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 20, 2002
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 20, 2002 at 10 a.m., California time.
At our meeting, we will ask you to vote on the following matters:
1. Election of Director. You will have the opportunity to elect one (1)
member of the Board of Directors for a term of three years. The following person
is a current member of the Board of Directors and is our nominee for re-election
to serve:
Name Age Term to Expire
---- --- --------------
Brett Moyer 44 2005
2. Amend Focus' Certificate of Incorporation. You will be asked to
approve an amendment to our Certificate of Incorporation to increase the
authorized number of shares of common stock from 50,000,000 to 60,000,000;
3. Approve Focus' 2002 Non-Qualified Stock Option Plan. You will be
asked to ratify Focus' 2002 Non-Qualified Stock Option Plan under which options
to purchase up to 1,000,000 shares of common stock can be issued.
4. 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, 2002.
5. 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 October 25,
2002, 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 11, 2002
Focus Enhancements, Inc.
1370 Dell Avenue
Campbell, California 95008
PROXY STATEMENT
For the
Annual Meeting of Stockholders
to be held on December 20, 2002
--------------------------------------------
GENERAL INFORMATION
This proxy statement contains information about Focus' Annual Meeting
of Stockholders to be held at 1370 Dell Ave., Campbell, CA on December 20, 2002
at 10 a.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 15, 2002 to all stockholders
entitled to vote. The record date for those entitled to vote is October 25,
2002. On October 25, 2002, there were 36,158,269 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, 2001 on Form
10-KSB and 10-QSB for the period ending June 30, 2002 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 Director. The nominee for director who
receives the most votes cast by holders of our Common Stock and
Series B Preferred Stock, voting as a single class, outstanding on
October 25, 2002, 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: Amendment to the Certificate of Incorporation. The
affirmative vote of the holders of a majority of the shares of
Focus' common stock outstanding as of the record date is required
to adopt the proposal to amend Focus' Certificate of Incorporation
to increase the number of authorized shares of common stock to
60,000,000.
o Proposal 3: Approval of the 2002 Non-Qualified Stock Option Plan.
The affirmative vote of a majority of the shares present and
voting at the Focus annual meeting date is required to adopt the
proposal to ratify the 2002 Non-Qualified Stock Option Plan.
o Proposal 4: Ratification of Auditors. Stockholder ratification of
the selection of Deloitte & Touche, LLP as Focus' independent
auditors is not currently required by law. 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.
o Effect of an Abstention and Broker Non-Votes. A shareholder who
abstains from voting on any or all proposals will be included in
the number of shareholders present at the meeting for the purpose
of determining the presence of a quorum. Except for Proposal 2,
abstentions and broker non-votes will not be counted either in
favor of or against the election of the nominees or other
proposals. Because the approval of a majority of the outstanding
shares is required for Proposal No. 2, abstentions and broker
non-votes have the same effect as voting against Proposal 2. Under
the rules of the National Association of Securities Dealers,
brokers holding stock for the accounts of their clients who have
not been given specific voting instructions as to a matter by
their clients may vote their clients' proxies in their own
discretion.
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 the named nominee for director;
o amendment to the Articles of Incorporation increasing the number
of authorized shares of Common Stock,
o approval of the 2002 Non-Qualified Stock Option Plan; and
o appointment of Deloitte & Touche, LLP as our independent auditors.
The Board of Directors also recommends a vote "FOR" the nominee for
director, "FOR" authorization to increase the number of authorized shares of
Common Stock, "FOR" the approval of the 2002 Non-Qualified Stock Option Plan,
and "FOR" ratification of Deloitte & Touche, LLP as our independent auditors for
the fiscal year ending December 31, 2002.
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 October 25, 2002, there were 36,158,269 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
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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 the nominee for director;
o "FOR" the amendment to the Certificate of Incorporation to
increase the number of authorized shares of Common Stock;
o "FOR" the 2002 Non-Qualified Stock Option Plan;
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
o you attend the meeting and vote in person. Presence at the meeting
will not revoke your proxy unless and until you present proper
documentation and 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 October 25, 2002, our executive officers and
directors, including their affiliates, had voting power with respect to an
aggregate of 4,180,769 shares of our Common Stock or approximately 11.5% 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.
