SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
FOCUS Enchancements, Inc.
(Name of Registrant as Specified In Its Charter)
(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)(1) 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 registration
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:
FOCUS ENHANCEMENTS, INC.
600 Research Drive
Wilmington, Massachusetts 01887
(978) 988-5888
--------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------------
To Be Held July 26, 1999
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of FOCUS Enhancements, Inc., a
Delaware corporation, will be held on Friday, July 26, 1999, at 9:00 a.m., at
the Crown Plaza Hotel, Woburn, Massachusetts, for the following purposes:
1. To elect two Class I directors to serve for a three-year term;
2. To approve the Company's Employee Stock Purchase Plan;
3. To approve the Company's 1998 Non-Qualified Stock Option Plan;
4. To approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of the Company's common
stock from 25,000,000 to 30,000,000;
5. To ratify the selection of the firm of Wolf & Company, P.C. as the
Company's independent auditors for the fiscal year ending December 31,
1999; and
6. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on June 11, 1999
are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if he or she
has returned a proxy.
By Order of the Board of Directors,
THOMAS L. MASSIE
Chairman of the Board
President and Chief Executive Officer
June 25, 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY CARD AND RETURN
IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL.
FOCUS ENHANCEMENTS, INC.
600 Research Drive
Wilmington, Massachusetts 01887
(978) 988-5888
--------------------------
PROXY STATEMENT
--------------------------
June 25, 1999
General
Proxies in the form enclosed with this proxy statement are solicited by
the Board of Directors of FOCUS Enhancements, Inc. (the "Company") for use at
the Annual Meeting of Stockholders (the "Meeting") to be held on Friday, July
26, 1999, at 9:00 a.m., at the Crown Plaza Hotel, Woburn, Massachusetts.
Only stockholders of record as of June 11, 1999 will be entitled to
vote at the Meeting and any adjournments thereof. As of June 11, 1999, ________
shares of common stock, $.01 par value (the "Common Stock"), of the Company were
issued and outstanding. The holders of Common Stock are entitled to one vote per
share on any proposal presented at the Meeting. Stockholders may vote in person
or by proxy.
The Company's Annual Report on Form 10-KSB/A, containing financial
statements for the fiscal year ended December 31, 1998, is being mailed
contemporaneously with this proxy statement to all stockholders entitled to vote
at the Meeting. This proxy statement and the accompanying form of proxy were
first mailed to stockholders on or about the date above.
Proxies
Execution of a proxy will not in any way affect a stockholder's right
to attend the Meeting and vote in person. Any stockholder giving a proxy has the
right to revoke it by notice to the Secretary of the Company at any time before
it is exercised.
The persons named as attorneys in the proxies are directors and
officers of the Company. All properly executed proxies returned in time to be
counted at the Meeting will be voted as described further below. At the Meeting,
stockholders will consider and vote upon proposals to (i) elect two Class I
directors to serve for a three-year term; (ii) approve the Company's Employee
Stock Purchase Plan; (iii) approve the Company's 1998 Non-Qualified Stock Option
Plan; (iv) approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 25,000,000 to
30,000,000; and (v) ratify the selection of Wolf & Company, P.C. as the
Company's independent auditors for the fiscal year ending December 31, 1999.
Where a choice has been specified on a properly executed proxy with respect to
any of the foregoing proposals, the shares represented by the proxy will be
voted in accordance with such specification and will otherwise be voted FOR the
proposal if no specification is made and the proxy is otherwise properly
executed.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote properly may be taken, shares represented by all properly executed proxies
received by the Company will be voted with respect thereto in accordance with
the judgment of the persons named as attorneys in the proxies.
Quorum; Votes Required
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock is necessary to establish a quorum for the
transaction of business at the Meeting. Votes withheld from any Director
nominee, abstentions and broker "non-votes" are counted as present or
represented for purposes of determining the presence or absence of a quorum. A
broker "non-vote" occurs with respect to any proposal when a broker holding
shares for a beneficial owner does not vote on such proposal because the broker
does not have discretionary voting power with respect to such proposal and has
not received instructions as to how to vote with respect to such proposal from
the beneficial owner.
Directors are elected by a plurality of the votes cast by stockholders
entitled to vote at the Meeting. The approvals of the Employee Stock Purchase
Plan and the 1998 Non-Qualified Stock Option Plan and the ratification of Wolf &
Company, P.C. as the Company's independent auditors require the affirmative vote
of a majority of the shares present and voting at the Meeting. The approval of
the amendment to the Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 25,000,000 to 30,000,000 requires the
affirmative vote of at least a majority of all outstanding shares of Common
Stock.
An automated system administered by the Company's transfer agent
tabulates the votes. The vote on each proposal submitted to stockholders is
tabulated separately. Abstentions and broker non-votes are not included in the
number of shares counted as present or represented and voting on any proposal at
the Meeting, and, therefore, have no effect on the voting for election of
Directors, approval of the Employee Stock Purchase Plan or the 1998
Non-Qualified Stock Option Plan or ratification of the selection of Wolf &
Company, P.C. as the Company's independent auditors. Abstentions and broker
non-votes, however, have the same effect as votes "against" the proposal to
approve the amendment to the Certificate of Incorporation to increase the number
of authorized shares of Common Stock.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock on June 20, 1999 by (i) each
person known to the Company who beneficially owns 5% or more of the 18,005,090
outstanding shares of its Common Stock, (ii) each director of the Company, (iii)
each executive officer identified in the Summary Compensation Tables below, and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated below, to the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.
Amount of Beneficial Ownership
------------------------------
Name of Beneficial Owner Number of Shares Percent(1)
- ------------------------ ---------------- ----------
Thomas L. Massie (2) 1,019,648 5.66
John C. Cavalier (3) 227,185 1.26
William B. Coldrick (4) 334,292 1.86
Timothy E. Mahoney (5) 79,667 *
Dr. Robert C. Eimers (6) 0 *
William Dambrackas (7) 0 *
-2-
Christopher P. Ricci (8) 33,334 *
Gary M. Cebula (9) 19,667 *
Brett A. Moyer (10) 178,667 *
Thomas Hamilton (11) 128,975 *
Steve R. Morton (12) 127,975 *
J. Steven Wood (13) 132,796 *
Richard J. O'Connell (14) 115,171 *
William R. Schillhammer III (15) 24,000 *
All executive officers and directors as a group 2,421,377 13.45
(14 persons)(16)
- -------------------------------------
<FN>
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, each person possesses sole voting and investment power with respect
to the shares.
(2) Includes 72,821 shares of Common Stock held by Mr. Massie's wife and children. Also includes
583,333 shares issuable pursuant to stock options exercisable at June 20, 1999 or within 60
days thereafter but excludes 366,667 shares issuable pursuant to outstanding stock options that
are not currently exercisable.
(3) Includes 9,519 shares of Common Stock held in trust for Mr. Cavalier. Also includes 216,666
shares issuable pursuant to stock options exercisable at June 20, 1999, or within 60 days
thereafter. Excludes 108,334 shares issuable pursuant to outstanding stock options that are not
currently exercisable.
(4) Includes 7,369 shares held in escrow. Also includes 316,667 shares of Common Stock issuable
pursuant to outstanding stock options exercisable at June 20, 1999, or within 60 days
thereafter. Excludes 108,333 shares of Common Stock issuable pursuant to outstanding stock
options that are not currently exercisable.
(5) Includes 76,667 shares issuable pursuant to stock options exercisable at June 20, 1999, or
within 60 days thereafter. Does not include 108,333 shares issuable pursuant to outstanding
stock options that are not exercisable at June 20, 1999, or within 60 days thereafter.
(6) Does not include 100,00 shares issuable pursuant to outstanding stock options that are not
exercisable at June 20, 1999, or within 60 days thereafter.
(7) Does not include 100,00 shares issuable pursuant to outstanding stock options that are not
exercisable at June 20, 1999, or within 60 days thereafter.
(8) Includes 33,334 shares issuable pursuant to stock options exercisable at June 20, 1999, or
within 60 days thereafter. Does not include 116,666 shares issuable pursuant to outstanding
stock options that are not exercisable at June 20, 1999, or within 60 days thereafter.
(9) Includes 16,667 shares issuable pursuant to stock options exercisable at June 20, 1999, or
within 60 days thereafter. Does not include 58,333 shares issuable pursuant to outstanding
stock options that are not exercisable at June 20, 1999, or within 60 days thereafter.
(10) Includes 166,667 shares issuable pursuant to stock options exercisable at June 20, 1999, or
within 60 days thereafter. Does not include 183,333 shares issuable pursuant to outstanding
stock options that are not exercisable at June 20, 1999, or within 60 days thereafter.
-3-
(11) Includes 14,400 shares of Common Stock held by Mr. Hamilton's children. Includes 53,333 shares
issuable pursuant to stock options exercisable at June 20, 1999, or within 60 days thereafter.
Does not include 76,667 shares issuable pursuant to outstanding stock options that are not
exercisable at June 20, 1999, or within 60 days thereafter.
(12) Includes 53,333 shares issuable pursuant to stock options exercisable at June 20, 1999, or
within 60 days thereafter. Does not include 76,667 shares issuable pursuant to outstanding
stock options that are not exercisable at June 20, 1999, or within 60 days thereafter.
(13) Includes 122,796 shares owned by a corporation of which Mr. Wood is the sole shareholder. Does
not include 200,000 shares issuable pursuant to outstanding stock options that are not
exercisable at June 20, 1999, or within 60 days thereafter.
(14) Includes 110,000 shares issuable pursuant to stock options exercisable at June 20, 1999, or
within 60 days thereafter. Does not include 90,000 shares issuable pursuant to outstanding
stock options that are not exercisable at June 20, 1999, or within 60 days thereafter.
(15) Includes 20,000 shares issuable pursuant to stock options exercisable at June 20, 1999, or
within 60 days thereafter. Does not include 117,000 shares issuable pursuant to outstanding
stock options that are not exercisable at June 20, 1999, or within 60 days thereafter.
(16) Includes 1,251,378 shares of Common Stock. Also includes 1,169,999 shares issuable pursuant to
options and warrants to purchase Common Stock exercisable at June 20, 1999, or within 60 days
thereafter.
</FN>
PROPOSAL 1
ELECTION OF CLASS OF DIRECTORS
In accordance with the Company's Certificate of Incorporation, the
Company's Board of Directors is divided into three classes. Two Class I
directors, Messrs. Massie and Cavalier, were elected at the Annual Meeting of
Stockholders on July 15, 1996 for a term ending on the date of the Annual
Meeting of Stockholders to be held in 1999. Two Class III directors, Messrs.
Coldrick, and Mahoney, were elected at the Annual Meeting of Stockholders on
July 29, 1998 for a term ending on the date of the Annual Meeting of
Stockholders to be held in 2001. One of the Class II directors, Dr. Eimers, was
elected by the Board of Directors at a Board meeting held on February 22, 1999,
and the other Class II director, Mr. Dambrackas, was elected by the Board of
Directors at a Board meeting held on April 22, 1999. Each of the Company's Class
II directors was elected for a term ending on the date of the Annual Meeting of
Stockholders to be held in 2000. Each of Messrs. Massie and Cavalier have been
nominated by the Board for re-election at the Meeting for a term of three years.
The Class I director nominees, Thomas L. Massie and John C. Cavalier,
are currently serving as directors. Shares represented by all properly executed
proxies received by the Board of Directors and not otherwise marked to withhold
authority to vote for either or both of the nominees will be voted (unless one
or both nominees are unable or unwilling to serve) FOR the election of both
nominees. The Board of Directors knows of no reason why either such nominee
should be unable or unwilling to serve, but if such should be the case, proxies
may be voted for the election of some other person or for fixing the number of
directors at a lesser number.
