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:
[ ] Preliminary Proxy Statement
[X] 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 21, 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 21, 1999 will be entitled to
vote at the Meeting and any adjournments thereof. As of June 21, 1999,
18,605,090 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 18,605,090
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 *
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 (16) 2,421,377 13.45
- -------------------------------------
<FN>
* Less than 1% of the outstanding Common Stock.
-2-
(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.
(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.
-3-
(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.
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.
-4-
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
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(1) 57 Vice Chairman of the Board
Timothy E. Mahoney(1)(2) 42 Director
John C. Cavalier (2) 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 Audit Committee.
(2) Member of the Compensation 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
-5-
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.
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
-6-
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.
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
-7-
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.
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.
-8-
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>
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.
-9-
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% $1.22 9/01/03
- -------------------------------------
<FN>
(1) Net of cancellations, a total of 1,347,698 options were granted to employees, directors and consultants
in 1998 under the Company's stock option plans, the purpose of which is to provide incentives to
employees, directors and consultants who are in positions to make significant contributions to the
Company.
</FN>
The following table sets forth information concerning option exercises
during fiscal year 1998 and the value of unexercised options as of December 31,
1998 held by the executives named in the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
Number of Unexercised Value of Unexercised,
Options at In-the-Money Options at
Shares Acquired on Value December 31, 1998 December 31, 1998
Exercise(#) Realized($) (Exercisable/Unexercisable) (Exercisable/Unexercisable)(1)
----------- ----------- --------------------------- ------------------------------
Thomas L. Massie -0- -0- 416,667 (Exercisable) $120,625.07 (Exercisable)
533,333 (Unexercisable) $115,999.93 (Unexercisable)
Christopher P. Ricci -0- -0- 0 (Exercisable) $ 0 (Exercisable)
125,000 (Unexercisable) $27,187.51 (Unexercisable)
Brett Moyer -0- -0- 83,334 (Exercisable) $18,125.15 (Exercisable)
266,666 (Unexercisable) $57,999.86 (Unexercisable)
Richard J. O'Connell -0- -0- 70,000 (Exercisable) $14,875.00 (Exercisable)
130,000 (Unexercisable) $27,625.00 (Unexercisable)
Thomas Hamilton -0- -0- 53,333 (Exercisable) $11,599.93 (Exercisable)
51,667 (Unexercisable) $11,237.57 (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>
-10-
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.
-11-
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 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.
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.
-12-
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).
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
-13-
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.
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,
-14-
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.
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.
-15-
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 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
-16-
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.
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.
-17-
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.
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,
18,605,090 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.
-18-
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.
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.
-19-
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.