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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, 2001.
Name Age Position
---- --- --------
Thomas L. Massie 42 Chairman of the Board
Michael L. D'Addio (1) 58 Director, President and Chief
Executive Officer
Carl E. Berg 65 Director
John C. Cavalier 63 Director
William B. Coldrick 60 Vice Chairman of the Board
N. William Jasper, Jr. 54 Director
Timothy E. Mahoney 46 Director
Jeffrey A. Burt 49 Vice President of Operations
Thomas Hamilton 53 Executive Vice President and General
Manager of the Focus Semiconductor
Group
Brett A. Moyer (1) 44 Executive Vice President & Chief
Operating Officer
Gary L. Williams 36 Secretary, Vice President of Finance
and Chief Financial Officer
- --------------------------------
(1) On September 30, 2002, Michael D'Addio voluntarily resigned as
President and Chief Executive Officer and Brett Moyer assumed the role of
President and Chief Executive Officer and was appointed to the Board of
Directors. Messr. D'Addio remains on the Board of Directors.
What is the background of our executive officers and directors?
Directors
Thomas L. Massie is Chairman of the Board and our co-founder. He has
served as Chairman of the Board since inception in 1992, and he served as our
Chief Executive Officer from the inception of the Company until April 30, 2000.
In September 2000, Mr. Massie became President and Chief Executive Officer of
Bridgeline Software, an Internet development company located in Woburn, MA. 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, a voice recognition company. From 1986 to
1990, Mr. Massie was the Chairman of the Board, and founder of MASS
Microsystems, a multimedia technology company. From 1985 to 1986, Mr. Massie was
the co-founder and Executive Vice President for MacMemory, a memory acceleration
company. From 1979 to 1983, Mr. Massie was a Non-Commissioned Officer for the
U.S. Army, 101st Airborne Division. Mr. Massie is also a member of the Board of
Directors of the Oasys Group, and the Hockey Academy. Mr. Massie's term expires
in 2002.
Michael L. D'Addio, currently serves a Director. Mr. D'Addio joined us
on January 16, 2001, in connection with the acquisition of Videonics Inc., and
served as our President, Chief Executive Officer and Director. On September 30,
2002 Mr. D'Addio voluntarily resigned as President and Chief Executive Officer.
He 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 he served as President, Chief
Executive Officer and Chairman of
4
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's term expires in 2003. See "Who are our
executive officers and directors?"
Carl E. Berg, a co-founder of Videonics, served on Videonics' Board of
Directors since June 1987. In connection with the Videonics acquisition, Mr.
Berg became one of our directors on March 6, 2001 and his term expires in 2004.
Mr. Berg is currently Chief Executive Officer, President and a director for
Mission West Properties, a real estate investment company located in Cupertino,
CA. Mr. Berg is also a member of the Board of Directors of Valence Technology,
Inc., and Systems Integrated Research. Mr. Berg's term expires in 2004.
John C. Cavalier has served as our Director since May 1992. He has more
than 30 years of business management experience. Mr. Cavalier has been Chairman
of MapInfo Corporation, a software developer located in Troy, NY since February
of 2002. From January 2001 to February of 2002 he served as Co-Chairman of
MapInfo. From November 1996 through December of 2000 Mr. Cavalier was President,
Chief Executive Officer and a Director of MapInfo Corporation. 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.
William B. Coldrick has served as our Director since January 1993, Vice
Chairman since July 1994, and Executive Vice President 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 2003.
N. William Jasper, Jr. was a Director of Videonics since August 1993.
In connection with the Videonics acquisition, Mr. Jasper became one of our
directors on March 6, 2001 and his term expires in 2004. Since 1983, Mr. Jasper
has been the President and Chief Operating Officer of Dolby Laboratories, Inc.,
a private signal processing technology company located in San Francisco,
California. Mr. Jasper's term expires in 2004.
