Except with the further approval of the shareholders of the Company
given by the affirmative vote of a majority of the votes cast at a meeting of
the shareholders of the Company, excluding the votes of Insiders (as defined in
section 4.6), such approval not being sought at the time of adoption of this
Plan, the Company may not cause:
4.5.1 The number of shares of Common Stock reserved for issuance
pursuant to Options granted to Insiders (as defined in section 4.6 hereof)
to exceed 15% of the Outstanding Issue (as defined in section 4.7);
4.5.2 the issuance to Insiders, within a one-year period, of shares of
Common Stock under Share Compensation Arrangements (as defined in section
4.8) to exceed 15% of the Outstanding Issue; and
4.5.3 subject always to section 4.1 of this Plan, the issuance to any
one Insider and such Insider's Associates (as defined in Section 1(1) of
the SECURITIES ACT (Ontario), within a one-year period, of shares of common
stock under share compensation arrangements to exceed 5% of the outstanding
issue. Any entitlement granted prior to a participant becoming an insider
of the Company shall be excluded in determining the number of common shares
issuable to insiders.
4.6 "Insider" means: (i) an insider as defined under Section 1(1) of the
SECURITIES ACT (ONTARIO), other than a person who falls within that definition
solely by virtue of being a director or senior officer of a subsidiary of the
Company; and (ii) an associate as defined under Section 1(1) of the SECURITIES
ACT (ONTARIO) of any person who is an insider by virtue of (i) above.
4.7 "Outstanding Issue" means number of shares of Common Stock that are
outstanding immediately prior to the share issuance or grant of option in
question, excluding shares issued pursuant to Share Compensation Arrangements
over the preceding one year period.
4.8 "Share Compensation Arrangements" means any stock option, stock option
plan, employee stock purchase plan or any other compensation or incentive
mechanism involving the issuance or potential issuance of shares of Common
Stock, including a share purchase from treasury which is financially assisted by
the Company by way of a loan, guarantee or otherwise.
5. OPTION TERMS
5.1 With respect to each Option to be granted to an Optionee, the
Committee shall specify the following terms in a written agreement (the "Option
Agreement") to be executed by the Company and the Optionee:
5.1.1 Whether such Option is an ISO or a Non-ISO;
5.1.2 The number of shares of Common Stock subject to purchase
pursuant to such Option;
5.1.3 The date on which the grant of such Option shall be effective
(the "Date of Grant");
5.1.4 The period of time during which such Option shall be
exercisable, which shall in no event be more than ten (10) years following
its Date of Grant; provided, however, that if an ISO is granted to an
Optionee who on the Date of Grant owns, either directly or indirectly
within the meaning of Section 424(d) of the Code, more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or an Affiliate of the Company, the period of time during which
such Option shall be exercisable shall in no event be more than five (5)
years following its Date of Grant;
5.1.5 The price at which such Option shall be exercisable by the
Optionee (the "Option Price"); provided, however, that the Option Price
specified in ISOs shall in no event be less than the Fair Market Value (as
defined in Section 5.2 below) on the Date of Grant, of the shares of Common
Stock subject thereto; and provided further that, if such Option is granted
to an Optionee who on the Date of Grant owns, either directly or indirectly
within the meaning of Section 424(d) of the Code, more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or an Affiliate of the Company, then the Option Price specified in
such Option shall be at least one hundred ten percent (110%) of the fair
market value, on the Date of Grant, of the Common Stock subject thereto;
5.1.6 Any vesting schedule upon which the exercise of an Option is
contingent; provided that the Committee shall have complete discretion with
respect to the terms of any vesting schedule upon which the exercise of an
Option is contingent, including, without limitation, discretion: (a) to
allow full and immediate vesting upon grant of such Option; (b) to permit
partial vesting in stated percentage amounts based on the length of the
holding period of such Option; or (c) to permit full vesting after a stated
holding period has passed; and
5.1.7 Such other terms and conditions as the Committee deems advisable
and as are consistent with the purpose of this Plan.
5.2 "Fair Market Value" means, with respect to a share of Common Stock
subject to Option, the closing price of the Common Stock on the Toronto Stock
Exchange on the trading day immediately preceding the date of grant or if there
were no trades in the Common Stock on the day immediately preceding the grant,
the average of the bid and ask price for that day, or, if the Common Stocks are
not listed on such exchange, on such other exchange or exchanges on which the
Common Stock are listed. If no Common Shares have been traded on such day, the
Fair Market Value shall be established on the same basis on the last previous
day for which a trade was reporting by such exchange. If the Common Stock are
not listed and posted for trading
on such exchange, on such day, the Fair Market Value shall be such price per
Common Stock as the Committee, acting in good faith, may determine.
