SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Focus Enhancements, Inc.
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FOCUS ENHANCEMENTS, INC.
1370 Dell Avenue
Campbell, California 95008
(408) 866-8300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 21, 2001
To Our Stockholders:
The Annual Meeting of Stockholders of Focus Enhancements, Inc., a
Delaware corporation ("Focus") will be held at 1370 Dell Ave., Campbell, CA
95008 on December 21, 2001 at 2 p.m., California time.
At our meeting, we will ask you to vote on the following matters:
1. Election of Directors. You will have the opportunity to elect five
(5) members of the Board of Directors for a terms of two and three years. The
following five (5) persons are the current members of the Board of Directors and
are our nominees for re-election to serve:
Name Age Term to Expire
- ---- --- --------------
Carl E. Berg 64 2004
William Coldrick 59 2003
Timothy E. Mahoney 45 2004
Michael D'Addio 57 2003
N. William Jasper, Jr. 53 2004
2. Appointment of Auditors. You will be asked to ratify the selection
of Deloitte & Touche, LLP as our independent auditors for the fiscal year ending
December 31, 2001.
3. Other Business. If other business is properly raised at the meeting
or if we need to adjourn the meeting, you will vote on these matters too.
If you were a stockholder as of the close of business on November 13,
2001, you are entitled to vote at this meeting.
We cordially invite all stockholders to attend the meeting in person.
To assure your representation at the meeting, however, you are urged to mark,
sign, date and return the enclosed proxy card as soon as possible in the
enclosed postage-prepaid envelope.
Whether or not you expect to attend the annual meeting, please
complete, sign, date and promptly mail your proxy in the envelope provided. You
may revoke your proxy at any time prior to the annual meeting, and, if you
attend the annual meeting, you may revoke your proxy and vote your shares in
person.
BY ORDER OF THE BOARD OF DIRECTORS
Gary L. Williams, Secretary
November 21, 2001
Focus Enhancements, Inc.
1370 Dell Avenue
Campbell, California 95008
PROXY STATEMENT
For the
Annual Meeting of Stockholders
to be held on December 21, 2001
--------------------------------------------
GENERAL INFORMATION
This proxy statement contains information about Focus' Annual Meeting
of Stockholders to be held at 1370 Dell Ave., Campbell, CA on December 21, 2001
at 2 p.m. California time and at any postponements or adjournments of the
meeting.
Why did you send me this proxy statement?
We sent you this proxy statement and the enclosed proxy card because
our Board of Directors is soliciting your votes for use at Focus' annual meeting
of stockholders.
This proxy statement summarizes information that you need to know in
order to cast an informed vote. However, you do not need to attend the meeting
to vote your shares. Instead, you may simply complete, sign and return the
enclosed proxy card.
We will begin sending this proxy statement, notice of annual meeting
and the enclosed proxy card on or about November 21, 2001 to all stockholders
entitled to vote. The record date for those entitled to vote is November 13,
2001. On November 13, 2001, there were 32,828,999 shares of our Common Stock and
1,904 shares of Series B Preferred Stock outstanding.
Our Annual Report for the fiscal year ended December 31, 2000 on Form
10-K and 10Q-SB for the period ending September 30, 2001 as filed previously
filed with the Securities and Exchange Commission (the "SEC"), accompanies this
proxy statement.
What constitutes a quorum?
To establish a quorum at the annual meeting, a majority of the shares
of our Common Stock and Series B Preferred Stock voting as a single class
outstanding on the record date must be present either in person or by proxy.
Focus will count abstentions and broker non-votes for purposes of establishing
the presence of a quorum at the meeting.
What vote is required for each proposal?
o Proposal 1: Election of Directors. The five (5) nominees for
director who receive the most votes cast by holders of our
Common Stock and Series B Preferred Stock, voting as a single
class, outstanding on November 13, 2001, will be elected. So,
if you do not vote for a particular nominee or if you indicate
"withhold authority to vote" for a particular nominee on your
proxy card, your abstention will have no effect on the
elections of directors.
o Proposal 2: Ratification of Auditors. Stockholder ratification
of the selection of Deloitte & Touche, LLP as Focus'
independent auditors is not required. However, we are
submitting the selection of Deloitte & Touche, LLP to you for
ratification as a matter of good corporate practice. If you
fail to
ratify the selection by a majority vote of the present and
voting shares, we will reconsider whether to retain Deloitte &
Touche, LLP. Even if the selection is ratified, we may, in our
discretion, direct the appointment of different independent
auditors at any time during the year if we determine that such
a change would be in the best interests of Focus and its
stockholders.
What are the recommendations of the board of directors?
The Board of Directors of Focus has unanimously approved all of the
proposals we are submitting to you:
o election of each of the named nominees for director; and
o appointment of Deloitte & Touche, LLP as our independent
auditors.
The Board of Directors also recommends a vote "FOR" the five (5)
nominees for director, and "FOR" ratification of Deloitte & Touche, LLP as our
independent auditors for the fiscal year ending December 31, 2001.
How many votes do I have?
Each share of our Common Stock that you own entitles you to one (1)
vote on each proposal. Each share of Series B Preferred Stock that you own
entitles you to one thousand (1,000) votes on each proposal. The proxy card
indicates the number of shares of our Common Stock and/or Series B Preferred
Stock that you own.
How many shares of stock are outstanding?
As of November 13, 2001, there were 32,828,999 shares of our Common
Stock outstanding and 1,904 shares of Series B Preferred Stock outstanding. For
the purposes of this meeting, the 1,904 shares of preferred stock will be
entitled to cast 1,904,000 votes for each proposal to be considered.
How do I vote by proxy?
Whether you plan to attend the meeting or not, we urge you to complete,
sign and date the enclosed proxy card and to return it promptly in the envelope
provided. Returning the proxy card will not affect your right to vote in person
at the meeting.
If you properly fill in your proxy card and send it to us in time to
vote, your "proxy" (one of the individuals named on your proxy card) will vote
your shares as you have directed on each proposal. If you sign the proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board of Directors as follows:
o "FOR" the election of each of the five (5) nominees for
director;
o "FOR" ratification of Deloitte & Touche, LLP as Focus'
independent auditors; and
o in the discretion of the proxy holder as to any other matter
that may properly come before the meeting. At the time this
proxy statement went to press, we knew of no other matters
that needed to be acted on at the meeting other than those
discussed in this proxy statement.
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is exercised if:
o you file either a written revocation of your proxy, or a duly
executed proxy bearing a later date, with the Corporate
Secretary of Focus prior to the meeting, or
2
o you attend the meeting and vote in person. Presence at the
meeting will not revoke your proxy unless and until you vote
in person.
However, if your shares are held in the name of your broker, bank or
other nominee, and you wish to vote in person, you must bring an account
statement and a letter of authorization from your nominee so that you can vote
your shares.
How will focus executive officers and directors vote?
On the record date of November 13, 2001, our executive officers and
directors, including their affiliates, had voting power with respect to an
aggregate of 6,392,187 shares of our Common Stock or approximately 18.5% of the
shares of our Common Stock, which includes 1,904 shares of Series B Preferred
Stock converted into 1,904,000 shares of our common stock for the purposes of
voting at this meeting. We currently expect that such officers and directors
will vote all of their shares in favor of each of the nominees for director and
in favor of each of the proposals.