The Board of Directors recommends that stockholders vote FOR the
election of Thomas L. Massie and John C. Cavalier, the two nominees proposed by
the Board of Directors, as Class I directors to serve until the 2002 Annual
Meeting of Stockholders.
-4-
Information Regarding Directors and Executive Officers
The following table sets forth for each nominee to be elected at the
Meeting and for each director whose term of office will extend beyond the
Meeting, the year each such nominee or director was first elected to serve as a
director, the positions currently held by each nominee or director with the
Company and the year each nominee's or director's term will expire.
Nominee's or Director's Name
and Year Nominee or Director Year Term
First Became a Director Position(s) Held Will Expire
----------------------- ---------------- -----------
Thomas L. Massie 1991 Chairman of the Board, 1999
President and Chief Executive
Officer
John C. Cavalier 1992 Director 1999
William B. Coldrick 1993 Vice Chairman of the Board 2001
Timothy E. Mahoney 1996 Director 2001
Dr. Robert C. Eimers 1999 Director 2000
William Dambrackas 1999 Director 2000
-5-
The following table sets forth the nominees to be elected at the
Meeting, the current directors who will continue to serve as directors beyond
the Meeting, and the executive officers of the Company, their ages, and the
positions currently held by each such person with the Company.
Name Age Position
---- --- --------
Thomas L. Massie 38 Chairman of the Board, President and Chief Executive Officer
William B. Coldrick(2) 57 Vice Chairman of the Board
Timothy E. Mahoney(1)(2) 42 Director
John C. Cavalier (1) 58 Director
Dr. Robert C. Eimers 51 Director
William Dambrackas 55 Director
Christopher P. Ricci 34 Sr. Vice President, General Counsel and Secretary
Gary M. Cebula 40 Vice President of Finance and Administration, and Treasurer
Thomas Hamilton 49 Vice President of Research & Development
Steve R. Morton 50 Vice President of Engineering
Brett A. Moyer 41 Vice President of Pro AV Sales
J. Steven Wood 40 Vice President of Pro AV Engineering
Richard J. O'Connell 41 Vice President of Consumer Sales
William R. Schillhammer III 45 Vice President of OEM Sales
- ---------------------
<FN>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</FN>
Directors to be Elected at the Meeting
Thomas L. Massie is Chairman of the Board, Chief Executive Officer,
President, and a co-founder of the Company and has served in these positions
since 1992. He has more than 14 years of experience in the computer industry as
well as related business management experience. From 1990 to 1992, Mr. Massie
was the Senior Vice President of Articulate Systems, responsible for worldwide
sales, marketing and operations. Articulate Systems is a multi-million dollar
developer and manufacturer of voice control and communications products for the
PC marketplace. Articulate Systems was acquired by Dragon Systems in 1997. From
1986 to 1990, Mr. Massie was the Chairman of the Board, and founder of MASS
Microsystems. MASS Microsystems is a publicly-held developer of multimedia
hardware products and high-end removal storage subsystems. Mr. Massie led MASS
Microsystems from business plan to $30 million in profitable revenues. MASS
Microsystems achieved a successful public offering in 1989 and was acquired by
Ramtek in 1992. From 1985 to 1986, Mr. Massie was the co-founder and Executive
Vice President of Sales and Marketing for MacMemory, Inc. MacMemory was a
multi-million-dollar developer of custom memory and acceleration products that
was acquired in 1986 by Cyclone Technologies. From 1979 to 1984, Mr. Massie was
a Non-Commissioned Officer for the U.S. Army, 101st Airborne Division. Mr.
Massie is a member of the Board of Directors of the Hockey Academy. The Hockey
Academy is a private, multi-million dollar hockey program development company.
-6-
John C. Cavalier has served as a Director of the Company since May
1992. He has more than 29 years of business management experience. Since
November 1996, Mr. Cavalier has been President, CEO and a Director of MapInfo
Corporation, a software developer. Prior thereto, Mr. Cavalier joined Amdahl
Company in early 1993 as Vice President and General Manager of Huron, Amdahl's
software business. In July of 1993, he was also appointed President and CEO of
Antares Alliance Group, a joint venture between Amdahl and EDS. From July 1990
to July 1992, he was President, Chief Executive Officer and a director of
Bimillenium Company, a software development company. Bimillenium is a developer
of scientific software for the Macintosh and UNIX marketplace. From April 1987
to January 1992, Mr. Cavalier was a Director of MASS Microsystems. He was
President, Chief Executive Officer and a director of ShareBase Company, a
database systems company, from November 1987 to June 1990. He earned his
undergraduate degree from the University of Notre Dame and an MBA from Michigan
State University.
Directors Whose Terms Extend Beyond the Meeting
William B. Coldrick has served as a Director of the Company since
January 1993, Vice Chairman of the Company since July 1994 and as Executive Vice
President of the Company from July 1994 to May 1995. Mr. Coldrick is currently a
principal of Enterprise Development Partners, a consulting firm serving emerging
growth companies that he founded in April 1998. From July 1996 to April 1998,
Mr. Coldrick was Vice President and General Manager of Worldwide Channel
Operations for the Computer Systems Division of Unisys Corp. In March 1991, Mr.
Coldrick retired as Senior Vice President, U.S. Sales, for Apple Computer, Inc.,
which he joined in 1982. As Senior Vice President, U.S. Sales, for Apple
Computer, Mr. Coldrick was responsible for leading all sales, support, service,
distribution and channel activities for Apple throughout the United States.
Previously at Apple, Mr. Coldrick held the position of Vice President and
General Manager for Western Operations, and was responsible for overseeing
sales, marketing, service and support for Apple's largest business unit in the
field organization. In a prior position as National Sales Director, U.S. Sales,
Mr. Coldrick directed the expansion of the U.S. field sales force. Mr. Coldrick
also held the position of Area Sales Director of the Northeast Area. Before
joining Apple, Mr. Coldrick spent 14 years with Honeywell Information Systems,
where he held a number of positions including Regional Marketing Director. Mr.
Coldrick holds a Bachelor of Science degree in Marketing from Iona College in
New Rochelle, New York.
Timothy E. Mahoney has served as Director of the Company since March
1998. He has more than 18 years of experience in the computing industry. Mr.
Mahoney founded Union Atlantic L.C., in 1994, a merchant bank providing
professional management and capital for emerging technology companies. Since
1996, Mr. Mahoney has served as Chairman of Tallard Technologies BV, a PC
products distributor / value added reseller serving Latin America. From 1991 to
1994 he was President of SyQuest Technology, SyDos Division, responsible for
expanding distribution channels for SyQuest's hard disk drive products. From
1986 to 1991, Mr. Mahoney was President of Rodine Systems, Inc., a provider of
Macintosh mass storage peripherals. He earned his BA degree in computer science
and business from West Virginia University and an MBA degree from George
Washington University.
Robert C. Eimers, Ph.D. is a recognized expert in the assessment and
development of both managers and organizations. He is currently Vice President
of Human Resources for Scotsman Industries, a company based in Vernon Hills,
Illinois, which manufactures and distributes commercial refrigeration equipment
worldwide. Dr. Eimers earned a Bachelor of Arts degree from Wesleyan University
in 1970 and a doctoral degree in Psychology from the University of Rochester in
1978. Since that time, he has distinguished himself as a consulting psychologist
with two prominent firms, Organizational Psychologists and Medina & Thompson. He
has also served as the senior human resources executive of three Fortune 500
companies, Household International, Sonoco Products Company and Service
Merchandise. His first-hand experience on both sides of the table has provided
Dr. Eimers with an in-depth understanding of the factors which influence both
individual and organizational performance.
-7-
William A. Dambrackas has over 22 years of management experience in the
computer industry. He founded Equinox Systems (Nasdaq: EQNX) 16 years ago and
since then, has served as the company's Chairman, President and Chief Executive
Officer. Equinox develops high-performance server-based communications products
for Internet access and commercial systems. Mr. Dambrackas also currently serves
on the Board of Directors of the Florida Venture Forum, an organization that
serves the needs of venture capital investors and emerging growth companies.
Prior to founding Equinox in 1983, Mr. Dambrackas held senior engineering
management positions at Racal-Milgo from 1979 to 1983 and Infotron Systems
from1976 to 1979. He also has held design engineering positions at GTE-Ultronic
Systems from 1969 to 1976, Thiokol Corporation from 1968 to 1969, and RCA
television recording systems from 1966 to 1968. Mr. Dambrackas has been issued 3
United States Patents for data communications inventions and he was honored as
Florida's "Entrepreneur of the Year" in 1984.
Executive Officers
Christopher P. Ricci joined the Company as Sr. Vice President, General
Counsel and Secretary in 1998. From 1996 to 1998, Mr. Ricci was a member of the
intellectual property group for the Boston law firm of Sullivan & Worcester LLP,
where he advised on a variety of issues including patent prosecution, trademark
prosecution, licensing of technology in both domestic and foreign markets,
methods of protecting and exploiting intellectual property, as well as
supporting litigation and corporate acquisitions. From 1993 to 1996 Mr. Ricci
also worked as in-house counsel to the electronic imaging division of Polaroid
Corporation and was previously and a partner at Lambert & Ricci, PC, a Boston
intellectual property law firm. Prior to entering the legal profession, Mr.
Ricci worked for five years as an electrical engineer designing computer control
systems. Mr. Ricci received his law degree from New England School of Law. He
graduated from the University of Massachusetts at Amherst with a bachelor's
degree in electrical engineering and a minor in applied mathematics. He has also
earned a certificate in software engineering from Northeastern University. Mr.
Ricci has lectured and been published both domestically and abroad on a variety
of business and intellectual property law subjects.
Gary M. Cebula joined the Company as Vice President of Finance and
Administration, and Treasurer in 1998. He has more than 15 years of experience
in finance, administration, and operations management. From 1996 to 1998, Mr.
Cebula was Vice President and Chief Financial Officer of Hanold Holding
Corporation, a manufacturer of student uniforms. From 1986 to 1996, Mr. Cebula
was Vice President and Controller of Continental Resource, Inc., a multi-million
dollar distributor of Personal Computers. From 1982 to 1986, Mr. Cebula held
various financial positions at General Electric Corporation. His diversified
background includes mergers and acquisitions, strategic planning for entity
consolidations, financial reporting, cash management and debt restructuring. Mr.
Cebula is a graduate of General Electric's Financial Management Program, and
earned a BS in Accounting and an MS in Taxation from Bentley College in Waltham,
Massachusetts.
Thomas Hamilton joined the Company in September 1996 when the Company
acquired TView, Inc. From 1992 to 1996, Mr. Hamilton was Executive Vice
President and Co-Founder of TView, Inc. Mr. Hamilton grew TView from inception
to a $5M per year revenue before being acquired by FOCUS. He co-developed
proprietary video processing technology central to FOCUS' business. From 1987 to
1992, Mr. Hamilton was the Vice President of Engineering at Summit Design, a
publicly held Integrated Circuit design software company, in Beaverton, Oregon
having approximately $20MM in annual sales. From 1975 to 1987, he served in
various engineering and marketing management positions at Tektronix Inc.,
Wilsonville, Oregon. Mr. Hamilton has a BS in Mathematics from Oregon State
University.
Steve R. Morton joined the Company as Vice President of Engineering in
September 1996 when the Company acquired TView, Inc. From 1992 to 1996, Mr.
Morton was Executive Vice President and Co-Founder of TView, Inc. where he
co-developed proprietary video processing technology central to FOCUS' business.
From 1971 to 1992, Mr. Morton held various engineering management positions at
Tektronix Inc including serving as general manager of Tektronix' Digital Signal
Processing Group and Engineering Manager for the Spectrum Analyzer Division from
1986 to 1992. Mr. Morton holds a BSEE from Oregon State University and an MSEE
from the University of Portland.