5.3 No Option granted under the Plan shall be exercisable more than ten
(10) years following said date. Except as expressly provided herein, nothing
contained in this Plan shall require that the terms and conditions of Options
granted under the Plan be uniform.
5.4 The Option Agreement for any Option granted to a person who, on the
Date of Grant, is subject to Section 16 of the Exchange Act shall provide that
at least six (6) months must elapse from the Date of Grant of the Option to the
date of disposition, as defined in Section 424(c) of the Code, of the Common
Stock issued upon exercise of such Option.
6. LIMITATION ON GRANTS OF OPTIONS
6.1 In the event that the aggregate fair market value of Common Stock and
other stock with respect to which ISOs granted to an Optionee under this Plan or
incentive stock options granted to such Optionee under any other plan of the
Company or any of its Affiliates are exercisable for the first time during any
calendar year, exceeds the maximum permitted under Section 422(d) of the Code,
then to the extent of such excess such Options shall be treated as Non-ISOs.
7. EXERCISE OF OPTION
7.1 Subject to any limitations or conditions imposed upon an Option
pursuant to Section 5 above, an Optionee may exercise an Option, or any part
thereof (unless partial exercise is specifically prohibited by the terms of the
Option), by giving written notice thereof to the Company at its principal place
of business.
7.2 The notice described in Section 7.1 shall be accompanied by full
payment of the Option Price to the extent the Option is so exercised, and full
payment of any amounts the Company determines must be withheld for tax purposes
from the Optionee pursuant to the Option Agreement. Such payment shall be:
7.2.1 In lawful money of the United States in cash or by cheque; or
7.2.2 At the discretion of the Committee, through delivery of shares
of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option; or
7.2.3 At the discretion of the Committee, by any combination of
Sections 7.2.1 or 7.2.2, provided however that no financial assistance will
be provided to an Optionee by the Company to exercise the Option.
7.3 As soon as practicable after exercise of an Option in accordance with
Sections 7.1 and 7.2 above, the Company shall issue a stock certificate
evidencing the Common Stock with
respect to which the Option has been exercised. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of such stock certificate, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to such Common Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 10
below.
8. TRANSFERABILITY OF OPTIONS
8.1 Except as provided otherwise in this Section 8, no option shall be
transferable or exercisable by any person other than the Optionee to whom such
Option was originally granted.
8.2 If an Optionee to whom an ISO has been granted (an "ISO Optionee")
ceases to be employed by the Company or by any Affiliate of the Company by
reason of such Optionee's death, any ISOs held by such Optionee shall pass to
the person or persons entitled thereto pursuant to the will of the Optionee or
the applicable laws of descent and distribution (such person or persons are
sometimes herein referred to collectively as the "Qualified Successor" of the
Optionee), and shall be exercisable by the Qualified Successor on the earlier of
six (6) months following such death and ten (10) years from the Date of Grant.
8.3 If the employment of an ISO Optionee is terminated by the Company or
by any Affiliate of the Company by reason of such Optionee's disability, as
defined in Section 22(e)(3) of the Code, any ISO held by such Optionee that
could have been exercised immediately prior to such termination of employment
shall be exercisable by such Optionee, or, if a guardian (the "Guardian") is
appointed for such Optionee, by the Guardian of such Optionee on the earlier of
twelve (12) months following the termination of employment of such Optionee and
ten (10) years from the Date of Grant.
8.4 If an ISO Optionee who has ceased to be employed by the Company or by
any Affiliate of the Company by reason of such Optionee's disability, as defined
in Section 22(e)(3) of the Code, dies within six (6) months after the
termination of such employment, any ISO held by such Optionee that could have
been exercised immediately prior to his or her death shall pass to the Qualified
Successor of such Optionee, and shall be exercisable by the Qualified Successor
on the earlier of six (6) months following the termination of employment of such
Optionee and ten (10) years from the Date of Grant.
8.5 If an Optionee to whom a Non-ISO has been granted dies, any Non-ISO
held by such Optionee shall pass to the person or persons entitled thereto
pursuant to the will of the Optionee or the applicable laws of descent and
distribution, and shall be exercisable by such person or persons in accordance
with the terms of the applicable Option Agreement.