What are the costs of solicitation of proxies?
We will bear the cost of solicitation of proxies from our stockholders
and the cost of printing and mailing this document. In addition to solicitation
by mail, Focus directors, officers and employees may solicit proxies from
stockholders by telephone, in person or through other means. These persons will
not receive additional compensation, but they will be reimbursed for the
reasonable out-of-pocket expenses they incur in connection with this
solicitation. We also will make arrangements with brokerage firms, fiduciaries
and other custodians who hold shares of record to forward solicitation materials
to the beneficial owner of these shares. We will reimburse these brokerage
firms, fiduciaries and other custodians for their reasonable out-of-pocket
expenses in connection with this solicitation. In addition, we may pay for and
utilize the services of individuals or companies we do not regularly employ in
connection with the solicitation of proxies.
Will there be any other matters considered at the annual meeting?
We are unaware of any matter to be presented at the annual meeting
other than the proposals discussed in this proxy statement. If other matters are
properly presented at the annual meeting, then the persons named in the proxy
will have authority to vote all properly executed proxies in accordance with
their judgment on any such matter, including any proposal to adjourn or postpone
the meeting. If you vote against any proposal (other than a proposal regarding
the election of directors or ratification of auditors), your proxy will not vote
in favor of any proposal to adjourn or postpone the meeting if such postponement
or adjournment is for the purpose of soliciting additional proxies to approve
the proposal that you voted against.
3
EXECUTIVE OFFICERS AND DIRECTORS
Who are our executive officers and directors?
The following table sets forth certain information regarding our
executive officers and directors as of December 31, 2000. Note that there have
been various changes in our directors and executive officers during 2001 which
are discussed later in this proxy statement.
Name Age Position
- ---- --- --------
Thomas L. Massie 40 Chairman of the Board
William B. Coldrick 59 Vice Chairman of the Board
Timothy E. Mahoney 45 Director
John C. Cavalier 62 Director
William Dambrackas 58 Director
Brett A. Moyer 43 Executive Vice President & Chief Operating
Officer
Thomas Hamilton 52 Vice President of Research & Development
William R. Schillhammer III 47 Vice President of OEM Sales
What is the background of our executive officers and directors?
Directors
Thomas L. Massie is Chairman of the Board and a co-founder of the
Company and has served in this position since inception of the company in 1992.
Mr. Massie served as Chief Executive Officer of Focus from the inception of the
company in 1992 to 2000. In 2000, Mr. Massie became President and Chief
Executive Officer of Bridgeline Software, Inc., an Internet development firm. He
has more than 15 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. From 1986 to 1990, Mr. Massie was the Chairman of the Board, and
founder of MASS Microsystems. From 1985 to 1986, Mr. Massie was the co-founder
and Executive Vice President of Sales and Marketing for MacMemory, Inc. Mr.
Massie is a Board Member of the Hockey Academy, Inc. From 1979 to 1984, Mr.
Massie was a Non-Commissioned Officer for the U.S. Army, 101st Airborne
Division. Mr. Massie's term expires in 2002.
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. From 1982 to 1992,
Mr. Coldrick served with Apple Computer Inc. in several senior executive
positions including Senior Vice President of Apple USA from 1990 to 1992. Prior
to joining Apple Computer Inc. Mr. Coldrick held several sales and marketing
management positions with Honeywell Inc. from 1968 to 1982. Mr. Coldrick holds a
Bachelor of Science degree in Marketing from Iona College in New Rochelle, New
York. Mr. Coldrick's term expires in 2001 and is being nominated to serve a
two-year term to expire in 2003.
John C. Cavalier has served as a Director of the Company since May
1992. He has more than 30 years of business management experience. Since January
1, 2001 Mr. Cavalier has been Co-Chairman of MapInfo Corporation and prior to
that 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. He earned his undergraduate degree from the
University of Notre Dame and an MBA from Michigan State University. Mr.
Cavalier's term expires in 2002.
4
Timothy E. Mahoney has served as Director of the Company since March
1997. He has more than 18 years of experience in the computing industry. Mr.
Mahoney founded Union Atlantic LC, in 1994, a consulting company for emerging
technologies and in 1999 became Chairman and COO of vFinance.com, Inc. (dong
business as vFinance, Inc.), the parent company of Union Atlantic, LC and
vFinance Capital LC (formerly Union Atlantic Capital LC.). . He earned his BA
degree in computer science and business from West Virginia University and an MBA
degree from George Washington University. Mr. Mahoney's term expires in 2001 and
is being nominated to serve a three-year term to expire in 2004.
William A. Dambrackas has over 22 years of management experience in the
computer industry. He founded Equinox Systems (Nasdaq: EQNX) 17 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. Mr.
Dambrackas has been issued three United States Patents for data communications
inventions and he was honored as Delaware's "Entrepreneur of the Year" in 1984.
Mr. Dambrackas' term expires in 2003, however, on March 6, 2001, Mr. Dambrackas
resigned to allow for a seven member Board of Directors, pursuant to the terms
of the merger agreement between Focus Enhancements Inc., and Videonics Inc.,
dated August 30, 2000. In accordance with the merger agreement, the new Board of
Directors will consist of four directors of whom will be selected by the Board
of Directors of Focus and three directors of whom will be selected by the Board
of Directors of Videonics.
Executive Officers Not Directors
Brett A. Moyer joined the Company in May 1997, and has assumed the role
of Executive Vice President of Sales & Marketing and Chief Operating Officer.
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).
Thomas Hamilton joined the Company in September 1996 and has assumed
the role of Chief Technology Officer. Mr. Hamilton joined the Company 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. Mr. Hamilton
has a BS in Mathematics from Oregon State University.
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 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.
New Directors and Officers in 2001 - Acquisition of Videonics
Pursuant to the terms of the merger agreement between Focus
Enhancements Inc., and Videonics Inc., dated August 30, 2000, it was agreed that
the composition of the Board of Directors of Focus would be modified to consist
of seven directors, four of whom will be selected by the Board of Directors of
Focus and three of whom will be selected by the Board of Directors of Videonics.
It was also agreed that Thomas L. Massie would remain as Chairman of the Board
of Focus for the remainder of his current term.
5
In connection with the acquisition of Videonics on January 16, 2001,
the following individuals were appointed to serve as executive officers of
Focus:
o Michael L. D'Addio, the Chief Executive Officer of Videonics,
became the President and Chief Executive Officer of Focus.
o Jeffrey A. Burt, the Vice President of Operations of Videonics
became the Vice President of Operations for Focus.
o Gary L. Williams, the Vice President of Finance and Chief
Financial Officer of Videonics, became the Vice President of
Finance and Chief Financial Officer of Focus.
On March 6, 2001, Focus' director William Dambrackas resigned, to allow
for the appointment of three Videonics directors in accordance with the merger
agreement. In conjunction with the resignation, the following three Videonics
directors were appointed to the Focus Board of Directors:
Michel L. D'Addio
Carl E. Berg
N. William Jasper, Jr.
New Directors
Michael L. D'Addio joined Focus to serve as its President and Chief
Executive Officer on January 16, 2001 in connection with the acquisition of
Videonics Inc. Mr. D'Addio was a co-founder of Videonics, and had served as
Chief Executive Officer and Chairman of the Board of Directors since Videonics'
inception in July 1986. In addition Mr. D'Addio served as Videonics' President
from July 1986 until November 1997. From May 1979 through November 1985 Mr.