Timothy E. Mahoney has served as our Director since March 1997. He has
more than 20 years of experience in the computing industry. Mr. Mahoney founded
Union Atlantic LC, in 1994, a consulting company for emerging technology
companies and in 1999 became Chairman and COO of vFinance, Inc. , the parent
company of Union Atlantic, LC and vFinance Investments, Inc. He earned a BA in
computer science and business from West Virginia University and an MBA from
George Washington University. Mr. Mahoney's term expires in 2004.
Brett A. Moyer joined us in May 1997. On September 30, 2002 he assumed
the role as President and Chief Executive Officer and became a member of our
Board of Directors. From May 1997 to September 30, 2002, Mr. Moyer severed as
our Executive Vice President and Chief Operating Officer. From February 1986 to
April 1997, Mr. Moyer worked at Zenith Electronics Corporation, Glenview, IL,
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). See also "Who are our executive officers and
directors?"
Non-Director Executive Officers
Jeffrey A. Burt joined us to serve as our Vice President of Operations
on January 16, 2001 in connection with the acquisition of Videonics, Inc. Mr.
Burt was 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.
Thomas M. Hamilton joined us in September 1996 and in July 2001 assumed
the role of Executive Vice President and General Manger of the Focus
Semiconductor Group. From September 1996 to July 2001, Mr. Hamilton served as
Vice President of Engineering and our Chief Technical Officer. From 1992 to
1996, Mr. Hamilton was President and Co-Founder of TView, Inc., a company
acquired by us. From 1985 to 1990, Mr. Hamilton was Vice
5
President of Engineering of TSSI. From 1973 to 1985, Mr Hamilton held a variety
of engineering and marketing management positions at Tektronix, Inc. Mr.
Hamilton has a BS in Mathematics from Oregon State University.
Gary L. Williams joined us as our Secretary, 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.
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, 2001, the Board of Directors held a total of four
(4) meetings. All of the persons who were directors of Focus during the fiscal
year ended December 31, 2001 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. The entire board of directors acts as the 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, 2001, 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. Two of the three members are "independent," as defined by
Focus' policy and the National Association of Securities Dealers, Inc. listing
standards. During the fiscal year ended December 31, 2001, 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 was included in our Proxy Statement dated November 21, 2001.
On July 29, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002.
The law mandates numerous corporate disclosure and auditing reforms. We are in
the process of reviewing our audit committee charter for compliance with the new
law and will make any necessary changes as implementing regulations are adopted
by the U.S. Securities and Exchange Commission and other regulatory agencies.
The responsibilities of the Audit Committee include recommending to the
Board of Directors an accounting firm to be engaged as Focus' independent
auditors. Additionally, and as appropriate, the Audit Committee reviews and
evaluates the independent auditors' performance, and discusses and consults with
Focus' management and the
6
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;
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 auditor's to review and
discuss the financial statements for the fiscal year ended December 31, 2001.
They also discussed with the independent auditor's 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 auditor's that firm's
independence and satisfied itself as to the independent auditor'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, 2001, to be filed with the SEC.
THE AUDIT COMMITTEE
WILLIAM COLDRICK, CHAIR
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Did our directors and officers comply with their section 16(a) beneficial
ownership reporting compliance requirements in 2001?
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,
2001.
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?
7
The following table sets forth information, as of October 25, 2002,
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 9 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 36,158,269 shares of our
Common Stock, 1,904 shares of Series B Preferred Stock converted into 1,904,000
shares of our commn stock and 2,359,401 shares issuable pursuant to options and
warrants that are outstanding as of October 25, 2002.
Number of Shares Percentage of
Beneficially Outstanding
Name Owned Common Stock(1)
---- ------ ---------------
Thomas L. Massie(2)......................................... 416,889 1.0%
Michael L. D'Addio(3)....................................... 1,116,325 2.7
Carl E. Berg(4)............................................. 3,371,978 8.7
John C. Cavalier(5)......................................... 94,445 *
William B. Coldrick(6)...................................... 261,258 *
N. William Jasper, Jr.(7)................................... 85,934 *
Timothy E. Mahoney(8)....................................... 124,999 *
Jeffrey Burt(9)............................................. 139,441 *
Thomas Hamilton(10)......................................... 315,862 *
Brett A. Moyer(11).......................................... 441,212 1.1
Gary L. Williams (12)....................................... 171,827 *
All executive officers and directors as a group (11
persons)(13)............................................ 6,540,170 16.2%
- ----------
* 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 3,000 shares of common stock held directly or indirectly by Mr.