8.6 Options held by a Qualified Successor or exercisable by a Guardian
shall, during the period prior to their termination that such Options are held
by the Qualified Successor or exercisable by the Guardian, continue to vest in
accordance with any vesting schedule under Section 5.1.6 to which such Options
are subject.
8.7 In the event that two or more persons constitute the Qualified
Successor or the Guardian of an Optionee, all rights of such Qualified Successor
or such Guardian shall be exercisable, if at all, by the unanimous agreement of
such persons.
8.8 Employment shall be considered as continuing intact during any
military or sick leave or other bona fide leave of absence if the period of such
leave does not exceed ninety (90) days or, if longer, for so long as the
Optionee's right to re-employment with the Company or an Affiliate thereof is
guaranteed either by statute or by contract. If the period of such leave exceeds
ninety (90) days and his or her re-employment is not so guaranteed, then his or
her employment shall be deemed to have terminated on the ninety-first (91st) day
of such leave.
9. TERMINATION OF OPTIONS
To the extent not earlier exercised, an Option shall terminate at the
earliest of the following dates:
9.1 The termination date specified for such Option in the respective
Option Agreement;
9.2 With respect to ISOs, six (6) months after the date of termination of
the Optionee's employment with the Company or any Affiliate of the Company by
reason of such Optionee's disability (within the meaning of Section 22(e)(3) of
the Code) or such Optionee's death;
9.3 With respect to ISOs, thirty (30) days, or at the discretion of the
Committee up to three (3) months, after the date of termination of the
Optionee's employment with the Company or any Affiliate of the Company for any
reason other than disability (within the meaning of Section 22(e)(3) of the
Code) or death;
9.4 The date of any sale, transfer or hypothecation, or any attempted
sale, transfer or hypothecation, of such Option in violation of Section 8.1
above; or
9.5 The date specified in Section 10.2 below for such termination in the
event of a Terminating Event.
10. ADJUSTMENTS TO OPTIONS
10.1. In the event of a material alteration in the capital structure of the
Company on account of a recapitalization, stock split, reverse stock split,
stock dividend or otherwise, then the Committee shall make such adjustments to
this Plan and to the Options then outstanding and thereafter granted under this
Plan as the Committee determines to be appropriate and equitable under the
circumstances, so that the proportionate interest of each holder of any such
Option shall, to the extent practicable, be maintained as before the occurrence
of such event. Such adjustments may include, without limitation: (a) a change in
the number or kind of shares of
stock of the Company covered by such Options; and (b) a change in the Option
Price payable per share; provided, however, that the aggregate Option Price
applicable to the unexercised portion of the existing Options shall not be
altered, it being intended that any adjustments made with respect to such
Options shall apply only to the price per share and the number of shares subject
thereto. For the purposes of this Section 10.1, neither: (i) the issuance of
additional shares of stock of the Company in exchange for adequate consideration
(including services); nor (ii) the conversion of outstanding preferred shares of
the Company into Common Stock shall be deemed material alterations of the
capital structure of the Company. In the event the Committee shall determine
that the nature of a material alteration in the capital structure of the Company
is such that it is not practical or feasible to make appropriate adjustments to
this Plan or to the Options granted hereunder, such event shall be deemed a
Terminating Event as defined in Section 10.2 below.
10.2 Subject to Section 10.3, all Options granted under the Plan shall
terminate upon the occurrence of any of the following events (the "Terminating
Events"): (a) the dissolution or liquidation of the Company; or (b) a material
change in the capital structure of the Company that is subject to this Section
10.2 by virtue of the last sentence of Section 10.1 above.
10.3 The Committee shall give notice to Optionees not less than thirty (30)
days prior to the consummation of: (a) a Terminating Event as defined in Section
10.2 above; (b) a merger or consolidation of the Company with one or more
corporations as a result of which, immediately following such merger or
consolidation, the shareholders of the Company as a group will hold less than a
majority of the outstanding capital stock of the surviving corporation; or (c)
the sale or other disposition of all or substantially all of the assets of the
Company. Upon the giving of such notice, all Options granted under the Plan
shall become immediately exercisable, without regard to any contingent vesting
provision to which such Options may have otherwise been subject.