D'Addio served as President, Chief Executive Officer and Chairman of the Board
of Directors of Corvus Systems, a manufacturer of small computers and networking
systems. Mr. D'Addio holds an A.B. degree in Mathematics from Northeastern
University. Mr. D'Addio is being nominated for a two-year term to expire in
2003.
Carl E. Berg, a co-founder of Videonics, has served on Videonics' Board
of Directors since June 1987. Mr. Berg is currently Chief Executive Officer,
President and a director for Mission West Properties, a real estate company. Mr.
Berg is also a member of the Board of Directors of Integrated Device Technology,
Inc., Valence Technology, Inc., and Systems Integrated Research. Mr. Berg is
being nominated for a three-year term to expire in 2004.
N. William Jasper, Jr. joined the Board of Directors of Videonics in
August 1993. Since 1983, Mr. Jasper has been the President and Chief Operating
Officer of Dolby Laboratories, Inc. Mr. Jasper is being nominated for three-year
a term to expire in 2004.
New Officers
Jeffrey A. Burt joined Focus to serve as its Vice President of
Operations on January 16, 2001 in connection with the acquisition of Videonics
Inc. Mr. Burt had served as Vice President of Operations of Videonics since
April 1992. From August 1991 to March 1992, Mr. Burt served Videonics as its
Materials Manager. Prior to that time, from October 1990 until July 1991, Mr.
Burt acted as a consultant to Videonics in the area of materials management.
From May 1989 to October 1990, Mr. Burt served as the Director of Manufacturing
of On Command Video. Mr. Burt holds a B.A. degree in Economics from the
University of Wisconsin at Whitewater.
Gary L. Williams joined Focus to serve as its Vice President of Finance
& CFO on January 16, 2001 in connection with the acquisition of Videonics Inc.
Mr. Williams had served Videonics as its Vice President of Finance, Chief
Financial Officer and Secretary since February 1999. From February 1995 to
January 1999, Mr. Williams served as Videonics' Controller. From July 1994 to
January 1995, he served as Controller for Western Micro Technology, a publicly
traded company in the electronics distribution business. From January 1990 to
June 1994, Mr. Williams worked in public accounting for Coopers & Lybrand LLP.
Mr. Williams is a Certified Public Accountant and has a Bachelors Degree in
Business Administration, with an emphasis in Accounting from San Diego State
University.
6
What are the responsibilities of our board of directors and committees?
The Board of Directors oversees our business and affairs. During the
fiscal year ended December 31, 2000, the Board of Directors held a total of
eight (8) meetings. All of the persons who were directors of Focus during the
fiscal year ended December 31, 2000 attended at least seventy-five percent (75%)
of the aggregate of (a) the total number of Board meetings and (b) the total
number of meetings held by all committees of the Board on which they served
during the fiscal year.
The Board also has two committees, a compensation committee and an
audit committee. There is no nominating committee. The procedures for nominating
directors, other than by the Board of Directors itself, are set forth in our
bylaws.
Compensation Committee
The Compensation Committee's responsibilities are to make
determinations with respect to salaries and bonuses payable to executive
officers and to administer stock option plans. The Compensation Committee is
currently comprised of Messrs. Massie and Mahoney. This committee did not meet
during the fiscal year ended December 31, 2000, however, the entire board
discussed compensation matters during regularly scheduled board meetings
throughout the year.
Audit Committee
The audit committee of the board is composed of three (3) members and
operates under a written charter adopted by the board of directors. The
responsibilities of the audit committee are contained in the Report of Audit
Committee below. The audit committee currently consists of Messrs. Coldrick,
Cavalier and Jasper. Each of the members is "independent," as defined by Focus'
policy and the National Association of Securities Dealers, Inc. listing
standards. During the fiscal year ended December 31, 2000, this committee held
three (3) formal meetings.
Report of Audit Committee
The following Report of the Audit Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Focus filings under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, as amended, except to the extent we
specifically incorporate this Report of the Audit Committee by reference.
The Audit Committee of the Board of Directors is responsible for
providing independent, objective oversight of Focus' accounting functions and
internal controls. In addition, the Audit Committee reviews the quarterly and
financial statements of Focus and any significant accounting issues affecting
such statements. Furthermore, the committee reviews the scope of the audit, and
discusses any other audit-related matters, with our independent auditors.
The Audit Committee acts under a written charter first adopted and
approved by the Board of Directors on June 1, 2000. A copy of the Audit
Committee Charter is attached to this Proxy Statement as Exhibit A.
The responsibilities of the Audit Committee include recommending to the
Board of Directors an accounting firm to be engaged as Focus' independent
accountants. Additionally, and as appropriate, the Audit Committee reviews and
evaluates the independent accountants' performance, and discusses and consults
with Focus' management and the independent accountants regarding the following:
o the plan for, and the independent accountants' report on, each
audit of Focus' financial statements;
o Focus' financial disclosure documents, including all financial
statements and reports filed with the SEC or sent to
stockholders;
7
o changes in Focus' accounting practices, principles, controls
or methodologies, or in Focus' financial statements;
o significant developments in accounting rules; and
o the adequacy of Focus' internal accounting controls and
financial accounting and auditing personnel.
In connection with these responsibilities, the members of the Board of
Directors met with management and the independent accountants to review and
discuss the financial statements for the fiscal year ended December 31, 2000.
They also discussed with the independent accountants the matters required by
Statement on Auditing Standards No. 61 (Communication with Audit Committees) and
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and they discussed with the independent accountants that firm's
independence.
Based upon the Board of Directors' discussions with management and the
independent accountants, and their review of the representations of management
and the independent accountants, they recommended that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2000, to be filed with the SEC.
THE AUDIT COMMITTEE
WILLIAM COLDRICK, CHAIR
Did our directors and officers comply with their section 16(a) beneficial
ownership reporting compliance requirements in 2000?
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than ten percent
(10%) of our equity securities, to file reports of ownership and reports of
changes in ownership of our Common Stock with the SEC. The SEC requires
officers, directors and greater than ten percent (10%) stockholders to furnish
us with copies of all Section 16(a) forms they file.
To our best knowledge, based solely on a review of the copies of such
forms and certifications furnished to us, we believe that all Section 16(a)
filing requirements were complied with during the fiscal year ended December 31,
2000.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Who owns more than 5% of our Common Stock and Series B Preferred Stock, and what
is the beneficial ownership of our Common Stock and Series B Preferred Stock of
our executive officers and directors?
The following table sets forth information, as of November 13, 2001,
regarding the shares of our Common Stock beneficially owned by those
stockholders of Focus known to management to beneficially own more than five
percent (5%) of our Common Stock, each of our directors, nominees, executive
officers and "Named Executive Officers" (as defined on page 10 under "How Do We
Compensate Our Executive Officers?"), as well as all directors and executive
officers as a group. Except as noted, we believe each person has sole voting and
investment power with respect to the shares shown subject to applicable
community property laws.
"Beneficial ownership" is a technical term broadly defined by the SEC
to mean more than ownership in the usual sense. For example, you beneficially
own our Common Stock not only if you hold it directly, but also indirectly, if
you, through a relationship, contract or understanding, have, or share, the
power to vote the stock, to sell the stock or have the right to acquire the
stock. Percentage of beneficial ownership based on 32,828,999 shares of our
Common Stock outstanding as of November 13, 2001.