-8-
Brett A. Moyer joined the Company in May 1997, and has assumed the role
of Vice President of Pro A/V Sales. Mr. Moyer brings over 10 years of global
sales, finance and general management experience from Zenith Electronics
Corporation, where he was most recently the Vice President and General Manager
of Zenith's Commercial Products Division. Mr. Moyer has also served as Vice
President of Sales Planning and Operations at Zenith where he was responsible
for forecasting, customer service, distribution, MIS, and regional credit
operations. Mr. Moyer has a Bachelor of Arts in Economics from Beloit College in
Wisconsin and a Masters of International Management with a concentration in
finance and accounting from The American Graduate School of International
Management (Thunderbird).
J. Steven Wood joined the Company as Vice President of Pro A/V
Engineering in August 1998 when the Company acquired PC Video Conversion, Inc.
("PC Video") From 1992 to 1998, Mr. Wood was President and co-founder of PC
Video where he grew PC Video from inception to over $2.5 million in profitable
revenue. From 1990 to 1992, he held the position of Sales and Marketing Manager
at Redlake Corporation, a world leader in high speed image acquisition. From
1986 to 1990, the held the position of Image Processing Product Specialist at
MetraByte (subsequently acquired by the Keithley Corporation). Mr. Wood started
his career in Computer Graphics/Image Processing/Video Electronics with Matrox
Electronics in Montreal. Mr. Wood has a Bachelor's degree in Engineering from
McGill University in Montreal, Canada.
Richard O'Connell joined FOCUS Enhancements in 1995. As Vice President
of Channel Sales, Mr. O'Connell is responsible for all consumer sales in North
America and the Pacific Rim. Mr. O'Connell has over 15 years experience as a
high level sales professional. As a principal of a company he previously
founded, he was responsible for the Company's sales distribution. Recently, Mr.
O'Connell has held various sales management positions with McCaw Cellular
(1989-1992) and Daewoo-Leading Edge Computer (1992-1995).
William R. Schillhammer III joined the Company in 1998 with over 12
years of experience in global sales and marketing. From 1996 to 1998, Mr.
Schillhammer was Vice President of Marketing and Sales for Digital Vision, Inc.,
a multi-million dollar developer of video conversion products. From 1990 to 1996
Mr. Schillhammer held various senior management positions for Direct Imaging,
Inc., most recently serving as President. From 1989 to 1990 he was the Vice
President of Sales for Mega Scan Technology, Inc. From 1988 to 1989 Mr.
Schillhammer was the Vice President for Number Nine Computer Corporation, a
publicly held multi-million dollar company. From 1980 to 1988 he held various
management positions with the Intel Corporation. Mr. Schillhammer graduated from
Dartmouth College with a Bachelor's degree in Engineering.
Board Meetings and Committees
The Board of Directors met two (2) times during the fiscal year ended
December 31, 1998. None of the Directors attended fewer than 75% of the meetings
held during the period. The Board of Directors also took action by unanimous
written consent in lieu of a meeting on four (4) occasions during 1998. The
Compensation Committee of the Board, of which Messrs. Cavalier and Mahoney are
members, sets the compensation of the Chief Executive Officer, reviews and
approves the compensation arrangements for all other officers of the Company and
administers the Company's various stock option plans. The Compensation Committee
met one (1) time during the fiscal year ended December 31, 1998. The
Compensation Committee also took action by unanimous written consent in lieu of
a meeting on four (4) occasions during 1998. The Audit Committee of the Board,
of which Messrs. Mahoney and Coldrick are members, reviews all financial
functions of the Company, including matters relating to the appointment and
activities of the Company's auditors. The Audit Committee met two (2) times
during the fiscal year ended December 31, 1998. The Board of Directors does not
currently have a standing nominating committee.
-9-
Executive Compensation
The following table sets forth certain information with respect to the
annual and long-term compensation for services in all capacities to the Company
for the fiscal years ended December 31, 1998, 1997, and 1996, of those persons
who were, at December 31, 1998, (i) the Company's Chief Executive Officer and
(ii) the four other highest paid executive officers of the Company receiving
total cash and bonus compensation in excess of $100,000 (the "Named Officers").
The Company did not grant any restricted stock awards or stock appreciation
rights or make any long term incentive plan payouts to the individuals named in
the tables below during the fiscal year indicated.
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
Name and Fiscal Other Annual
Principal Position Year Salary($) Bonus($) Year Compensation($)(2) Options/SAR(3)
------------------ ------- --------- ------------- ------------------ --------------
Thomas L. Massie 1998 $150,000 $132,833 -- 200,000
CEO, President and 1997 $150,000 $ 45,000 -- 500,000
Chairman of the Board 1996 $150,000 -- -- 250,000
Christopher P. Ricci 1998 $150,000 $ 27,500 -- 125,000
Sr. Vice President and 1997 -- -- -- --
General Counsel 1996 -- -- -- --
Brett Moyer 1998 $130,000 $ 41,000 -- 100,000
Vice President of 1997 $130,000 $ 45,000 -- 250,000
Pro AV Sales 1996 -- -- -- --
Richard O'Connell 1998 $90,000 -- $48,357(4) 100,000
Vice President of Consumer 1997 $90,000 $ 25,360 $37,262(4) 20,000
Sales 1996 -- -- -- 50,000
Thomas Hamilton 1998 $110,000 $ 5,000 -- 25,000
Vice President of Research 1997 $110,000 $ 4,179 -- --
1996 $ 27,293 -- -- 80,000
<FN>
(1) Includes salary and bonus payments earned by the Named Officers in the year indicated, for services
rendered in such year, which were paid in the following year.
(2) Excludes perquisites and other personal benefits, the aggregate annual amount of which for each officer
was less than the lesser of $50,000 or 10% of the total salary and bonus reported.
(3) Long-term compensation table reflects the grant of non-qualified and incentive stock options granted to
the named persons in each of the periods indicated.
(4) Includes compensation based on sales commissions.
</FN>
-10-
The following table sets forth information concerning options granted
during the fiscal year ended December 31, 1998 to the executives named in the
Summary Compensation Table above. The Company did not grant any stock
appreciation rights during the fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
Percentage of Total
Options Granted to Individual Grants
Shares Subject to Employees in FY -----------------
Name Options Granted 1998(1) Exercise Price Expiration Date
- ---- --------------- ------- -------------- ---------------
Thomas L. Massie 200,000 14.8% $1.22 9/01/03
Christopher P. Ricci 125,000 9.3% $1.22 9/01/03
Brett Moyer 100,000 7.4% $1.22 9/01/03
Richard J. O'Connell 100,000 7.4% $1.22 9/01/03
Thomas Hamilton 25,000 1.9% $1.22 9/01/03
- -------------------------------------
<FN>
(1) Net of cancellations, a total of 1,347,698 options were granted to employees, directors and consultants
in 1998 under the Company's stock option plans, the purpose of which is to provide incentives to
employees, directors and consultants who are in positions to make significant contributions to the
Company.
</FN>
-11-
The following table sets forth information concerning option exercises
during fiscal year 1998 and the value of unexercised options as of December 31,
1998 held by the executives named in the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
Number of Value of
Unexercised Unexercised, In-
Options at the-Money Options
December 31, 1998 at December 31,
Shares Acquired on Value (Exercisable/ 1998 (Exercisable/
Exercise(#) Realized($) Unexercisable) Unexercisable)(1)
----------- ----------- -------------- -----------------
Thomas L. Massie -0- -0- 416,667 $120,625.07
(Exercisable) (Exercisable)
533,333 $115,999.93
(Unexercisable) (Unexercisable)
Christopher P. Ricci -0- -0- 0 (Exercisable) $ 0 (Exercisable)
125,000 $27,187.51
(Unexercisable) (Unexercisable)
Brett Moyer -0- -0- 83,334 $18,125.15
(Exercisable) (Exercisable)
266,666 $57,999.86
(Unexercisable) (Unexercisable)
Richard J. O'Connell -0- -0- 70,000 $14,875.00
(Exercisable) (Exercisable)
130,000 $27,625.00
(Unexercisable) (Unexercisable)
Thomas Hamilton -0- -0- 53,333 $11,599.93
(Exercisable) (Exercisable)
51,667 $11,237.57
(Unexercisable) (Unexercisable)
- -------------------------------------
<FN>
(1) Value is based on the difference between option exercise price and the fair
market value at December 31, 1998 ($1.4375 per share, the closing price as
quoted on the NASDAQ SmallCap Market at the close of trading on December
31, 1998) multiplied by the number of shares underlying the option.
</FN>
-12-
Employment Agreements
The Company and Thomas L. Massie are parties to an Employment Contract
effective January 1, 1992, as amended to date, which renews automatically such
that it is always effective for a period of three years, subject to certain
termination provisions. This Employment Contract includes a one-year
non-competition provision following termination of employment. Pursuant to this
Employment Contract, Mr. Massie serves as Chairman of the Board, President and
Chief Executive Officer of the Company. This Employment Contract requires a
lump-sum severance payment to Mr. Massie of three times his aggregate
compensation or allowances then in effect if Mr. Massie is terminated without
cause during the term of the contract. In addition, the vesting of all options
held by Mr. Massie shall be accelerated so as to be immediately exercisable. The
Employment Contract provides for bonuses as determined by the Board of Directors
and employee benefits, including health and disability insurance, in accordance
with the Company's policies.
The Company and Brett Moyer are parties to an Employment Contract
effective May 15, 1997, as amended to date, which renews automatically after
December 31, 1999, for one year terms, subject to certain termination
provisions. Pursuant to this Employment Contract, Mr. Moyer serves as Vice
President of Pro AV Sales. This Employment Contract requires the vesting of all
options held by Mr. Moyer shall be accelerated so as to be immediately
exercisable if Mr. Moyer is terminated without cause during the term of the
contract. The Employment Contract provides for bonuses as determined by the
Board of Directors and employee benefits, including health and disability
insurance, in accordance with the Company's policies.
The Company and Christopher P. Ricci are parties to an Employment
Contract effective March 1, 1999, as amended to date, which renews automatically
after December 31, 2000, for one year terms, subject to certain termination
provisions. Pursuant to this Employment Contract, Mr. Ricci serves as Senior
Vice President and General Counsel of the Company. This Employment Contract
requires the vesting of all options held by Mr. Ricci shall be accelerated so as
to be immediately exercisable if Mr. Ricci is terminated without cause during
the term of the contract. The Employment Contract provides for bonuses as
determined by the Board of Directors and employee benefits, including health and
disability insurance, in accordance with the Company's policies.
The Company and Steven Morton are parties to an Employment Contract
effective October 17, 1996, as amended to date, which renews automatically after
December 31, 1999, for one year terms, subject to certain termination
provisions. Pursuant to this Employment Contract, Mr. Morton serves as Vice
President of Engineering. This Employment Contract requires the vesting of all
options held by Mr. Morton shall be accelerated so as to be immediately
exercisable if Mr. Morton is terminated without cause during the term of the
contract. The Employment Contract provides for bonuses as determined by the
Board of Directors and employee benefits, including health and disability
insurance, in accordance with the Company's policies.
The Company and Thomas Hamilton are parties to an Employment Contract
effective October 17, 1996, as amended to date, which renews automatically after
December 31, 1998, for one year terms, subject to certain termination
provisions. Pursuant to this Employment Contract, Mr. Hamilton serves as Vice
President of Research & Development. This Employment Contract requires the
vesting of all options held by Mr. Hamilton shall be accelerated so as to be
immediately exercisable if Mr. Hamilton is terminated without cause during the
term of the contract. The Employment Contract provides for bonuses as determined
by the Board of Directors and employee benefits, including health and disability
insurance, in accordance with the Company's policies.