Massie. Includes 413,889 shares issuable pursuant to outstanding stock
options that are exercisable at October 25, 2002, or within 60 days
thereafter.
(3) Includes 794,103 shares of common stock held directly or indirectly by Mr.
D'Addio. Includes 322,222 shares issuable pursuant to outstanding stock
options that are exercisable at October 25, 2002, 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 55,509 shares issuable
pursuant to outstanding stock options that are exercisable at October 25,
2002, or within 60 days thereafter.
(5) Includes 94,445 shares issuable pursuant to outstanding stock options that
are exercisable at October 25, 2002 or within 60 days thereafter.
(6) Includes 7,369 shares of common stock held directly or indirectly by Mr.
Coldrick. Includes 253,889 shares issuable pursuant to outstanding stock
options that are exercisable at October 25, 2002, or within 60 days
thereafter.
(7) Includes 13,728 shares of common stock held directly or indirectly by Mr.
Jasper. Includes 72,206 shares issuable pursuant to outstanding stock
options that are exercisable at October 25, 2002, or within 60 days
thereafter.
(8) Includes 124,999 shares issuable pursuant to outstanding stock options that
are exercisable at October 25, 2002, or within 60 days thereafter.
(9) Includes 139,441 shares issuable pursuant to outstanding stock options that
are exercisable at October 25, 2002, or within 60 days thereafter.
(10) Includes 6,000 shares of common stock held directly by Mr. Hamilton.
Includes 309,862 shares issuable pursuant to outstanding stock options that
are exercisable at October 25, 2002, or within 60 days thereafter.
8
(11) Includes 40,100 shares of common stock held directly by Mr. Moyer. Includes
401,112 shares issuable pursuant to outstanding stock options that are
exercisable at October 25, 2002, or within 60 days thereafter.
(12) Includes 171,827 shares issuable pursuant to outstanding stock options that
are exercisable at October 25, 2002, or within 60 days thereafter.
(13) Includes 2,359,401 shares issuable pursuant to options and warrants to
purchase common stock exercisable at October 25, 2002, or within 60 days
thereafter.
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. Directors are
eligible to participate in our stock option plans.
How do we compensate our executive officers?
The following table sets forth certain information concerning the
executive compensation our Chief Executive Officer and four (4) other most
highly compensated executive officers whose cash salary and bonus exceeded
$100,000 (the "Named Executive Officers") for the fiscal years ended December
31, 2001, 2000, and 1999.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation(1)(2) Awards
------------------------------------ --------------
Securities
Name and Underlying
Principal Position Year Salary ($) Bonus($) Options(3)
- ------------------ ---- ---------- -------- ----------
Michael D'Addio (4) 2001 $182,025 -- 500,000
President and Chief Executive Officer
Brett Moyer (5) 2001 $155,000 $91,133(6) --
Executive Vice President & Chief 2000 $155,000 $23,521(6) 200,000
Operating Officer 1999 $130,000 $63,724(6) 40,000
Thomas Hamilton 2001 $140,000 -- --
Vice President of Research 2000 $135,000 $3,445 125,000
1999 $129,192 -- 175,000
Jeffrey A. Burt (4) 2001 $158,654 -- --
Vice President of Operations
Gary L. Williams (4) 2001 $144,231 -- --
Secretary, Vice President of Finance and
Chief Financial Officer
- ---------------------
(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 $50,000 or 10%
of the total salary and bonus reported.
(3) Long-term compensation table reflects the grant of non-qualified and
incentive stock options granted to the named persons in each of the periods
indicated.
9
(4) Since January 16, 2001. On September 30, 2002, Michael D'Addio
voluntarily resigned as President and Chief Executive Officer.
(5) On September 30, 2002 Brett Moyer assumed the role of President and Chief
Executive Officer and was appointed to the Board of Directors. See also "-
Employment Agreements".