8
Percentage of
Number of Shares Outstanding
Name Beneficially Owned Common Stock(1)
---- ------------------ ---------------
Thomas L. Massie(2)......................................... 813,579 2.3%
Michael L. D'Addio(3)....................................... 946,881 2.7
Carl E. Berg(4)............................................. 3,338,691 9.6
John C. Cavalier(5)......................................... 138,890 *
William B. Coldrick(6)...................................... 230,556 *
N. William Jasper, Jr.(7)................................... 63,149 *
Timothy E. Mahoney(8)....................................... 91,666 *
Brett A. Moyer(9)........................................... 327,878 *
Jeffery Burt(10)............................................ 109,590 *
Thomas Hamilton(11)......................................... 208,779 *
Gary L. Williams(12)........................................ 122,528 *
All executive officers and directors as a group(11
persons)(13)................................................ 6,392,187 18.5%
<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 241,356 shares of common stock held directly or indirectly by
Mr. Massie. Includes 572,223 shares issuable pursuant to outstanding
stock options that are exercisable at November 13, 2001, or within 60
days thereafter.
(3) Includes 794,103 shares of common stock held directly or indirectly by
Mr. D'Addio. Includes 152,778 shares issuable pursuant to outstanding
stock options that are exercisable at November 13, 2001, or within 60
days thereafter.
(4) Includes 1,412,469 shares of common stock held directly or indirectly
by Mr. Berg and 1,904 shares of preferred stock that are convertible
into 1,904,000 shares of our common stock. Includes 22,222 shares
issuable pursuant to outstanding stock options that are exercisable at
November 13, 2001, or within 60 days thereafter As of November 13,
2001, Carl Berg beneficially owned all of the outstanding shares of our
Series B Preferred Stock.
(5) Includes 138,890 shares issuable pursuant to outstanding stock options
that are exercisable at November 13, 2001 or within 60 days thereafter.
(6) Includes 230,556 shares issuable pursuant to outstanding stock options
that are exercisable at November 13, 2001, or within 60 days thereafter
(7) Includes 27,214 shares of common stock held directly or indirectly by
Mr. Jasper. Includes 35,935 shares issuable pursuant to outstanding
stock options that are exercisable at November 13, 2001, or within 60
days thereafter.
(8) Includes 91,666 shares issuable pursuant to outstanding stock options
that are exercisable at November 13, 2001, or within 60 days
thereafter. Does not include 370,332 shares owned or 45,000 warrants
held by vFinance.com, Inc. or any of its affiliates. See "Selling
Shareholders - Services Rendered - vFinance Capital L.C."
(9) Includes 40,100 shares of common stock held directly by Mr. Moyer.
Includes 287,778 shares issuable pursuant to outstanding stock options
that are exercisable at November 13, 2001, or within 60 days
thereafter.
(10) Includes 109,590 shares issuable pursuant to outstanding stock options
that are exercisable at November 13, 2001, or within 60 days
thereafter.
(11) Includes 6,000 shares of common stock held directly by Mr. Hamilton.
Includes 202,779 shares issuable pursuant to outstanding stock options
that are exercisable at November 13, 2001, or within 60 days
thereafter.
9
(12) Includes 122,528 shares issuable pursuant to outstanding stock options
that are exercisable at November 13, 2001, or within 60 days
thereafter.
(13) Includes 1,966,945 shares issuable pursuant to options to purchase
common stock exercisable at November 13, 2001, or within 60 days
thereafter.
</FN>
EXECUTIVE AND DIRECTOR COMPENSATION
How do we compensate our directors?
Non-employee directors are reimbursed for out of pocket expenses
incurred in attending the meetings. No director who is an employee receives
separate compensation for services rendered as a director. Non-employee
directors are eligible to participate in our stock option plan.
How do we compensate our executive officers?
The following table sets forth certain information concerning the
executive compensation our Chief Executive Officer and three (3) other most
highly compensated executive officers whose cash salary and bonus exceeded
$100,000 (the "Named Executive Officers") for the fiscal years ended December
31, 2000, 1999, and 1998.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation(1)(2) Options/
------------------------------------ ----------------
Name and
Principal Position Year Salary ($) Bonus($) SARs(3)
- ------------------ ---- ---------- -------- -------
Thomas L. Massie 2000 $ 85,929 -- 100,000
Chairman of the Board(4) 1999 $150,000 $ 69,154 100,000
1998 $150,000 $132,833 200,000
Christopher P. Ricci 2000 $134,503 $ 15,220 175,000
Sr. Vice President and General Counsel(5) 1999 $150,000 $ 15,200 45,000
1998 $150,000 $ 27,500 125,000
Brett Moyer 2000 $154,999 $ 23,521(6) 200,000
Executive Vice President & Chief 1999 $130,000 $ 63,724(6) 40,000
Operating Officer 1998 $130,000 $ 41,000(6) 100,000
Thomas Hamilton 2000 $135,000 $ 3,445 125,000
Vice President of Research 1999 $129,192 -- 175,000
1998 $110,000 $ 5,000 25,000
William Schillhammer 2000 $106,666 $ 29,369(6) 125,000
Vice President of OEM Sales 1999 $ 95,000 $ 52,900(6) 40,000
1998 $ 85,000 $ 22,204(6) 122,000
<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. Includes repriced options for 1998.
(4) During 1998, 1999 and through April of 2000, Mr. Massie served as
President and Chief Executive Officer of Focus. On May 1, 2000, Focus
entered into a separation agreement with Mr. Massie whereby the parties
agreed
10
to sever Mr. Massie's employment relationship effective April 30, 2000.
Mr. Massie remained Chairman of the Focus Board of Directors and, in
addition, Focus and Mr. Massie entered into a consulting agreement on
May 1, 2000. Mr. Massie was paid $88,000 in consulting compensation in
2000. In addition, the Company agreed to forgive notes due the Company
from Mr. Massie that totaled $140,000.
(5) On September 6, 2000, Mr. Ricci resigned from his position as Senior
Vice President and General Counsel of Focus. He continued to work for
the Company on a part time basis through April 30, 2001.
(6) Includes compensation based on sales commissions.
</FN>
Stock Option Plans
We maintain various qualified and non-qualified stock option plans for
our employees, officers and directors. As of November 13, 2001, options to
purchase common stock remained available for grant. These amounts include
options that were approved under the 2000 Non-Qualified Stock Option Plan.
2000 Non-Qualified Stock Option Plan
On April 27, 2000, the Board of Directors of Focus adopted the 2000
Non-Qualified Stock Option Plan, subject to approval by Focus shareholders. On
August 15, 2000 the maximum number of options available under the 2000 Plan was
increased from 3,000,000 to 5,000,000 in order to accommodate requirements in
connection with the acquisition of Videonics. The plan was approved by the
stockholders of Focus on December 28, 2000.
The exercise price per share of options granted under the 2000 Plan is
100% of the fair-market value of Focus' common stock on the date the plan was
approved by Focus shareholders (December 28, 2000.) Options granted under this
plan generally vest over a period of three years.
The five (5) members of the Board of Directors of Focus at December 31,
2000 were each granted 100,000 options under this plan. Mr. Massie was granted a
total of 100,000 options under the 2000 Plan for the year ended December 31,
2000.