The Company and Richard O'Connell are parties to an Employment Contract
effective January 1, 1996, as amended to date, which renews automatically after
December 31, 1999, for one year terms, subject to certain termination
provisions. Pursuant to this Employment Contract, Mr. O'Connell serves as Vice
President of Consumer Sales. This Employment Contract requires the vesting of
all options held by Mr. O'Connell shall be accelerated so as to be immediately
exercisable if Mr. O'Connell is terminated without cause during the term of the
contract. The Employment Contract provides for bonuses as determined by the
Board of Directors and employee benefits, including health and disability
insurance, in accordance with the Company's policies.
The Company and Gary M. Cebula are parties to an Employment Contract
effective April 1, 1998, as amended to date, which renews automatically after
December 31, 1999, for one year terms, subject to certain termination
provisions. Pursuant to this Employment Contract, Mr. Cebula serves as Vice
President of Finance & Administration. This Employment Contract requires the
vesting of all options held by Mr. Cebula shall be accelerated so as to be
immediately exercisable if Mr. Cebula is terminated without cause during the
term of the contract. The Employment Contract provides for bonuses as
-13-
determined by the Board of Directors and employee benefits, including health and
disability insurance, in accordance with the Company's policies.
The Company and J. Steven Wood are parties to an Employment Contract
effective August 1, 1998, as amended to date, which renews automatically on a
month-to-month basis after July 30, 2001, subject to certain termination
provisions. Pursuant to this Employment Contract, Mr. Wood serves as Vice
President of Pro AV Engineering. This Employment Contract requires the vesting
of all options held by Mr. Wood shall be accelerated so as to be immediately
exercisable if Mr. Wood is terminated without cause during the term of the
contract. The Employment Contract provides for bonuses as determined by the
Board of Directors and employee benefits, including health and disability
insurance, in accordance with the Company's policies.
Compensation of Directors
Directors of the Company receive no direct cash compensation for their
services as directors. In 1998, the Company paid Union Atlantic L.C. $155,652
for marketing consulting services rendered, agency services, and standard
business expenses in connection with the Company's acquisition of PC Video.
Timothy Mahoney, who is a FOCUS director, is a partner of Union Atlantic.
On March 19, 1997, the Board of Directors elected to terminate the 1995
Directors Plan and all options granted thereunder. By a unanimous vote of the
Board of Directors, the Board established the 1997 Directors Plan and authorized
the grant of options to purchase up to 1,000,000 shares of Common Stock under
the plan. On March 19, 1997, options to purchase 200,000 shares at an exercise
price of $1.88 per share were granted to Mr. Cavalier, options to purchase
100,000 shares at an exercise price of $1.88 per share were granted to each of
Messrs. Coldrick and Mahoney and options to purchase 50,000 shares at an
exercise price of $1.88 per share were granted to a now former director. All of
the options are subject to various vesting provisions.
On September 1, 1998, the Board of Directors approved the re-pricing of
all of the aforementioned options granted to current directors (totaling options
to purchase 400,000 shares) to a price of $1.22 per share, the fair market value
on the date of such re-pricing.
On September 1, 1998, the Board of Directors approved the 1998
Non-Qualified Stock Option (NQSO) Plan. The 1998 NQSO Plan authorized the grant,
subject to approval by the Company's stockholders, on September 1, 1998 of stock
options for 75,000 shares of Common Stock to each of Mr. Mahoney and Mr.
Coldrick and for 100,000 shares to Mr. Cavalier, each of whom is neither an
employee nor officer of the Company. Each of Mr. Massie and Mr. Wood also
received a grant, subject to approval by the Company's stockholders, of an
option for 200,000 shares under the 1998 NQSO Plan. Mr. Moyer received a grant,
subject to approval by the Company's stockholders, of an option for 100,000
shares. All such options have an exercise price of $1.22, the fair market value
on the date of grant. Upon joining the Board of Directors, on February 22, 1999,
Dr. Eimers was granted, subject to approval by the Company's stockholders, a
stock option for 100,000 shares of Common Stock under the 1998 NQSO Plan at an
exercise price of $1.0625, the fair market value on the date of grant. Upon
joining the Board of Directors, on April 22, 1999, Mr. Dambrackas was granted,
subject to approval by the Company's stockholders, a stock option for 100,000
shares of Common Stock at an exercise price of $1.4063, the fair market value on
the date of grant.
-14-
The Company maintains the right to reprice options that it may grant
under its existing stock option plans. On September 1, 1998, the Company
repriced all employee and director options under all plans to $1.22 per share
for those options priced in excess of this value. This price represented the
closing market price of the Company's common stock on September 1, 1998. On
February 22, 1999, the Company repriced all employee options under all plans to
$1.0625 per share for all options priced in excess of this amount. This price
represented the closing market price of the Company's common stock on February
22, 1999.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission (the "SEC"). Such persons
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms
received by it or written representations from certain reporting persons, the
Company believe that during the year ended December 31, 1998, all filing
requirements applicable to its directors, executive officers and
greater-than-10% beneficial owners were met.
PROPOSAL 2
APPROVAL OF FOCUS ENHANCEMENTS, INC.
EMPLOYEE STOCK PURCHASE PLAN
General
The Board of Directors has approved and is proposing for stockholder
approval the FOCUS Enhancements, Inc. Employee Stock Purchase Plan (the
"Employee Purchase Plan"). The purpose of the Employee Purchase Plan is to
enable eligible employees of the Company or any of its subsidiaries, through
payroll deductions, to purchase shares of the Company's Common Stock and thus to
encourage stock ownership by employees of the Company and to encourage the
continued employment of employees and officers of the Company.
Description of Employee Purchase Plan
Under the Employee Purchase Plan, 250,000 shares of Common Stock are
available for purchase by eligible employees of the Company or any of its
subsidiaries. The Employee Purchase Plan permits eligible employees to elect to
have a portion of their pay deducted by the Company to purchase shares of Common
Stock of the Company. In the event there is any increase or decrease in Common
Stock without receipt of consideration by the Company (for instance, by a
recapitalization or stock split), there may be a proportionate adjustment to the
number and kinds of shares that may be purchased under the Employee Purchase
Plan.
Rights to purchase shares of Common Stock will be deemed granted to
participating employees as of the first trading day of each Offering Period.
Offering Periods will be 24 months or such other period as is set by the
Company. Offering Periods are the periods during which shares of Common Stock
are purchased. Within an Offering Period there will be four or more Purchase
Periods. Generally, Purchase Periods will be six months. Payroll deductions and
other payments will be accumulated during a Purchase Period and purchases of
shares will occur at the end of each Purchase Period (from the amounts
accumulated during that Purchase Period).
-15-
The purchase price for each share (the "Purchase Price") will be set by
the Compensation Committee of the Board of Directors. The Purchase Price for the
initial Offering Period will be 85% of the fair market value of the Common Stock
on the first trading day of such Offering Period or the last day of the
applicable Purchase Period, whichever is lower.
Any employee of the Company or any of its subsidiaries may participate
in the Employee Purchase Plan, except the following, who are ineligible to
participate: (a) an employee who has been employed by the Company or subsidiary
for less than three months as of the beginning of the Offering Period; (b) an
employee whose customary employment is for less than five months in any calendar
year; (c) an employee whose customary employment is 20 hours or less per week;
and (d) an employee who, after exercising his or her rights to purchase stock
under the Employee Purchase Plan, would own stock (including stock that may be
acquired under any outstanding options) representing five percent or more of the
total combined voting power of all classes of stock of the Company. An employee
must be employed on the last day of the Purchase Period in order to acquire
stock for that Purchase Period under the Employee Purchase Plan unless the
employee has retired, died, become disabled, been laid off or is on an approved
leave of absence.
An eligible employee may become a participant in the Employee Purchase
Plan by completing an election to participate in the Employee Purchase Plan
authorizing the Company to have deductions made from pay on each pay day
following enrollment in the Employee Purchase Plan. The deductions or
contributions will be credited to the employee's account under the Employee
Purchase Plan. An employee may not change his or her percentage of payroll
deduction or contribution for any Purchase Period during an Offering Period, nor
may an employee withdraw any contributed funds other than by terminating
participation in the Employee Purchase Plan (as described below). A
participating employee may terminate payroll deductions or contributions at any
time.
No employee may purchase Common Stock in any calendar year under the
Employee Purchase Plan and any other "employee stock purchase plans" of the
Company and any parent or subsidiary having an aggregate fair market value in
excess of $25,000, determined as of the first trading date of the Offering
Period.
On the last trading day of each Purchase Period within an Offering
Period, a participating employee will be credited with the number of whole
shares of Common Stock purchased under the Employee Purchase Plan for such
period. Common Stock purchased under the Employee Purchase Plan will be held in
the custody of an agent designated by the Company (the "Agent"). The Agent may
hold the Common Stock purchased under the Employee Purchase Plan in stock
certificates in nominee names and may commingle shares held in its custody in a
single account or stock certificate, without identification as to individual
employees. An employee may, however, instruct the Agent to have all or part of
such shares reissued in the employee's own name and have the stock certificate
delivered to the employee.
A participating employee will be refunded all monies in his or her
account, and his or her participation in the Employee Purchase Plan will be
terminated, if: (a) the employee elects to terminate participation by delivering
a written notice to that effect to the Company; (b) the employee ceases to be
employed by the Company or a participating affiliate except on account of death,
disability, retirement, lay-off or authorized leave of absence; (c) the Board
elects to terminate the Employee Purchase Plan; or (d) the employee ceases to be
eligible to participate in the Employee Purchase Plan. If a participating
employee terminates employment on account of death, disability, retirement,
lay-off or authorized leave of absence, the participating employee will have the
following alternatives: (a) refund of all monies in his or her account or (b)
purchase of Common Stock on the last day of the Purchase Period during which
termination occurs with the amounts then accumulated in his or her account.
No participating employee may assign his or her rights to purchase
shares of Common Stock under the Employee Purchase Plan, whether voluntarily, by
operation of law or otherwise.
-16-
The Employee Purchase Plan will be administered by the Compensation
Committee. The Compensation Committee has the authority to interpret the
Employee Purchase Plan, to prescribe, amend and rescind rules relating to it,
and to make all other determinations necessary or advisable in administering the
Employee Purchase Plan, all of which determinations will be final and binding.
The Board of Directors may, at any time, amend the Employee Purchase
Plan in any respect; provided, however, that without approval of the
stockholders of the Company no amendment shall be made (a) increasing the number
of shares that may be made available for purchase under the Employee Purchase
Plan, (b) changing the eligibility requirements for participating in the
Employee Purchase Plan or (c) impairing the vested rights of participating
employees.
The Board of Directors may terminate the Employee Purchase Plan at any
time and for any reason or for no reason, provided that such termination shall
not impair any rights of participants that have vested at the time of
termination. In any event, the Employee Purchase Plan shall, without further
action of the Board of Directors, terminate at the earlier of (i) ten years
after adoption of the Employee Purchase Plan by the Board of Directors and (ii)
such time as all shares of Common Stock that may be made available for purchase
under the Employee Purchase Plan have been issued.
Federal Income Tax Consequences of Employee Purchase Plan
If a participant acquires stock under the Employee Purchase Plan, no
income will result to such participant, and the Company will be allowed no
deduction as a result of such purchase, if certain conditions are met. The
principal condition which must be satisfied is that the participant does not
dispose of the stock within two years after the first day of the applicable
Offering Period or one year after purchase of the stock. If the employee
disposes of the stock acquired pursuant to the Employee Purchase Plan after the
statutory holding period has expired, gain on the sale is capital gain except to
the extent of ordinary (compensation) income determined as described below. If
the employee disposes of the stock before the expiration of the statutory
holding period, the employee must recognize as ordinary (compensation) income
the difference between the stock's fair market value and the purchase price.