(6) Includes compensation based on sales commissions.
Stock Option Plans
We maintain various qualified and non-qualified stock option plans for
our employees, officers and directors. The purpose of our stock option plans is
to provide incentives to employees, directors and consultants who are in
positions to make significant contributions to us. As of October 25, 2002,
excluding the 2002 Non-Qualified Stock Option Plan, options to purchase 194,886
shares of common stock remained available for grant.
2002 Non-Qualified Stock Option Plan
On October 30, 2002, the Board of Directors of Focus adopted the 2002
Non-Qualified Stock Option Plan, subject to approval by Focus shareholders. For
a discussion of the 2002 Plan, see "Proposal 3 - Approval of 2002 Non-Qualified
Stock Option Plan."
OPTION/SAR GRANTS IN 2001
The following tables sets forth as to the Chief Executive Officer and
the Named Executive Officers, certain information with respect to options to
purchase shares of our common stock as of and for the year ended December 31,
2001.
Number of % of Total Potential Realizable
Securities Options/ Value at Assumed Annual
Underlying SARs Granted Exercise Or Rate of Stock Price
Options/ SARs to Employees Base Price Appreciation for
Name Granted (#) in 2001(1) ($/per Share) Exp. Date Option Term
- ---- ----------- ---------- ------------- --------- -----------
5% 10%
-- ---
Michael D'Addio 500,000 46% $1.06 1/16/06 $146,449 $323,570
- ------------------
(1) Does not include 1,284,594 Videonics options converted to 1,117,597 Focus
options in connection with the acquisition of Videonics.
(2) Awards vest at 2.77% per month beginning January 2001.
The following table sets forth information concerning options exercised
during fiscal year 2001 and the value of unexercised options as of December 31,
2001 held by the executives named in the Summary Compensation Table above.
Aggregated Option/SAR Exercises in 2001 and Fiscal Year-End Option/SAR Values
Value of Unexercised
Number of Securities In-the-Money
Shares Underlying Unexercised Options/SARs at
Acquired on Value Options/SARs at Year-End Year-End(1)
Exercise Realized ------------------------------- -------------------------------
(#) ($) Exercisable Unexercisable Exercisable Unexercisable
--- --- ------------- ----------------- -------------- ----------------
Michael D'Addio -- -- 152,778 347,222 $112,597 $255,902
Brett Moyer -- -- 287,778 102,221 238,333 116,914
Thomas Hamilton -- -- 202,779 113,887 169,144 105,517
Jeffrey A. Burt 23,490 16,678 85,913 114,187 68,480 140,450
Gary L. Williams -- -- 118,299 105,729 104,392 130,047
- ---------------------
10
(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, 2001 ($1.80) multiplied by the number of shares
underlying the option. At October 25, 2002, the closing price of our common
stock was $1.07.
Repricing of Stock Options/Additional Option Plans
On September 1, 1998, we 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 our common stock on
September 1, 1998.
Employment Agreements
Michael D'Addio was party to an employment contract with us effective
January 16, 2001. Pursuant to this employment contract, Mr. D'Addio served as
our Chief Executive Officer and President. Mr. D'Addio's base salary was
$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 our Board of Directors and employee benefits,
including health and disability insurance, in accordance with our policies. On
September 30, 2002, Michael D'Addio voluntarily resigned as President and Chief
Executive Officer and his employment agreement was terminated. Mr. D'Addio
remains as a member of our Board of Directors and the terms of his options are
unchanged.
Brett Moyer is party to an employment contract with us effective
September 30, 2002. Pursuant to this employment contract, Mr. Moyer serves as
our Chief Executive Officer and President. Mr. Moyer's base salary is $190,000
for the first year and $200,000 for the second year. In addition, Mr. Moyer was
granted 350,000 options to purchase shares of Common Stock at $1.15 per share.