The following tables sets forth as to the Chairman, each of the other
executive officers named in the Summary Compensation Table, and each nominee for
director, certain information with respect to options to purchase shares of
common stock of Focus as of and for the year ended December 31, 2000.
OPTION/SAR GRANTS IN 2000
Number of
Securities % of Total
Underlying Options/ SARs
Options/ SARs Granted to Exercise Or
Granted Employees in Base Price
Name (#)(1) 2000(2) ($/per Share) Exp. Date
- ---- ------ ------- ------------- ---------
Thomas L. Massie 100,000 3.82% $0.5625 12/28/05
William B. Coldrick (3) 100,000 3.82% $0.5625 12/28/05
Timothy E. Mahoney (3) 100,000 3.82% $0.5625 12/28/05
Christopher P. Ricci 175,000 6.70% $0.5625 12/28/05
Brett Moyer 200,000 7.65% $0.5625 12/28/05
Bill Schillhammer 125,000 4.79% $0.5625 12/28/05
Thomas Hamilton 125,000 4.79% $0.5625 12/28/05
<FN>
(1) The purpose of Focus' stock option plans, is to provide incentives to
employees, directors and consultants who are in positions to make
significant contributions to Focus.
(2) Focus granted options to purchase a total of 2,611,875 shares of common
stock to employees and directors in 2000.
(3) Nominee for director.
</FN>
The following table sets forth information concerning options exercised
during fiscal year 2000 and the value of unexercised options as of December 31,
2000 held by the executives named in the Summary Compensation Table above.
11
AGGREGATED OPTION/SAR EXERCISES IN 2000 AND FISCAL YEAR-END OPTION/SAR VALUES
Value of Unexercised
Number of Securities In-the-Money
Shares Underlying Unexercised Options/SARs at
Acquired on Value Options/SARs at Year-End Year-End(1)
Exercise Realized ------------- ----------------- -------------- ----------------
(#) ($) Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
Thomas L. Massie -- -- 438,891 211,109 $2,889 $10,111
Christopher P. Ricci -- -- 167,222 136,110 $5,056 $17,694
Brett Moyer -- -- 174,445 215,554 $5,778 $20,222
William Schillhammer -- -- 117,447 169,553 $3,611 $12,638
Thomas Hamilton -- -- 94,446 222,220 $3,611 $12,639
<FN>
(1) Value is based on the difference between option exercise price and the
closing price as quoted on the NASDAQ SmallCap Market at the close of
trading on December 31, 2000 ($0.69) multiplied by the number of shares
underlying the option.
</FN>
Repricing of Stock Options/Additional Option Plans
On March 19, 1997, the Focus Board of Directors elected to terminate
the 1995 Directors Stock Option Plan and all options granted thereunder. By a
unanimous vote, the Focus Board of Directors established the 1997 Directors
Stock Option Plan and authorized the grant of options to purchase up to
1,000,000 shares of common stock under the 1997 Directors Stock Option 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, Focus 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 Focus' common stock on
September 1, 1998.
On September 1, 1998, the Focus Board of Directors approved the 1998
Non-Qualified Stock Option Plan. The 1998 Plan authorized the grant 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 Focus. Upon joining the Board of Directors,
on April 22, 1999, Mr. Dambrackas was granted a stock option for 100,000 shares
of common stock.
Employment Agreements
Focus and Brett Moyer are parties to an employment contract effective
May 15, 1997, 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. Moyer serves as Executive Vice President & Chief
Operating Officer. This employment contract requires acceleration of vesting of
all options held by Mr. Moyer 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 Focus' policies. In May 2000, Mr. Moyer's employment contract was amended to
extend the term until May 1, 2002, which renews automatically after May 1, 2002
for successive one year terms, subject to certain termination provisions.
Focus and Christopher Ricci were parties to an employment contract
effective March 1, 1998, as amended to date, which renewed automatically after
December 31, 2000, for one year terms, subject to certain termination
provisions. Pursuant to this employment contract, Mr. Ricci served as our Senior
Vice President, General Counsel and Secretary. This employment contract required
the acceleration of vesting of all options held by Mr. Ricci so as to be
immediately exercisable if Mr. Ricci is terminated without cause during the term
of the contract. On September 6, 2000, Mr. Ricci resigned from his position as
Senior Vice President, General Counsel and Secretary. Mr. Ricci's employment
agreement was terminated on that date and replaced with a new agreement
providing for his employment by Focus on a part time basis through April 30,
2001.
12
Focus 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
acceleration of vesting of all options held by Mr. Hamilton 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 Focus Board of Directors and employee benefits, including health and
disability insurance, in accordance with Focus' policies.
Subsequent Separation and Consulting Agreements
On May 1, 2000, Focus entered into a separation agreement with Mr.
Massie whereby the parties agreed to sever Mr. Massie's employment relationship
effective April 30, 2000. Mr. Massie remains on the Board of Directors of Focus
and any options granted by Focus will continue to vest under their current terms
for as long as he remains a director or a consultant, whichever is longer. In
addition, under the severance agreement, Focus (i) paid Mr. Massie for all
accrued vacation and unpaid bonuses; and (ii) will forgive two notes totaling
$140,000, including all interest, owed by Mr. Massie to Focus over eight (8)
fiscal quarters, ending June 30, 2002. On December 28, 2000, the Compensation
Committee of Focus agreed to forgive the remaining amount due under the two
notes.
In addition, Focus and Mr. Massie entered into a Consulting Agreement
on May 1, 2000, whereby Mr. Massie received a monthly consulting fee of $11,000
plus expenses. Pursuant to the agreement, Mr. Massie assisted Focus in financial
matters, including but not limited to, the raising of long term capital, planing
product development, advising on merger and acquisitions, and recruiting a new
president for Focus. At December 31, 2000, the Company had paid Mr. Massie a
total of $88,000 under the agreement. The consulting agreement was terminated in
February 2001, when total payments reached a $110,000, the minimum due under the
agreement.
Employment Agreements - New Officers
Focus and Michael D'Addio are parties to an employment contract
effective January 16, 2001. Pursuant to this employment contract, Mr. D'Addio
serves as Chief Executive Officer and President. Mr. D'Addio's base salary shall
be $190,000 per year. In addition, Mr. D'Addio was granted 500,000 stock options
which vest over a three year period. Under the option plan, these options
accelerate, so as to be immediately exercisable if Mr. D'Addio 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 Focus'
policies. The agreement terminates on December 31, 2003.
Mr. Burt and Mr. Williams have entered into Key Employee Agreements to
provide for the acceleration of option vesting under certain circumstances upon
a change in control as defined in those agreements.
Non-employee directors are reimbursed for out of pocket expenses
incurred in attending the meetings. No director who is an employee receives
separate compensation for services rendered as a director. Non-employee
directors are eligible to participate in our stock option plan.
CERTAIN RELATIONSHIPS
What relationships exist between Focus and its directors and officers and
entities with which any director or officer is affiliated? What is the nature of
those relationships?
Timothy Mahoney, who is a Focus director, is a principle of
vFinance.com, Inc., the parent of vFinance Capital L.C. and a partner of Union
Atlantic L.C. For the years ended December 31, 2000 and 1999, Focus paid Union
Atlantic L.C. $83,206 and $112,226, respectively in consulting fees in
connection with equity financing agreements negotiated by Union Atlantic L.C.