An employee disposing of stock after expiration of the statutory
holding period (or who dies) must include in ordinary (compensation) income at
the time of sale or other taxable disposition of the stock acquired under the
Employee Purchase Plan, or upon the employee's death while still holding the
stock, the lesser of:
(1) the purchase price discount from the fair market value of the stock
at the beginning of the Offering Period; or
(2) the amount, if any, by which the stock's fair market value at the
time of such disposition or death exceeds the purchase price paid.
The foregoing is only a summary of the Employee Purchase Plan and is
subject to and qualified in its entirety by reference to the complete text of
the Employee Purchase Plan, a copy of which may be obtained upon request from
the Company by contacting Investor Relations at (978) 988-5888, or by writing
Investor Relations, FOCUS Enhancements, Inc., 600 Research Drive, Wilmington,
Massachusetts, 01887.
The Board of Directors recommends that stockholders vote FOR approval
of the Employee Purchase Plan.
-17-
PROPOSAL 3
APPROVAL OF 1998 NON-QUALIFIED STOCK OPTION PLAN
General
On September 1, 1998, the Board of Directors of the Company adopted the
1998 Non-Qualified Stock Option Plan (the "1998 NQSO Plan"), subject to approval
by the Company's stockholders. As of September 1, 1998, four members of the
Board of Directors were entitled to participate in the 1998 NQSO Plan. On
September 1, 1998, Messrs. Massie, Cavalier, Mahoney and Coldrick were each
automatically granted, subject to the approval by the Company's stockholders, an
option to purchase shares of Common Stock at a purchase price equal to the fair
market value of the Common Stock as of the date of such option grant. The
amounts of those grants were as follows: Mr. Massie received 200,000 shares, Mr.
Cavalier received 100,000 shares, and each of Mr. Mahoney and Mr. Coldrick
received an option to purchase 75,000 shares. Two additional executive officers
of the Company were also granted options, subject to stockholder approval, for a
total of 300,000 shares on that date. The exercise price of each of these
additional options was equal to the fair market value of the Common Stock as of
the date of such option grant. Subsequently, new directors Dr. Eimers and Mr.
Dambrackas each were granted options, subject to stockholder approval, for
100,000 shares at an exercise price in each case equal to the fair market value
of the Common Stock on the date of such option grant.
Description of 1998 NQSO Plan
The purpose of the 1998 NQSO Plan is to promote the interests of the
Company by providing an inducement to obtain and retain the services of
qualified persons.
The 1998 NQSO Plan is administered by the Board of Directors of the
Company. The Board of Directors, subject to the provisions of the 1998 NQSO
Plan, has the power to construe the 1998 NQSO Plan, to determine all questions
thereunder, and to adopt and amend such rules and regulations for the
administration of the 1998 NQSO Plan as it may deem desirable.
The 1998 NQSO Plan authorizes the grant of options for up to 1,250,000
shares of Common Stock, 300,000 of which remain available for grant as of the
date hereof. Outstanding options under the 1998 NQSO Plan are subject to
adjustment for capital changes. If any options granted under the 1998 NQSO Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under the 1998 NQSO
Plan. As of May 10, 1999, the aggregate market value of shares of Common Stock
issuable pursuant to outstanding options under the 1998 NQSO Plan was $1,365,625
based upon the average of the bid and ask prices as quoted on the Nasdaq
SmallCap Market at the close of trading on that date.
Each person who was a member of the Company's Board of Directors or an
officer of the Company on September 1, 1998, was automatically granted on such
date options as described above to purchase shares of the Company's Common
Stock. Each person who is first elected a member of the Board of Directors after
September 1, 1998 will automatically be granted, on the date of such election,
an option to purchase 100,000 shares of the Company's Common Stock. Anything in
the 1998 NQSO Plan to the contrary notwithstanding, the effectiveness of the
1998 NQSO Plan and of the grant of all options thereunder is in all respects
subject to the approval of the 1998 NQSO Plan by the affirmative vote of holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy and entitled to vote at a meeting of stockholders at which the 1998
NQSO Plan is presented for approval.
The exercise price per share of options granted under the 1998 NQSO
Plan is 100% of the fair-market value of the Company's Common Stock on the date
the option is granted. The option exercise
-18-
price is subject to adjustment to take into account various equity
distributions, such as stock splits and stock dividends, and other changes in
the Company's capitalization.
The 1998 NQSO Plan requires that options granted thereunder will expire
on the date which is five (5) years from the date of grant.
Each option granted under the 1998 NQSO Plan first becomes exercisable
with respect to one-third of the shares subject to such option on each
anniversary date of the grant, until the option is exercisable with respect to
all of the shares subject thereto. The vesting of options on each annual vesting
date is conditioned on the optionee having continuously served as a member of
the Board of Directors or being employed by Company through that date.
Subject to the terms and conditions of the 1998 NQSO Plan, an option
granted under the 1998 NQSO Plan shall be exercisable in whole or in part by
giving written notice to the Company at its principal executive offices. The
notice must state the number of shares as to which the option is being exercised
and must be accompanied by payment in full for such shares.
In the event an optionee ceases to be a member of the Board of Director
or an employee of the Company for any reason other than death or permanent
disability, any then unexercised options granted to such optionee shall, to the
extent not then vested, immediately terminate and become void, and any options
which are then vested but have not been exercised may be exercised by the
optionee until the scheduled termination date of the option. In the event that
an optionee ceases to be a member of the Board of Directors or employee of the
Company by reason of his or her permanent disability or death, any option
granted to such optionee shall be immediately and automatically accelerated and
become fully vested and all unexercised options shall be exercisable by the
optionee (or by the optionee's personal representative, heir or legatee) until
the scheduled expiration date of the option.
Any option granted pursuant to the 1998 NQSO Plan is not assignable or
transferable other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order, and is exercisable during the optionee's
lifetime only by him or her.
The Board of Directors may from time to time adopt amendments, certain
of which are subject to stockholder approval, and may terminate the 1998 NQSO
Plan at any time (although such action shall not affect options previously
granted).
Federal Income Tax Consequences of 1998 NQSO Plan
The following discussion summarizes certain federal income tax
consequences for directors and officers of the Company receiving options under
the 1998 NQSO Plan and certain tax effects on the Company. However, the summary
does not address every situation that may result in taxation. For example, it
does not address the tax implications arising from an optionee's death.
Furthermore, there are likely to be federal self-employment tax and state income
tax consequences which are not discussed herein. The 1998 NQSO Plan is not
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the provisions of Section 401(a) of the Internal
Revenue Code of 1986, as amended, are not applicable to the 1998 NQSO Plan.
1. Options granted under the 1998 NQSO Plan do not qualify as "Incentive
Stock Options" under Section 422 of the Code.
2. A director or officer will not recognize any taxable income upon the
grant of an option under the 1998 NQSO Plan, but will generally
recognize ordinary compensation income at the time of exercise of the
option in an amount equal to the excess, if any, of the fair market
value of the shares on the date of exercise over the exercise price.
-19-
3. When a director or officer sells the Common Stock acquired upon
exercise of an option, he or she generally will recognize a capital
gain or loss equal to the difference between the amount realized upon
sale of the stock and his or her basis in the stock (in the case of a
cash exercise, the exercise price plus the amount, if any, taxed to
the director or officer as compensation income as a result of his or
her exercise of the option). If the director's or officer's holding
period for the stock exceeds one year, the gain or loss will be
long-term capital gain or loss.
4. No tax deduction will be allowed to the Company upon the grant of an
option under the 1998 NQSO Plan. When a director or officer recognizes
compensation income as a result of the exercise of an option under the
1998 NQSO Plan, the Company generally will be entitled to a
corresponding deduction for income tax purposes.
Options Granted Under 1998 NQSO Plan Subject to Stockholder Approval
The following table sets forth information as of December 31, 1998 with
respect to options which were granted in the past year under the 1998 NQSO Plan,
pending approval of the 1998 NQSO Plan by the Company's stockholders, to (i)
each of the Company's chief executive officer and the four other executive
officers of the Company named in the Summary Compensation Table, (ii) all
executive officers of the Company as a group, (iii) all directors of the
Company, other than those who are executive officers, as a group, and (iv) all
employees of the Company, excluding executive officers, as a group.
Number of Shares
Subject to Options
Name Granted in 1998
- ---- ---------------
Thomas L. Massie 200,000
Christopher P. Ricci 0
Brett A. Moyer 100,000
Richard J. O'Connell 0
Thomas Hamilton 0
All executive officers as a group 500,000
All directors of the Company, excluding executive 250,000
officers, as a group
All employees of the Company, excluding executive 0
officers, as a group
The foregoing is only a summary of the 1998 NQSO Plan and is subject to
and qualified in its entirety by reference to the complete text of the 1998 NQSO
Plan, a copy of which may be obtained upon request from the Company by
contacting Investor Relations at (978) 988-5888, or by writing Investor
Relations, FOCUS Enhancements, Inc., 600 Research Drive, Wilmington,
Massachusetts 01887.
The Board of Directors recommends a vote FOR the approval of the 1998
NQSO Plan.
-20-
PROPOSAL 4
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has resolved to recommend to the stockholders
that the Company amend the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 25,000,000 to 30,000,000
shares. Of the 25,000,000 shares of Common Stock that are currently authorized,
_______ were issued and outstanding as of the record date for the Meeting.
Shares of the Company's Common Stock, including the additional shares proposed
for authorization, do not have preemptive or similar rights.
If the proposed amendment is approved by the stockholders, 30,000,000
shares of Common Stock will be authorized for issuance and the additional
authorized Common Stock may be issued by the Company without any further action
or approval by the stockholders. The purpose of the proposed amendment is to
provide additional authorized shares of Common Stock for possible use in
connection with future financings, investment opportunities, acquisitions,
employee benefit plan distributions, other distributions, such as stock
dividends or stock splits, or for other corporate purposes. As of the record
date for the Meeting, taking into account shares reserved for issuance under
existing warrants, options and other commitments of the Company, the Board of
Directors has the authority to issue approximately 2,317,004 additional shares
of Common Stock, so that the Company's ability to undertake these types of
transactions or distributions in the future will be significantly restricted,
unless the total number of authorized shares is increased. The Company has no
specific plans or commitments at this time for the issuance of the additional
authorized shares of Common Stock that would be added by the proposed amendment,
but desires to position itself to do so if and when the need arises or market
conditions otherwise warrant.
The issuance of additional shares of Common Stock could be deemed under
certain circumstances to have an antitakeover effect, such as if the shares were
issued to dilute the equity ownership and corresponding voting power of a
stockholder or group of stockholders who may oppose the policies or strategic
plan of the Company's existing management. On this basis, the proposed increase
in authorized shares could enable the Board of Directors to render more
difficult or discourage an attempt by another person or entity to obtain control
of the Company. The Board of Directors has no present intention of issuing any
of the additional authorized shares of Common Stock for such purposes.
The Board of Directors recommends a vote FOR the approval of the
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 25,000,000 to 30,000,000 shares.
PROPOSAL 5
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Wolf & Company, P.C.,
independent certified public accountants, to serve as the Company's independent
auditors for the fiscal year ending December 31, 1999. Wolf & Company, P.C. has
acted as the Company's independent auditors since June, 1996. It is expected
that a member of Wolf & Company, P.C. will be present at the Meeting and will be
given the opportunity to make a statement if so desired and will be available to
respond to appropriate questions.
The Board of Directors recommends a vote FOR ratification of its
selection of Wolf & Company, P.C. as the Company's independent auditors for the
fiscal year ending December 31, 1999.