10.4 All Options granted under the Plan shall become immediately
exercisable, without regard to any contingent vesting provision to which such
Options may have otherwise been subject, upon the occurrence of any event
whereby any person or entity, including any "person" as such term is used in
Section 13(d)(3) of the Exchange Act, becomes the "beneficial owner", as defined
in the Exchange Act, of Common Stock representing fifty percent (50%) or more of
the combined voting power of the voting securities of the Company.
10.5 In the event of a reorganization as defined in this Section 10.5 in
which the Company is not the surviving or acquiring company, or in which the
Company is or becomes a wholly-owned subsidiary of another company after the
effective date of the reorganization, then the plan or agreement respecting the
reorganization shall include appropriate terms providing for the assumption of
each Option granted under this Plan, or the substitution of an option therefor,
such that no "modification" of any such Option occurs under Section 424 of the
Code. For purposes of this Section 10.5, reorganization shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company, or sale, pursuant to an agreement with the Company, of
securities of the Company pursuant to which the Company is or
becomes a wholly-owned subsidiary of another corporation after the effective
date of the reorganization.
10.6 The Committee shall have the right to accelerate the date of exercise
of any installment of any Option; provided that, without the consent of the
Optionee with respect to any Option, the Committee shall not accelerate the date
of any installment of any Option granted to an employee as an ISO (and not
previously converted into a Non-ISO pursuant to Section 12 below) if such
acceleration would violate the annual vesting limitation contained in Section
422(d) of the Code, as described in Section 6 above.
10.7 Adjustments and determinations under this Section 10 shall be made by
the Committee (upon the advice of counsel), whose decisions as to what
adjustments or determinations shall be made, and the extent thereof, shall be
final, binding and conclusive.
11. TERMINATION AND AMENDMENT
11.1 Unless earlier terminated as provided in Section 10 above, the Board
may at any time terminate, suspend or amend the terms of the Plan in accordance
with applicable legislation, and subject to any required approval; provided,
however, that, except as provided in Section 10 above, the Board may not do any
of the following without obtaining, within twelve (12) months either before or
after the Board's adoption of a resolution authorizing such action, approval by
the affirmative votes of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable corporate laws or by the written consent of the
holders of a majority of the securities of the Company entitled to vote:
11.1.1 Increase the aggregate number of shares which may be issued
under the Plan;
11.1.2 Materially modify the requirements as to eligibility for
participation in the Plan, or change the designation of the employees or
class of employees eligible to receive ISOs under the Plan;
11.1.3 Materially increase the benefits accruing to participate under
the Plan; or
11.1.4 Make any change in the terms of the Plan that would cause the
ISOs granted hereunder to lose their qualification as incentive stock
options under Section 422 of the Code.
11.2 No Option may be granted during any suspension or after termination of
the Plan. Amendment, suspension or termination of the Plan shall not, without
the consent of the Optionee, alter or impair any rights or obligations under any
Option theretofore granted.
12. CONVERSION OF ISOS INTO NON-ISOS
At the written request of any ISO Optionee, the Committee may in its
discretion take such actions as may be necessary to convert such Optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-ISOs at any time prior to the
expiration of such ISOs, regardless of whether the Optionee is an employee of
the Company or of an Affiliate of the Company at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee, with the consent of the
Optionee, may impose such conditions on the exercise of the resulting Non-ISOs
as the Committee in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Optionee the right to have such Optionee's ISOs converted into Non-ISOs
and no such conversion shall occur until and unless the Committee takes
appropriate action. The Committee, with the consent of the Optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
conversion.
13. CONDITIONS UPON ISSUANCE OF SHARES
13.1 Shares shall not be issued pursuant to the exercise of any Option
unless the exercise of such Option and the issuance and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
any applicable state securities law, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed or otherwise traded, and such compliance has been confirmed by
counsel for the Company.
13.2 As a condition to the exercise of any Option, the Company may require
the participant exercising the Option to represent and warrant at the time of
any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such representations and warranties are
required by any relevant provision of law.
13.3 The Company's inability to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any shares hereunder, shall relieve
the Company of any liability with respect to the failure to issue or sell such
shares.
14. USE OF PROCEEDS
Proceeds from the sale of Common Stock pursuant to the Options granted and
exercised under the Plan shall constitute general funds of the Company and shall
be used for general corporate purposes.