During 2001, vFinance Capital L.C. was issued 279,325 shares of Focus common
stock in lieu of investment banking fees in connection with the acquisition of
Videonics Inc in January 2001, including certain additional shares due to the
change in the market price of the common stock of Focus. Furthermore in 2001,
91,007 shares of Focus Common Stock were issued to vFinance.com, Inc. for
payment under and settlement for the termination of Management and Financial
Consulting Agreement between Focus and Union Atlantic L.C. and vFinance Capital
L.C., including certain additional shares due to the change in market price of
the common stock of Focus. Pursuant to these agreements, in the event
vFinance.com, Inc. or any of its affiliates publicly sell the shares of common
stock in the market at a price below $1.03, Focus would be required to issue to
vFinance.com, Inc. additional shares to make up any shortfalls, up to a maximum
of 3,500,000. Such shares can be
13
repurchased by Focus within five (5) business days from the date of issuance at
the difference between the market price at the time the shares were sold by
vFinance or its affiliates and $1.03. Such amount would not exceed $301,000. Of
the 370,332 shares issued, 47,055 shares have been issued pursuant to the price
protection provision.
Carl Berg, a Focus director and shareholder as of March 6, 2001 and
previous director and shareholder of Videonics Inc., had a $1,035,000 loan
outstanding to Videonics Inc., that Focus assumed on January 16, 2001 in
connection with the merger. This unsecured loan, bears interest at 8% per year,
and is due on January 16, 2002. Accrued interest is payable at maturity.
Additionally, Carl Berg loaned Focus $2.3 million to collateralize the $2.3
million bond posted in connection with the CRA litigation. The promissory note
has a term of three years and bears interest at a rate of prime plus 1%. The
principal amount of the note will be due at the end of its term, with interest
to be paid quarterly. Under certain circumstances, including at the election of
Mr. Berg and Focus, the promissory note is convertible into shares of Focus
common stock generally equal to the value of the promissory note and any accrued
and unpaid interest. The promissory note is secured by a security agreement in
favor of Mr. Berg granting him a security interest in first priory over
substantially all of the assets of Focus.
On February 28, 2001, Carl Berg agreed to loan Focus $2.0 million to
support the Company's working capital needs. The promissory note has a due date
of September 25, 2003 and bears interest at a rate of prime plus 1%. The
principal amount of the note will be due at the end of its term, with interest
to be paid quarterly. On April 24, 2001, the note was amended to provide that
under certain circumstances, including at the election of Mr. Berg and Focus,
the promissory note and any accrued and unpaid interest is convertible into
shares of Focus preferred stock at a conversion price of $1.19 which represented
125% of the trailing 30-day average of the Company's common stock ending April
23, 2001. The promissory note is secured by a security agreement in favor of Mr.
Berg granting him a security interest in first priority over substantially all
of the assets of Focus.
On May 7, 2001, Carl Berg converted approximately $2.3 million of debt
and accrued interest owed by Focus to Mr. Berg into 1,904 shares of Series B
convertible preferred stock based on the estimated fair value of the preferred
stock the date on which the related subscription agreement was executed. Each
share has a liquidation preference in the amount of $1,190.48 plus all accrued
or declared but unpaid dividends. Cash dividends on the stock are non-cumulative
and are paid at the option of the board of directors. If paid, the rate shall be
seven percent per annum. The board does not presently intend to pay dividends on
the stock. At the option of the holder, each share is convertible into 1,000
shares of common stock of Focus.
On June 29, 2001, Focus issued a convertible promissory note to Mr.
Berg in the amount up to $650,000 to support Focus' working capital needs. The
promissory note has a due date of January 3, 2003 and bears interest at a rate
of prime plus 1%. The principal amount of the note will be due at the end of its
term, with interest to be paid quarterly. The note provides that at the election
of Mr. Berg and Focus, the promissory note and any accrued and unpaid interest
is convertible into shares of Focus preferred stock at a conversion price of
$1.56 which represented 125% of the trailing 30-day average of Focus' common
stock ending June 28, 2001. The promissory note is secured by a security
agreement in favor of Mr. Berg granting him a security interest in first
priority over substantially all of the assets of Focus.
As of September 30, 2001, we had an aggregate of approximately $4.1
million in debt outstanding to Mr. Berg.
All material affiliate transactions and loans between Focus and its
officers, directors, principal shareholders or other affiliates are made or
entered into on terms that are no less favorable to such individuals than would
be obtained from, or given to, unaffiliated third parties and are approved by a
majority of the board of directors who do not have an interest in the
transactions and who have access, at Focus' expense to Focus' or independent
legal counsel.
14
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD OF DIRECTORS
PROPOSAL 1:
ELECTION OF DIRECTORS
Our Bylaws provide that the number of directors of Focus shall be
determined by resolution of the board of directors but in no event shall be less
than three. The number of directors is currently set at seven (7). The Board of
Directors recommends the election as directors the five (5) nominees listed
below, to hold office for the terms indicated and until their successors are
elected and qualified or until their earlier death, resignation or removal. Each
of the members of the Board of Directors set forth below has been nominated for
re-election. The person named as "Proxy" in the enclosed form of proxy statement
will vote the shares represented by all valid returned proxies in accordance
with the specifications of the stockholders returning such proxies. If at the
time of the Annual Meeting of Stockholders that any of the nominees named below
should be unable to serve, which event is not expected to occur, the
discretionary authority provided in the proxy statement will be exercised to
vote for such substitute nominee or nominees, if any, as shall be designated by
the Board of Directors.
Our full Board of Directors acts as the nominating committee. A
shareholder who desires to propose an individual for consideration by the Board
of Directors as a nominee for director should submit a proposal in writing to
the Secretary of Focus in accordance with Section 7.A. of Focus' Bylaws.
The following sets forth the name and age as of November 13, 2001 of
each nominee for director and the term they have been nominated to serve:
Name Age Term to Expire
---- --- --------------
Carl E. Berg 64 2004
William Coldrick 59 2003
Timothy E. Mahoney 45 2004
Michael D'Addio 57 2003
N. William Jasper, Jr. 53 2004
There is no family relationship between any director or executive
officer of Focus. For a complete discussion of the background of each of the
nominees for director, see "What is the background of our executive officers and
directors?" on page 4.
The following directors are continuing in office pursuant to their
terms as indicated and are not up for election this year:
Name Age Term to Expire
---- --- --------------
Thomas L. Massie 40 2002
John C. Cavalier 62 2002
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ALL 5 NOMINEES
FOR DIRECTOR.
15
PROPOSAL 2:
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
We have appointed Deloitte & Touche, LLP as our independent auditors
for the year ending December 31, 2001. The independent accounting firm of Wolf &
Company, P.C. ("Wolf & Co.") audited the financial statements of Focus for the
fiscal year ended December 31, 2000.
Effective May 3, 2001, Focus replaced its independent auditors, Wolf &
Company, P.C. ("Wolf & Co.") with Deloitte & Touche, LLP ("Deloitte"). Wolf &
Co.'s report on the Company's financial statements during the two most recent
fiscal years preceding the date hereof contained no adverse opinion or a
disclaimer of opinions, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
approved by the Company's Audit Committee. During the last two fiscal years and
the subsequent interim period to the date hereof, there were no disagreements
between the Company and Wolf & Co. On any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Wolf & Co., would have
caused it to make a reference to the subject matter of the disagreement(s) in
connection with its reports. None of the "reportable events" described in Item
304(a)(1)(v) of Regulation S-B occurred with respect to the Company within the
last two fiscal years and the subsequent interim period to the date hereof.