-21-
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company knows of no other matters which
may be brought before the Meeting. If any other matters properly come before the
Meeting, or any adjournment thereof, it is the intention of the persons named in
the accompanying form of proxy to vote the proxy on such matters in accordance
with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement
to be mailed to all stockholders entitled to vote at the next Annual Meeting of
Stockholders of the Company must be received at the Company's principal
executive offices not later than February 25, 2000. In order to curtail
controversy as to the date on which a proposal was received by the Company, it
is suggested that proponents submit their proposals by Certified Mail Return
Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation by proxies will be borne by the Company, and
in addition to directly soliciting stockholders by mail, the Company may request
banks and brokers to solicit their customers who have stock of the Company
registered in the name of a nominee and, if so, will reimburse such banks and
brokers for their reasonable out-of-pocket costs. Solicitation by officers and
employees of the Company may be made of some stockholders in person or by mail
or telephone.
-22-
SOLICITED BY THE BOARD OF DIRECTORS
FOCUS ENHANCEMENTS, INC.
ANNUAL MEETING OF STOCKHOLDERS
JULY 26, 1999
The undersigned stockholder of FOCUS Enhancements, Inc. (the "Company") hereby
appoints Thomas L. Massie and Christopher P. Ricci, and each of them acting
singly, with power of substitution, the attorneys and proxies of the undersigned
and authorizes them to represent and vote on behalf of the undersigned, as
designated, all of the shares of capital stock of the Company that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on July 26, 1999, and at any adjournment or postponement of
such meeting for the purposes identified on the reverse side of this proxy and
with discretionary authority as to any other matters that properly come before
the Annual Meeting, in accordance with and as described in the Notice of Annual
Meeting of Stockholders and Proxy Statement. This proxy when properly executed
will be voted in the manner directed herein by the undersigned stockholder. If
this proxy is properly signed and returned without direction being given, this
proxy will be voted FOR proposals 1 through 5.
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE)
A
X Please mark
your votes as
in this example DO NOT PRINT
using dark ink
only IN THIS AREA
FOR WITHHOLD Nominees: Thomas L. Massie
AUTHORITY John C. Cavalier
1. ELECTION OF / / / /
TWO CLASS I
DIRECTORS
FOR, except vote withheld from the following nominees:
- ----------------------------------
FOR AGAINST ABSTAIN
(2) To approve the
Company's Employee / / / / / /
Stock Purchase Plan.
(3) To approve the
Company's 1998 / / / / / /
Non-Qualified Stock
Option Plan
(4) To approve an
amendment to the / / / / / /
Company's Certificate
of Incorporation to
increase the number
of authorized shares of
the Company's Common
Stock from 25,000,000
to 30,000,000
(5) To ratify the selection
of the firm of Wolf & / / / / / /
Company, P.C. independent
auditors for the fiscal
year ending December
31, 1999
______________________________ Date _______ 1999
Signature
_____________________________ Date _________ 1999
Signature if held Jointly
Please sign exactly as your name appears on this proxy card.
FOCUS ENHANCEMENTS, INC.
EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS PAGE
1 SHARES SUBJECT TO THE PLAN...............................................1
2 ADMINISTRATION...........................................................1
3 INTERPRETATION...........................................................1
4 ELIGIBLE EMPLOYEES.......................................................1
5 PARTICIPATION IN THE PLAN................................................2
6 PAYROLL DEDUCTIONS.......................................................2
7 INTEREST ON PAYROLL DEDUCTIONS...........................................2
8 OFFERING AND PURCHASE PERIODS............................................2
9 RIGHTS TO PURCHASE COMMON STOCK; PURCHASE PRICE..........................2
10 TIMING OF PURCHASE; PURCHASE LIMITATION...................................3
11 ISSUANCE OF STOCK CERTIFICATES............................................3
12 WITHHOLDING OF TAXES......................................................3
13 ACCOUNT STATEMENTS........................................................3
14 PARTICIPATION ADJUSTMENT..................................................4
15 CHANGES IN ELECTIONS TO PURCHASE..........................................4
16 TERMINATION OF EMPLOYMENT.................................................4
17 RETIREMENT................................................................4
18 LAYOFF, AUTHORIZED LEAVE OF ABSENCE OR DISABILITY.........................5
19 DEATH.....................................................................5
20 TERMINATION OF PARTICIPATION..............................................6
21 ASSIGNMENT................................................................6
22 APPLICATION OF FUNDS......................................................6
23 NO RIGHT TO CONTINUED EMPLOYMENT..........................................6
24 AMENDMENT OF PLAN.........................................................6
25 EFFECTIVE DATE; TERM AND TERMINATION OF THE PLAN..........................6
26 EFFECT OF CHANGES IN CAPITALIZATION.......................................7
(a) Changes in Stock.....................................................7
(b) Reorganization in Which the Company Is the Surviving Corporation.....7
(c) Reorganization in Which the Company Is Not the Surviving
Corporation or Sale of Assets or Stock..............................7
(d) Adjustments..........................................................8
(e) No Limitations on Company............................................8
27 GOVERNMENTAL REGULATION...................................................8
28 STOCKHOLDER RIGHTS........................................................8
29 RULE 16B3.................................................................8
30 PAYMENT OF PLAN EXPENSES..................................................9
FOCUS ENHANCEMENTS INC.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors of FOCUS Enhancements, Inc. (the "Company") has adopted
this Employee Stock Purchase Plan (the "Plan") to enable eligible employees of
the Company and its participating Affiliates (as defined below), through payroll
deductions, to purchase shares of the Company's common stock, par value $0.01
per share (the " Common Stock"). The Plan is for the benefit of the employees of
FOCUS Enhancements, Inc. and any participating Affiliates. The Plan is intended
to benefit the Company by increasing the employees' interest in the Company's
growth and success and encouraging employees to remain in the employ of the
Company or its participating Affiliates. The provisions of the Plan are set
forth below:
1. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 26 below, the aggregate number of
shares of Common Stock that may be made available for purchase by participating
employees under the Plan is 250,000. The shares issuable under the Plan may, in
the discretion of the Board of Directors of the Company (the "Board"), be
authorized but unissued shares, treasury shares or issued and outstanding shares
that are purchased in the open market.
2. ADMINISTRATION.
The Plan shall be administered under the direction of the Compensation Committee
of the Board (the "Committee"). No member of the Board or the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan.
3. INTERPRETATION.
It is intended that the Plan will meet the requirements for an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986 (the
"Code"), and it is to be so applied and interpreted. Subject to the express
provisions of the Plan, the Committee shall have authority to interpret the
Plan, to prescribe, amend and rescind rules relating to it, and to make all
other determinations necessary or advisable in administering the Plan, all of
which determinations will be final and binding upon all persons.
4. ELIGIBLE EMPLOYEES.
Any employee of the Company or any of its participating Affiliates may
participate in the Plan, except the following, who are ineligible to
participate: (a) an employee who has been employed by the Company or any of its
participating Affiliates for less than three months as of the beginning of an
Offering Period (as defined in Section 7 below); (b) an employee whose customary
employment is for less than five months in any calendar year; (c) an employee
whose customary employment is 20 hours or less per week; and (d) an employee
who, after exercising his or her rights to purchase shares under the Plan, would
own shares of Common Stock (including shares that may be acquired under any
outstanding options) representing five percent or more of the total combined
voting power of all classes of stock of the Company. The term "participating
Affiliate" means any company or other trade or business that is a subsidiary of
the Company (determined in accordance with the principles of Sections 424(e) and
(f) of the Code and the regulations thereunder). The Board may at any time in
its sole discretion, if it deems it advisable to do so, terminate the
participation of the employees of a particular participating Affiliate.
2
5. PARTICIPATION IN THE PLAN.
An eligible employee may become a participating employee in the Plan by
completing an election to participate in the Plan on a form provided by the
Company and submitting that form to the Payroll Department of the Company. The
form will authorize payroll deductions (as provided in Section 6 below) and
authorize the purchase of shares of Common Stock for the employee's account in
accordance with the terms of the Plan. Enrollment will become effective upon the
first day of the first Offering Period.
6. PAYROLL DEDUCTIONS.
At the time an eligible employee submits his or her election to participate in
the Plan (as provided in Section 5 above), the employee shall elect to have
deductions made from his or her pay, on each pay day following his or her
enrollment in the Plan, and for as long as he or she shall participate in the
Plan. The deductions will be credited to the participating employee's account
under the Plan. An employee may not during any Offering Period change his or her
percentage of payroll deduction for that Offering Period, nor may an employee
withdraw any contributed funds, other than in accordance with Sections 15
through 20 below.
7. INTEREST ON PAYROLL DEDUCTIONS.
The Company and participating Affiliates will cause to be maintained a record of
amounts credited to each participating employee authorizing a payroll deduction
pursuant to Section 6. The Company may, but is not required to, credit interest
on the balance of the employees' accounts during the Offering Period. If
interest is credited to such accounts, the rate may be a fixed or variable rate
determined by the Company.
8. OFFERING AND PURCHASE PERIODS.
The Offering Periods and Purchase Periods shall be determined by the Committee.
The initial Offering Period shall commence on ______________ and end on
______________, and every Offering Period thereafter, shall commence on the six
month anniversary of the commencement of the prior Offering Period and shall be
a 24month period until changed by the Committee. The initial Purchase Period
shall commence on ______________ and end on __________________, and every
Purchase Period thereafter, shall commence immediately after the prior Purchase
Period ends and shall be a six month period until changed by the Committee.
9. RIGHTS TO PURCHASE COMMON STOCK; PURCHASE PRICE.
Rights to purchase shares of Common Stock will be deemed granted to
participating employees as of the first trading day of each Offering Period. The
purchase price of each share of Common Stock (the "Purchase Price") shall be the
lesser of 85 percent of the fair market value of the Common Stock (i) on the
first trading day of the Offering Period or (ii) on the last trading day of the
Purchase Period, unless the Purchase Price is otherwise established by the
Committee; provided that in no event shall the Purchase Price be less than the
amount determined pursuant to subparagraphs (i) and (ii) above or the par value
of the Common Stock. For purposes of the Plan, "fair market value" means the
value of each share of Common Stock subject to the Plan determined as follows:
if on the determination date the shares of Common Stock are listed on an
established national or regional stock exchange, are admitted to quotation on
the National Association of Securities Dealers Automated Quotation System, or
are publicly traded on an established securities market, the fair market value
of the shares of Common Stock shall be the closing price of the shares of Common
Stock on such exchange or in such market (the highest such closing price if
there is more than one such exchange or market) on the trading day
3
immediately preceding the determination date (or if there is no such reported
closing price, the fair market value shall be the mean between the highest bid
and lowest asked prices or between the high and low sale prices on such trading
day) or, if no sale of the shares of Common Stock is reported for such trading
day, on the next preceding day on which any sale shall have been reported. If
the shares of Common Stock are not listed on such an exchange, quoted on such
System or traded on such a market, fair market value shall be determined by the
Board in good faith.
10. TIMING OF PURCHASE; PURCHASE LIMITATION.
Unless a participating employee has given prior written notice terminating such
employee's participation in the Plan, or the employee's participation in the
Plan has otherwise been terminated as provided in Sections 16 through 20 below,
such employee will be deemed to have exercised automatically his or her right to
purchase Common Stock on the last trading day of the Purchase Period (except as
provided in Section 15 below) for the number of shares of Common Stock which the
accumulated funds in the employee's account at that time will purchase at the
Purchase Price, subject to the participation adjustment provided for in Section
14 below and subject to adjustment under Section 26 below. Notwithstanding any
other provision of the Plan, no employee may purchase in any one calendar year
under the Plan and all other "employee stock purchase plans" of the Company and
its participating Affiliates shares of Common Stock having an aggregate fair
market value in excess of $25,000, determined as of the first trading date of
the Offering Period as to shares purchased during such period. Effective upon
the last trading day of the Purchase Period, a participating employee will
become a stockholder with respect to the shares purchased during such period,
and will thereupon have all dividend, voting and other ownership rights incident
thereto. Notwithstanding the foregoing, no shares shall be sold pursuant to the
Plan unless the Plan is approved by the Company's stockholders in accordance
with Section 25 below.