15. NOTICES
All notices, requests, demands and other communications required or
permitted to be given under this Plan and the Options granted under this Plan
shall be in writing and shall be either served personally on the party to whom
notice is to be given (in which case notice shall be deemed to have been duly
given on the date of such service), or mailed to the party to whom notice is to
be given, by first class mail, registered or certified, return receipt
requested, postage prepaid, and addressed to the party at his or its most recent
known address, in which case such notice shall be deemed to have been duly given
on the third (3rd) postal delivery day following the date of such mailing.
16. MISCELLANEOUS PROVISIONS
16.1 Optionees shall be under no obligation to exercise Options granted
under this Plan.
16.2 Nothing contained in this Plan shall obligate the Company to retain an
Optionee as an employee, officer, director or consultant for any period, nor
shall this Plan interfere in any way with the right of the Company to reduce
such Optionee's compensation.
16.3 The provisions of this Plan, each Option issued to an Optionee under
the Plan and each Option Agreement shall be binding upon such Optionee, the
Qualified Successor or Guardian of such Optionee, and the heirs, successors and
assigns of such Optionee.
16.4 Where the context so requires, references herein to the singular shall
include the plural, and vice versa, and references to a particular gender shall
include either or both genders.
17. EFFECTIVE DATE OF PLAN AND AMENDMENTS
17.1 This Plan was adopted by the Board of Directors on February 27, 1999.
151998
and approved by the Shareholders of the Company on May 8, 1998.
DIRECT FOCUS, INC.
Proxy for Annual Meeting of Shareholders to be Held June 25, 199926, 2000
The undersigned hereby names, constitutes and appoints Brian R. Cook
and Rod W. Rice, or either of them acting in absence of the other, with full
power of substitution, my true and lawful attorneys and proxies for me and in my
place and stead to attend the Annual Meeting of the Shareholders of Direct
Focus, Inc. (the "Company"), to be held at 10:00 a.m. PDT on Friday,Monday, June 25,
1999,26, 2000, and at any
adjournment thereof, and to vote all the shares of common stock held of record
in the name of the undersigned on May 21, 1999,April 27, 2000, with all the powers that the
undersigned would possess if he were personally present.
1. PROPOSAL 1: ELECTION OF DIRECTORSElection of Directors
/ / FOR all nominees named below
/ / WITHHOLD AUTHORITY for all nominees named below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH NOMINEE'S NAME)
Kirkland C. Aly Gary L. HopkinsPaul F. Little Roland E. Wheeler
Brian R. Cook Paul F. LittleRandal R. Potter
C. Reed BrownRowland Hanson Roger J. Sharp
THEOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED ABOVE. ---
2. PROPOSAL 2 - to amend the Direct Focus, Inc. Stock Option Plan to
increase the number of shares authorized for issuance by 500,000
shares.
FOR PROPOSAL 2 / / AGAINST PROPOSAL 2 / / ABSTAIN ON PROPOSAL 2 / /
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2
---
3. PROPOSAL 3 - to amend the Direct Focus, Inc. Articles of Incorporation
to delete Article VII, Section 7.1 thereof and eliminate the
supermajority voting requirement with respect to certain matter.
FOR PROPOSAL 3 / / AGAINST PROPOSAL 3 / / ABSTAIN ON PROPOSAL 3 / /
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 3
---
4. Upon such other matters as may properly come before, or incident to the
conduct of the Annual Meeting,annual meeting, the Proxy holders shall vote in such
manner as they determine to be in the Company'sour best interests. Management is not
presently aware of any such matters to be presented for action at the
annual meeting.
COMPANYOUR MANAGEMENT IS SOLICITING THIS PROXY. IF NO SPECIFIC DIRECTION IS GIVEN AS TO
THE ABOVE ITEM, THIS PROXY WILL BE VOTED FOR THE NOMINEES NAMED IN PROPOSAL 1.1
AND FOR PROPOSALS 2 AND 3.
Dated
--------------------------------------
--------------------------------------------
Shareholder (PRINT NAME)
--------------------------------------------
Shareholder (SIGN NAME)
I DO / / DO NOT / / PLAN TO ATTEND THE MEETING.
The shareholder signed above reserves the right
to revoke this Proxy at any time prior to its
exercise by written notice delivered to the Company'sour
Secretary at the Company'sour corporate offices at 2200 N.E.
65th Avenue, Vancouver, Washington 98661, prior
to the Annual Meeting. The power of the Proxy
holders shall also be suspended if the
shareholder signed above appears at the Annual
Meeting and elects in writing to vote in
person.