Effective May 3, 2001, the Company engaged Deloitte as its independent
auditors for the fiscal year ending December 31, 2001. During the last two
fiscal years and the subsequent interim period to the date hereof, the Company
did not consult Deloitte regarding any of the matters or events set forth in
Item 304(a)(2)(v) and (ii) of Regulation S-B.
Representatives of Deloitte & Touche, LLP will be present at the
meeting, will be available to respond to your questions and will be able to make
such statements as they desire.
Fees
The following table sets forth the aggregate audit fees and non-audit
related fees that Focus incurred for services provided by Wolf & Co. during the
fiscal year ended December 31, 2000. The table lists audit fees, financial
information systems design and implementation fees, and all other fees. All
services rendered by Wolf & Co. during the fiscal year ended December 31, 2000
were furnished at customary rates and terms.
Fiscal Year Ended
December 31, 2000
-----------------
Audit Fees........................................ $125,000
Tax Return Preparation Fees....................... $20,000
Special Investigation and All Other Fees.......... $155,000
Audit fees include only fees that are customary under generally
accepted auditing standards and are the aggregate fees Focus incurred for
professional services rendered for the audit of Focus' annual financial
statements for fiscal year ended December 31, 2000 and the reviews of the
financial statements included in Focus' Quarterly Reports on Forms 10-QSB for
fiscal year ended December 31, 2000.
Special Investigation
In March 2000, Wolf & Co. brought to the attention of the Board certain
matters relating to the Focus' financial controls. The Board of Directors
thereafter formed a special committee to investigate. The special committee
engaged the law firm of Foley, Hoag & Eliot LLP, which engaged the accounting
firm of Arthur Andersen LLP to aid in the investigation. Based upon its
investigation, the committee has concluded that, despite his denials, an
accounting manager in Focus' finance department misstated the inventory records
of Focus' Pro AV series for purposes of presentation to Focus' outside auditors
in connection with the audit for the year ended December 31, 1999. A revised
inventory list for the Pro AV series as of December 31, 1999 was compiled in
connection with the special committee's review and has been subject to audit
tests performed by Wolf & Co. as part
16
of its year end audit of the financial statements of Focus as a whole. As such,
management believes that inventory has been properly presented as of December
31, 1999 and no adjustments appeared to be necessary to prior periods. The
accounting manager in question has been discharged.
As a result of the Committee's investigation, Focus incurred various
expenses including accounting fees of approximately $120,000 paid to Wolf & Co.
in conjunction with the completion of the 1999 annual audit, review of
accounting practices and the special investigation conducted by the Board of
Directors.
If you do not ratify the selection of independent auditors, the Board
will reconsider the appointment. However, even if you ratify the selection, the
Board may still appoint new independent auditors at any time during the year if
it believes that such a change would be in the best interests of Focus and our
shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL
OF PROPOSAL 2.
STOCKHOLDER PROPOSALS
If you want a proposal to be included in our proxy statement and proxy
for our 2002 Annual Meeting of the Stockholders, we must receive such proposal
by July 24, 2002 in a form that complies with applicable law. Proposals should
be addressed to our Corporate Secretary and sent to our corporate office. See
"Where You Can Find More Information" below for our address.
For any proposal that is not submitted for inclusion in next year's
proxy statement, but is instead sought to be presented directly at the 2002
Annual Meeting, must be received by us no later than October 23, 2002. Notices
of intention to present proposals at the 2002 Annual Meeting should be addressed
to our Corporate Secretary and sent to our corporate office. See "Where You Can
Find More Information" below for our address.
VOTING SECURITIES
Stockholders of record at the close of business on November 13, 2001,
will be eligible to vote at the meeting. The voting securities of Focus consist
of our Common Stock, of which 32,828,999 shares were outstanding on November 13,
2001 and our Series B Preferred Stock of which 1,904 shares were outstanding on
November 13, 2001. Each share of our Common Stock outstanding on the record date
will be entitled to one (1) vote and each share of our Series B Preferred Stock
will be entitled to one thousand (1,000) votes. Individual votes of stockholders
are kept private except as appropriate to meet legal requirements. Access to
proxies and other individual stockholder voting records is limited to the
Inspector of Election and certain employees of Focus and its agents who must
acknowledge their responsibility to comply with this policy of confidentiality.
OTHER BUSINESS
The Board of Directors does not intend to bring any other business
before the meeting and, to the knowledge of the Board of Directors, no matters
are to be brought before the meeting except as specified in this notice of the
meeting. If any other business does properly come before the meeting, however,
the proxies will be voted in accordance with the judgment of the persons voting
them.
17
WHERE YOU CAN FIND MORE INFORMATION
Focus Common Stock is listed on the Nasdaq SmallCap Market under the
symbol "FCSE." Focus files annual, quarterly and current reports with the SEC.
Please call the SEC at 1.800.SEC.0330 for further information about their public
reference rooms. Our public filings are also available from commercial document
retrieval services and via the SEC's Internet website, at http://www.sec.gov.
You may obtain the above-mentioned documents, or additional copies of
this document or any of the documents accompanying this proxy statement, by
requesting them in writing or by telephone from the Corporate Secretary at the
following addresses:
Corporate Secretary
Focus Enhancement, Inc.
1370 Dell Avenue
Campbell, California 95008
(408) 866-8300
If you would like to request documents from us, please do so at least
five business days before the date of the annual meeting to receive them before
the annual meeting.
You should rely only on the information contained in or accompanied
with this document to vote your shares at the annual meeting. We have not
authorized anyone to provide you with information that is different from what is
contained in this document. This document is dated November 21, 2001. You should
not assume that the information contained in this document is accurate as of any
date other than the date indicated, and neither the mailing of this document
creates any implication to the contrary.
By Order of the Board of Directors
Gary L. Williams, Secretary
Dated: November 21, 2001
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Exhibit A
Audit Committee Charter
The Audit Committee ("the Committee") of the Board of Directors ("the Board") of
Company ("the Company") have the oversight responsibility, authority and
specific duties as described below.
COMPOSITION
The Committee will be comprised of three or more directors as determined by the
Board. The members of the Committee will meet the independence and experience
requirements of the NASDAQ Exchange (NASDAQ). The members of the Committee will
be elected annually at the organizational meeting of the full Board held in July
and will be listed in the annual report to shareholders. One of the members of
the Committee will be elected Committee Chair by the Board.
RESPONSIBILITY
The Committee is a part of the Board. It's primary function is to assist the
Board in fulfilling its oversight responsibilities with respect to (i) the
annual financial information to be provided to shareholders and the Securities
and Exchange Commission (SEC); (ii) the system of internal controls that
management has established; and (iii) the internal and external audit process.
In addition, the Committee provides an avenue for communication between internal
audit, the independent accountants, financial management and the Board. The
Committee should have a clear understanding with the independent accountants
that they must maintain an open and transparent relationship with the Committee,
and that the ultimate accountability of the independent accountants is to the
Board and the Committee. The Committee will make regular reports to the Board
concerning its activities.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations and the Company's business conduct guidelines.