11. ISSUANCE OF STOCK CERTIFICATES.
As of the last trading day of the Purchase Period, a participating employee will
be credited with the number of shares of Common Stock purchased for his or her
account under the Plan during such Offering Period. Shares purchased under the
Plan will be held in the custody of an agent (the "Agent") appointed by the
Committee. The Agent may hold the shares purchased under the Plan in stock
certificates in nominee names and may commingle shares held in its custody in a
single account or stock certificate without identification as to individual
participating employees. A participating employee may, at any time following his
or her purchase of shares under the Plan, by written notice instruct the Agent
to have all or part of such shares reissued in the participating employee's own
name and have the stock certificate delivered to the employee.
12. WITHHOLDING OF TAXES.
To the extent that a participating employee realizes ordinary income in
connection with a sale or other transfer of any shares of Common Stock purchased
under the Plan, the Company may withhold amounts needed to cover such taxes from
any payments otherwise due and owing to the participating employee or from
shares that would otherwise be issued to the participating employee hereunder.
Any participating employee who sells or otherwise transfers shares purchased
under the Plan within two years after the beginning of the Offering Period in
which the shares were purchased must within 30 days of such transfer notify the
Payroll Department of the Company in writing of such transfer.
13. ACCOUNT STATEMENTS.
The Company will cause the Agent to deliver to each participating employee a
statement for each Purchase Period during which the employee purchases
4
Common Stock under the Plan, but no more frequently than quarterly, reflecting
the amount of payroll deductions during the Purchase Period, the number of
shares purchased for the employee's account, the price per share of the shares
purchased for the employee's account and the number of shares held for the
employee's account at the end of the Purchase Period.
14. PARTICIPATION ADJUSTMENT.
If in any Purchase Period the number of unsold shares that may be made available
for purchase under the Plan pursuant to Section 1 above is insufficient to
permit exercise of all rights deemed exercised by all participating employees
pursuant to Section 9 above, a participation adjustment will be made, and the
number of shares purchasable by all participating employees will be reduced
proportionately. Any funds then remaining in a participating employee's account
after such exercise will be refunded to the employee.
15. CHANGES IN ELECTIONS TO PURCHASE.
(a) A participating employee may, at any time prior to the last day of
the Purchase Period, by written notice to the Company, direct the Company to
cease payroll deductions (or, if the payment for shares is being made through
periodic cash payments, notify the Company that such payments will be
terminated), in accordance with the following alternatives:
(i) The employee's option to purchase shall be reduced to the number of
shares which may be purchased, as of the last day of the Purchase Period, with
the amount then credited to the employee's account; or
(ii) Withdraw the amount in such employee's account and terminate such
employee's option to purchase.
(b) Any participating employee may increase or decrease his or her
payroll deduction or periodic cash payments, to take effect on the first day of
the next Offering Period, by delivering to the Company a new form regarding
election to participate in the Plan under Section 5 above.
16. TERMINATION OF EMPLOYMENT.
In the event a participating employee voluntarily leaves the employ of the
Company or a participating Affiliate, otherwise than by retirement under a plan
of the Company or a participating Affiliate, or is terminated by the Company
prior to the last day of the Purchase Period, the amount in the employee's
account will be distributed and the employee's option to purchase will
terminate.
17. RETIREMENT.
In the event a participating employee who has an option to purchase shares
leaves the employ of the Company or a participating Affiliate because of
retirement under a plan of the Company or a participating Affiliate the
participating employee may elect, within 10 days after the date of such
retirement or termination, one of the following alternatives:
(a) To make up any deficiency in the employee's account resulting from
the termination of payroll deductions by an immediate cash payment;
(b) The employee's option to purchase shall be reduced to the number of
shares which may be purchased, as of the last day of the Purchase Period, with
the amount then credited to the employee's account; or
5
(c) Withdraw the amount in such employee's account and terminate such
employee's option to purchase.
In the event the participating employee does not make an election within the
aforesaid 10day period, he or she will be deemed to have elected subsection
17(c) above.
18. LAYOFF, AUTHORIZED LEAVE OF ABSENCE OR DISABILITY.
Payroll deductions for shares for which a participating employee has an option
to purchase may be suspended during any period of absence of the employee from
work due to layoff, authorized leave of absence or disability or, if the
employee so elects, periodic payments for such shares may continue to be made in
cash.
If such employee returns to active service prior to the last day of the Purchase
Period, the employee's payroll deductions will be resumed and if said employee
did not make periodic cash payments during the employee's period of absence, the
employee shall, by written notice to the Company's Payroll Department within 10
days after the employee's return to active service, but not later than the last
day of the Purchase Period, elect:
(a) To make up any deficiency in the employee's account resulting from
a suspension of payroll deductions by an immediate cash payment;
(b) Not to make up such deficiency, in which event the number of shares
to be purchased by the employee shall be reduced to the number of whole shares
which may be purchased with the amount, if any, then credited to the employee's
account plus the aggregate amount, if any, of all payroll deductions to be made
thereafter; or
(c) Withdraw the amount in the employee's account and terminate the
employee's option to purchase.
A participating employee on layoff, authorized leave of absence or disability on
the last day of the Purchase Period shall deliver written notice to his or her
employer on or before the last day of the Purchase Period, electing one of the
alternatives provided in the foregoing clauses (a), (b) and (c) of this Section
18. If any employee fails to deliver such written notice within 10 days after
the employee's return to active service or by the last day of the Purchase
Period, whichever is earlier, the employee shall be deemed to have elected
subsection 18(c) above.
If the period of a participating employee's layoff, authorized leave of absence
or disability shall terminate on or before the last day of the Purchase Period,
and the employee shall not resume active employment with the Company or a
participating Affiliate, the employee shall receive a distribution in accordance
with the provisions of Section 17 of this Plan.
19. DEATH.
In the event of the death of a participating employee while the employee's
option to purchase shares is in effect, the legal representatives of such
employee may, within three months after the employee's death (but no later than
the last day of the Purchase Period) by written notice to the Company or
participating Affiliate, elect one of the following alternatives:
(a) To make up any deficiency in the employee's account resulting from
a suspension of payroll deductions by an immediate cash payment;
(b) The employee's option to purchase shall be reduced to the number of
shares which may
6
be purchased, as of the last day of the Purchase Period, with the amount then
credited to the employee's account; or
(c) Withdraw the amount in such employee's account and terminate such
employee's option to purchase.
In the event the legal representatives of such employee fail to deliver such
written notice to the Company or participating Affiliate within the prescribed
period, the election to purchase shares shall terminate and the amount, then
credited to the employee's account shall be paid to such legal representatives.
20. TERMINATION OF PARTICIPATION.
A participating employee will be refunded all moneys in his or her account, and
his or her participation in the Plan will be terminated if either (a) the Board
elects to terminate the Plan as provided in Section 25 below, or (b) the
employee ceases to be eligible to participate in the Plan under Section 4 above.
As soon as practicable following termination of an employee's participation in
the Plan, the Company will deliver to the employee a check representing the
amount in the employee's account and a stock certificate representing the number
of whole shares held in the employee's account. Once terminated, participation
may not be reinstated for the then current Offering Period, but, if otherwise
eligible, the employee may elect to participate in any subsequent Offering
Period.
21. ASSIGNMENT.
No participating employee may assign his or her rights to purchase shares of
Common Stock under the Plan, whether voluntarily, by operation of law or
otherwise. Any payment of cash or issuance of shares of Common Stock under the
Plan may be made only to the participating employee (or, in the event of the
employee's death, to the employee's estate). Once a stock certificate has been
issued to the employee or for his or her account, such certificate may be
assigned the same as any other stock certificate.
22. APPLICATION OF FUNDS.
All funds received or held by the Company under the Plan shall be deposited with
the Agent for the account of the participating employees. Participating
employees' accounts will not be segregated.
23. NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the Plan nor any right to purchase Common Stock under the Plan confers
upon any employee any right to continued employment with the Company or any of
its participating Affiliates, nor will an employee's participation in the Plan
restrict or interfere in any way with the right of the Company or any of its
participating Affiliates to terminate the employee's employment at any time.
24. AMENDMENT OF PLAN.
The Board may, at any time, amend the Plan in any respect (including an increase
in the percentage specified in Section 9 above used in calculating the Purchase
Price); provided, however, that without approval of the stockholders of the
Company no amendment shall be made (a) increasing the number of shares specified
in Section 1 above that may be made available for purchase under the Plan
(except as provided in Section 26 below), (b) changing the eligibility
requirements for participating in the Plan, or (c) impairing the vested rights
of participating employees.
7
25. EFFECTIVE DATE; TERM AND TERMINATION OF THE PLAN.
The Plan shall be effective as of the date of adoption by the Board, which date
is set forth below, subject to approval of the Plan by the holders of a majority
of the shares present and entitled to vote at a duly held meeting of the
shareholders of the Company at which a quorum representing a majority of all
outstanding voting stock is present, either in person or by proxy; provided,
however, that upon approval of the Plan by the shareholders of the Company as
set forth above, all rights to purchase shares granted under the Plan on or
after the effective date shall be fully effective as if the shareholders of the
Company had approved the Plan on the effective date. If the shareholders fail to
approve the Plan on or before one year after the effective date, the Plan shall
terminate, any rights to purchase shares granted hereunder shall be null and
void and of no effect and all contributed funds shall be refunded to
participating employees. The Board may terminate the Plan at any time and for
any reason or for no reason, provided that such termination shall not impair any
rights of participating employees that have vested at the time of termination.
In any event, the Plan shall, without further action of the Board, terminate ten
(10) years after the date of adoption of the Plan by the Board or, if earlier,
at such time as all shares of Common Stock that may be made available for
purchase under the Plan pursuant to Section 1 above have been issued.
26. EFFECT OF CHANGES IN CAPITALIZATION.
(a) CHANGES IN STOCK.
If the number of outstanding shares of Common Stock is increased or
decreased or the shares of Common Stock are changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of any recapitalization, reclassification, stock split, reverse split,
combination of shares, exchange of shares, stock dividend, or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company occurring after the effective
date of the Plan, the number and kinds of shares that may be purchased under the
Plan shall be adjusted proportionately and accordingly by the Company. In
addition, the number and kind of shares for which rights are outstanding shall
be similarly adjusted so that the proportionate interest of a participating
employee immediately following such event shall, to the extent practicable, be
the same as immediately prior to such event. Any such adjustment in outstanding
rights shall not change the aggregate Purchase Price payable by a participating
employee with respect to shares subject to such rights, but shall include a
corresponding proportionate adjustment in the Purchase Price per share.
(b) REORGANIZATION IN WHICH THE COMPANY IS THE SURVIVING CORPORATION.
Subject to Subsection (c) of this Section 26, if the Company shall be
the surviving corporation in any reorganization, merger or consolidation of the
Company with one or more other corporations, all outstanding rights under the
Plan shall pertain to and apply to the securities to which a holder of the
number of shares of Common Stock subject to such rights would have been entitled
immediately following such reorganization, merger or consolidation, with a
corresponding proportionate adjustment of the Purchase Price per share so that
the aggregate Purchase Price thereafter shall be the same as the aggregate
Purchase Price of the shares subject to such rights immediately prior to such
reorganization, merger or consolidation.
(c) REORGANIZATION IN WHICH THE COMPANY IS NOT THE SURVIVING
CORPORATION OR SALE OF ASSETS OR STOCK.
Upon any dissolution or liquidation of the Company, or upon a merger,
consolidation or reorganization of the Company with one or more other
corporations in which the Company is not the surviving corporation, or upon a
sale of all or substantially all of the assets of the Company to another
8
corporation, or upon any transaction (including, without limitation, a merger or
reorganization in which the Company is the surviving corporation) approved by
the Board that results in any person or entity owning more than 80 percent of
the combined voting power of all classes of stock of the Company, the Plan and
all rights outstanding hereunder shall terminate, except to the extent provision
is made in writing in connection with such transaction for the continuation of
the Plan and/or the assumption of the rights theretofore granted, or for the
substitution for such rights of new rights covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kinds of shares and exercise prices, in which event the Plan
and rights theretofore granted shall continue in the manner and under the terms
so provided. In the event of any such termination of the Plan, all current
Purchase Periods and Offering Periods shall be deemed to have ended on the last
trading day prior to such termination, and in accordance with Section 10 above
the rights of each participating employee then outstanding shall be deemed to be
automatically exercised on such last trading day. The Board shall send written
notice of an event that will result in such a termination to all participating
employees not later than the time at which the Company gives notice thereof to
its stockholders.
(d) ADJUSTMENTS.
Adjustments under this Section 26 related to stock or securities of the
Company shall be made by the Committee, whose determination in that respect
shall be final, binding, and conclusive.
(e) NO LIMITATIONS ON COMPANY.
The grant of a right pursuant to the Plan shall not affect or limit in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
27. GOVERNMENTAL REGULATION.
The Company's obligation to issue, sell and deliver shares of Common Stock
pursuant to the Plan is subject to such approval of any governmental authority
and any national securities exchange or other market quotation system as may be
required in connection with the authorization, issuance or sale of such shares.
28. STOCKHOLDER RIGHTS.
Any dividends paid on shares held by the Company for a participating employee's
account will be transmitted to the employee. The Company will deliver to each
participating employee who purchases shares of Common Stock under the Plan, as
promptly as practicable by mail or otherwise, all notices of meetings, proxy
statements, proxies and other materials distributed by the Company to its
stockholders. Any shares of Common Stock held by the Agent for an employee's
account will be voted in accordance with the employee's duly delivered and
signed proxy instructions. There will be no charge to participating employees in
connection with such notices, proxies and other materials.
29. RULE 16B3.
Transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b3 or any successor provision under the Securities Exchange
Act of 1934, as amended. If any provision of the Plan or action by the Board
fails to so comply, it shall be deemed null and void to the extent permitted by
law and deemed advisable by the Board. Moreover, in the event the Plan does not
include a provision required by Rule 16b3 to be stated herein, such provision
(other than one relating to eligibility requirements, or the price and amount of
awards) shall be deemed automatically to be incorporated by reference into the
Plan.
9
30. PAYMENT OF PLAN EXPENSES.
The Company will bear all costs of administering and carrying out the Plan;
provided however, participating employees shall bear all costs incurred
subsequent to the issuance of stock certificates pursuant to Section 11.
10
FOCUS ENHANCEMENTS, INC.
1998 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
1998 Non-Qualified Stock Option Plan (hereinafter, this "Plan") is intended to
promote the interests of FOCUS Enhancements, Inc. (hereinafter, the "Company")
by providing an inducement to obtain and retain the services of qualified
persons to serve as employees of the Company or members of its Board of
Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock") for which options may
be granted under this Plan shall not exceed 1,250,000 shares, subject to
adjustment in accordance with paragraph 10 of this Plan. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Grant of Options. Subject to the availability of shares under this
Plan,
(a) each person who is a member of the Board on September 1,
1998 and who is not an employee or officer of the Company on that date (a
"Non-Employee Director") shall be automatically granted on that date (the "Grant
Date"), without further action by the Board, an option to purchase 75,000 shares
of the Common Stock, and
(b) with respect to the Chairman of the Board shall be
automatically granted on the Grant Date, without further action by the Board, an
option to purchase 200,000 shares of the Common Stock less any grants provided
in (a) above, and
(c) with respect to a person who is first elected as a member
of the Board after the Grant Date during the term of this Plan and who is not an
employee or officer of the Company on the date of such election shall be
automatically granted an option to purchase
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100,000 shares of the Common Stock on the date of his or her first election as a
member of the Board.
In addition to the foregoing, the Board may make additional grants to employees
of the Company and/or members of the Board under this Plan from time to time,
including but not limited to, the Grant Date.
Anything in this Plan to the contrary notwithstanding, the
effectiveness of this Plan and of the grant of all options hereunder is in all
respect subject to this Plan and options granted under it shall be of no force
and effect unless and until the approval of this Plan in accordance with the
Company's by-laws by the vote of the holders of a majority of the Company's
shares of Common Stock present in person or by proxy and entitled to vote at a
meeting of shareholders at which this Plan is presented for approval.
5. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 10 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the lower of the last sale price for the Company's Common Stock
or the average (on that date) of the high and low prices of the Common Stock on
the principal national securities exchange on which the Common Stock is traded,
if the Common Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National Market
List. However, if the Common Stock is not publicly traded at the time an option
is granted under the Plan, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
6. Period of Option. Unless sooner terminated in accordance with the
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is five (5) years after the date of grant of the option.
7. (a) Vesting of Shares and Non-Transferability of Options. Options
granted under this Plan shall not be exercisable until they become vested.
Options granted under this Plan shall vest in the optionee and thus become
exercisable in accordance with the following schedule, or other schedule as
determined by the Committee from time to time, provided that
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the optionee has continuously served as a member of the Board, or as an employee
of the Company through such vesting date:
One year but less than - 33 1/3 % of the total Option Shares
two years from date of
grant
Two years but less than - an additional 33 1/3 % of the
three years from date of total Option Shares
grant
Three years from date of - an additional 33 1/3 % of the
grant total Option Shares
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan; provided however, that any
option granted under this Plan shall in no event be exercised unless and until
this Plan has been approved by the Company's stockholders as set forth in
paragraph 4, but upon such approval the vesting shall become effective as of the
date of the grant.
(b) Meetings. Notwithstanding subsection (a) of this Section
7, if a Board optionee fails to attend less than 80% of the Board meetings held
in the twelve months prior to any vesting date, the number of shares vesting on
such vesting date shall be reduced proportionately based on the percentage of
Board meetings attended by such optionee.
(c) Non-transferability. Any option granted pursuant to this
Plan shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
8. Termination of Option Rights.
(a) Except as otherwise specified in the agreement relating to
an option, in the event an optionee ceases to be an employee of Company or a
member of the Board, as the case may be, for any reason other than death or
permanent disability, any then unexercised portion of options granted to such
optionee shall, to the extent not then vested, immediately terminate and become
void; any portion of an option which is then vested but has not been exercised
at the time the optionee so ceases to be a member of the Board or an employee
may be exercised, to the extent it is then vested by the optionee within ninety
days after such event.
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(b) In the event that an optionee ceases to be an employee of
the Company or a member of the Board, as the case may be, by reason of his or
her death or permanent disability, any option granted to such optionee shall be
immediately and automatically accelerated and become fully vested and all
unexercised options shall be exercisable by the optionee (or by the optionee's
personal representative, heir or legatee, in the event of death) for a period of
one year thereafter. Any options which are then exercisable but have not been
exercised at the time the Optionee so ceases to be a member of the Board of
Directors or an employee may be exercised, to the extent any portion of such
options are then exercisable, by the Optionee at any time prior to the scheduled
expiration date of the option. Notwithstanding the foregoing, in the event any
Optionee (i) ceases to be a member of the Board of Directors at the request of
the Company, (ii) is removed without cause, or (iii) otherwise does not stand
for nomination or re-election as a director of the Company at the request of the
Company, then any portion of any Option granted to such Optionee which is not
then exercisable shall be accelerated and such Option shall be fully exercisable
by the Optionee at any time prior to the scheduled expiration date. No portion
of this Option may be exercised if the Optionee is removed from the Board of
Directors for any one of the following reasons: (i) disloyalty, gross
negligence, dishonesty or breach of fiduciary duty to the Company; or (ii) the
commission of an act of embezzlement, fraud or deliberate disregard of the rules
or polices of the Company which results in loss, damage or injury to the
Company, whether directly or indirectly; or (iii) the unauthorized disclosure of
any trade secret or confidential information of the Company; or (iv) the
commission of an act which constitutes unfair competition with the Company or
which induces any customer of the Company to break a contract with the Company;
or (v) the conduct of any activity on behalf of any organization or entity which
is a competitor of the Company (unless such conduct is approved by a majority of
the members of the Board of Directors).
9. Exercise of Option. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to FOCUS Enhancements, Inc., 600 Research
Drive, Wilmington, Massachusetts, at its principal executive offices, or other
such address as Optionee may be informed from time to time, stating the number
of shares with respect to which the option is being exercised, accompanied by
payment in full for such shares. Payment may be (a) in United States dollars in
cash or by check, (b) in whole or in part in shares of the Common Stock of the
Company already owned by the person or persons exercising the option or shares
subject to the option being exercised (subject to such restrictions and
guidelines as the Board may adopt from time to time), valued at fair market
value determine in accordance with the provisions of paragraph 5 or (c)
consistent with applicable law , through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise. There shall be no such exercise
at any one time as to fewer than one hundred (100) shares. The Company's
transfer agent shall, on behalf of the Company, prepare a certificate or
certificates representing such shares acquired pursuant to exercise of the
option, shall
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register the optionee as the owner of such shares on the books of the Company
and shall cause the fully executed certificate(s) representing such shares to be
delivered to the optionee as soon as practicable after payment of the option
price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
or her upon the due exercise of the option.
10. Adjustments Upon Changes in Capitalization and Other Events. Upon
the occurrence of any of the following events, an optionee's rights with respect
to options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivisions, combination or stock dividend.
(b) Recapitalization Adjustments. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise, each option granted
under this Plan which is outstanding but unvested as of the effective date of
such event shall become exercisable in full twenty (20) days prior to the
effective date of such event. In the event of a reorganization,
re-capitalization, merger, consolidation, or any other change in the corporate
structure or shares of the Company, to the extent permitted by Rule 16b-3 of the
Securities Exchange Act of 1934, adjustments in the number and kind of shares
authorized by this Plan and in the number and kind of shares covered by, and in
the option price of outstanding options under this Plan necessary to maintain
the proportionate interest of the optionees and preserve, without exceeding, the
value of such options, shall be made. Notwithstanding the foregoing, no such
adjustment shall be made which would, within the meaning of any applicable
provisions of the Internal Revenue Code of 1986, as amended, constitute a
modification, extension or renewal of any Option or a grant of additional
benefits to the holder of an Option.
(c) Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(d) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in paragraph 2 of
this Plan that are subject to options which previously have been or subsequently
may be granted under this Plan shall also be
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appropriately adjusted to reflect such events. The Board shall determine the
specific adjustments to be made under this paragraph 11, and its determination
shall be conclusive.
11. Legend on Certificates. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1993 or any state securities laws.
12. Representations of Optionee. If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1993).
13. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the committee
and the officer executing it.
14. Termination and Amendment of Plan. Options may no longer be granted
under this Plan after September 1, 2008, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and voting on such matter
at a meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan or (d) amend this Plan in any manner which would cause Rule 16b-3 under the
Securities Exchange Act (or any successor or amended provision thereof) to
become inapplicable to this Plan; and provided further that the provisions of
this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended
provision thereof) under the Securities Exchange Act of 1934 (including without
limitation, provisions as to eligibility, amount, price and timing of awards)
may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules thereunder. Termination or any modification or amendment of
this Plan shall not, without consent of a participant, affect his or her rights
under an option previously granted to him or her.
15. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee
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to pay withholding taxes in respect to amounts considered to be compensation
includible in the optionee's gross income.
16. Compliance with Regulations. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended provision thereof) and any applicable
Securities and Exchange Commission interpretations thereof. If any provision of
this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall
be null and void.
17. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.
Approved by Board of Directors of the Company: September 1, 1998.
Approved by the Stockholders of the Company:
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