AUTHORITY
Subject to the prior approval of the Board, the Committee is granted the
authority to investigate any matter or activity involving financial accounting
and financial reporting, as well as the internal controls of the Company. In
that regard, the Committee will have the authority to approve the retention of
external professionals to render advice and counsel in such matters. All
employees will be directed to cooperate with respect thereto as requested by
members of the Committee.
MEETINGS
The Committee is to meet at least four times annually and as many additional
times as the Committee deems necessary. Content of the agenda for each meeting
should be cleared by the Committee Chair. The Committee is to meet in separate
executive sessions with the chief financial officer, independent accountants and
internal audit at least once each year and at other times when considered
appropriate.
ATTENDANCE
Committee members will strive to be present at all meetings. As necessary or
desirable, the Committee Chair may request that members of management and
representatives of the independent accountants and internal audit be present at
Committee meetings.
SPECIFIC DUTIES
In carrying out its oversight responsibilities, the Committee will:
1. Review and reassess the adequacy of this charter annually and recommend
any proposed changes to the Board for approval. This should be done in
compliance with applicable NASDAQ Audit Committee Requirements.
2. Review with the Company's management, internal audit and independent
accountants the Company's accounting and financial reporting controls.
Obtain annually in writing from the independent accountants their
letter as to the adequacy of such controls.
3. Review with the Company's management, internal audit and independent
accountants significant accounting and reporting principles, practices
and procedures applied by the Company in preparing its financial
statements. Discuss with the independent accountants their judgements
about the quality, not just the acceptability, of the Company's
accounting principles used in financial reporting.
4. Review the scope of internal audit's work plan for the year and receive
a summary report of major findings by internal auditors and how
management is addressing the conditions reported.
5. Review the scope and general extent of the independent accountants'
annual audit. The Committee's review should include an explanation from
the independent accountants of the factors considered by the
accountants in determining the audit scope, including the major risk
factors. The independent accountants should confirm to the Committee
that no limitations have been placed on the scope or nature of their
audit procedures. The Committee will review annually with management
the fee arrangement with the independent accountants.
6. Inquire as to the independence of the independent accountants and
obtain from the independent accountants, at least annually, a formal
written statement delineating all relationships between the independent
accountants and the Company as contemplated by Independence Standards
Board Standard No. 1, independence Discussions with Audit Committees.
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7. Have a predetermined arrangement with the independent accountants that
they will advise the Committee through its Chair and management of the
Company of any matters identified through procedures followed for
interim quarterly financial statements, and that such notification as
required under standards for communication with Audit Committees is to
be made prior to the related press release or, if not practicable,
prior to filing Forms 10-Q. Also receive confirmation provided by the
independent accountants at the end of each of the first three quarters
of the year that they have nothing to report to the Committee, if that
is the case, or the written enumeration of required reporting issues.
8. At the completion of the annual audit, review with management, internal
audit and the independent accountants the following:
- The annual financial statements and related footnotes and
financial information to be included in the Company's annual
report to shareholders and on Form 10-K.
- Results of the audit of the financial statements and the
related report thereon and, if applicable, a report on changes
during the year in accounting principles and their
application.
- Significant changes to the audit plan, if any, and any serious
disputes or difficulties with management encountered during
the audit. Inquire about the cooperation received by the
independent accountants during their audit, including access
to all requested records, data and information. Inquire of the
independent accountants whether there have been any
disagreements with management which, if not satisfactorily
resolved, would have caused them to issue a nonstandard report
on the Company's financial statements.
- Other communications as required to be communicated by the
independent accountants by Statement of Auditing Standards
(SAS) 61 as amended by SAS 90 relating to the conduct of the
audit. Further, receive a written communication provided by
the independent accountants concerning their judgment about
the quality of the Company's accounting principles, as
outlined in SAS 61 as amended by SAS 90, and that they concur
with management's representation concerning audit adjustments.
If deemed appropriate after such review and discussion,
recommend to the Board that the financial statements be
included in the Company's annual report on Form 10-K.
9. After preparation by management and review by internal audit and
independent accountants, approve the report required under SEC rules to
be included in the Company's annual proxy statement. The charter is to
be published as an appendix to the proxy statement every three years.
10. Discuss with the independent accountants the quality of the Company's
financial and accounting personnel. Also, elicit the comments of
management regarding the responsiveness of the independent accountants
to the Company's needs.
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11. Meet with management, internal audit and the independent accountants to
discuss any relevant significant recommendations that the independent
accountants may have, particularly those characterized as 'material' or
'serious'. Typically, such recommendations will be presented by the
independent accountants in the form of a Letter of Comments and
Recommendations to the Committee. The Committee should review responses
of management of the Letter of Comments and Recommendations from the
independent accountants and receive follow-up reports on action taken
concerning the aforementioned recommendations.
12. Recommend to the Board the selection, retention or termination of the
Company's independent accountants.
13. Review the appointment and replacement of the senior internal audit
executive.
14. Review with management, internal audit and the independent accountants
the methods used to establish and monitor the Company's policies with
respect to unethical or illegal activities by Company employees that
may have a material impact on the financial statements.
15. Generally as part of the review of the annual financial statements,
receive an oral report(s), at least annually, from the Company's
general counsel concerning legal and regulatory matters that may have a
material impact on the financial statements.
16. As the Committee may deem appropriate, obtain, weigh and consider
expert advice as to Audit Committee related rules of the NASDAQ,
Statements on Auditing Standards and other accounting, legal and
regulatory provisions.
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APPENDIX 1
FOCUS ENHANCEMENTS, INC.
1370 Dell Avenue
Campbell, California 95008
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 21, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints the Board of Directors of Focus
Enhancements, Inc. (the "Corporation"), or its designee, proxy of the
undersigned, with full power of substitution, to vote all of the shares the
Corporation that the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of the Corporation to be held on Friday, December 21, 2001 at
1370 Dell Avenue, Campbell, California 95008, at 2:00 p.m., California time, and
at any adjournment or postponement thereof as follows:
1. ELECTION OF DIRECTORS FOR THE TERMS INDICATED
FOR all WITHOLD AUTHORITY NOMINEES:
nominees listed to vote for all
at right (except nominees
as marked to the
contrary below
[ ] [ ] Carl E. Berg (term to expire in 2004)
William Coldrick (term to expire in 2003)
Timothy E. Mahoney (term to expire in 2004)
Michael D'Addio (term to expire in 2003)
N. William Jasper, Jr. (term to expire in 2004)
INSTRUCTIONS: To withhold your vote for any individual nominee, insert the
nominee's name on the line provided below.
________________________________________________________________________________
2. Ratification of the selection of Deloitte & Touche, LLP as independent
auditors of the Corporation for the year ending December 31, 2001.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In its discretion, the proxy is authorization to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES LISTED ABOVE AND FOR PROPOSAL NO. 2.
The undersigned acknowledges receipt from the Corporation prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders, a Proxy
Statement dated November 21, 2001 and an Annual Report on Form 10-KSB.
Dated: ___________________, 2001 [ ] Please check here if you plan to
attend the Annual Meeting
Number attending ___________________
______________________________________
SIGNATURE OF SHAREHOLDER
______________________________________
SIGNATURE OF SHAREHOLDER
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.