The options vest over a three year period at 2.77% per month beginning September
2002. Additionally, Mr. Moyer's contract provides for an additional 150,000
stock options upon approval of a new option plan. See "Proposal 3: Approval of
2002 Non-Qualified Stock Option Plan." Under the employment contract, these
options accelerate, so as to be immediately exercisable if Mr. Moyer is
terminated without cause during the term of the contract. The employment
contract provides for incentive bonuses of up to $110,000 as determined by our
Board of Directors and employee benefits, including health and disability
insurance, in accordance with our policies. The initial term of the agreement is
for two years and will terminate on August 6, 2004. Mr. Moyer's contract would
automatically renew for an additional one year period unless terminated by
either party 30 days prior to the end of the initial term. Upon entering into
his employment contract as President of Focus, Mr. Moyer's previous employment
contract was terminated. Furthermore, in connection with becoming President,
Focus agreed to pay up to $85,000 in relocation expenses to Mr. Moyer to
facilitate his move (including his family) from Massachusetts to California.
Thomas Hamilton is party to an employment contract with us effective
October 17, 1996, as amended to date, which renews automatically after December
31, 1998, for one-year terms, subject to certain termination provisions. 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 our Board of Directors and employee benefits,
including health and disability insurance, in accordance with Focus' policies.
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 respective agreements.
Subsequent Separation and Consulting Agreements
On May 1, 2000, we 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, we (i) paid Mr. Massie for all accrued
vacation and unpaid bonuses and (ii) agreed to forgive two notes totaling
$140,000, including all interest, owed by Mr. Massie to us over a period of
time. On December 28, 2000, the Compensation Committee agreed to forgive the
remaining $105,000 due under the two notes.
In addition, we entered into a consulting agreement with Mr. Massie on
May 1, 2000, whereby Mr. Massie received a monthly consulting fee of $11,000
plus expenses. Pursuant to the agreement, Mr. Massie assisted us in
11
financial matters, including but not limited to, the raising of long term
capital, planning product development, and advising on merger and acquisitions.
During fiscal 2001, the Company paid Mr. Massie a total of $44,000 under the
agreement. The agreement terminated in April 2001.
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
Timothy Mahoney, who is a Focus director, is a principal of vFinance,
Inc., the parent of vFinance Investments, Inc a licensed NASD broker dealer and
the successor of Union Atlantic LC and vFinance Capital L.C. For the year ended
December 31, 2000, we paid vFinance/Union Atlantic L.C. $83,206 in consulting
fees in connection with equity financing agreements negotiated by Union Atlantic
L.C. No cash fees were paid in 2001. In addition, vFinance Capital L.C. was also
issued 243,833 shares of our common stock in lieu of investment banking fees in
connection with the acquisition of Videonics in January 2001, and 35,492
additional shares due to the change in the market price of our common stock.
Furthermore, in November 2001, 79,444 shares of our common stock were
issued to vFinance, Inc. for payment under and settlement for the termination of
a Management and Financial Consulting Agreement between Focus and Union Atlantic
L.C. and vFinance Capital L.C., and 11,563 additional shares due to the change
in market price of our common stock. Pursuant to various agreements, in the
event vFinance, Inc. or any of its affiliates publicly sell the shares of common
stock in the market at a price below $1.03, we would be required to issue to
vFinance, Inc. additional shares to make up any shortfalls, up to a maximum of
3,500,000 shares. Such shares can be 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, Inc. 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.
In addition, pursuant to an agreement dated December 27, 2001, vFinance
Investments, Inc. received a warrant to purchase 25,000 shares of our common
stock at a per share exercise price of $1.54 per share. For such compensation,
vFinance Investments, Inc. will provide us with non-exclusive financial advisory
services for a period of 12 months.
Furthermore, in connection with its efforts to find investors in the
private placement completed on January 11, 2002, vFinance Investments, Inc.
received $275,000 in cash and a warrant to purchase 123,690 shares of common
stock of Focus at $1.36 per share.
Carl Berg
Carl Berg, a Focus director and stockholder and previous director and
stockholder of Videonics Inc., had a $1,035,000 loan outstanding to Videonics
Inc., that we assumed on January 16, 2001 in connection with the merger. This
unsecured loan bears interest at 8% per year, and was due on January 16, 2002.
Accrued interest was payable at maturity. Additionally, Carl Berg loaned us $2.3
million evidenced by a promissory note 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 and any accrued and unpaid interest is
convertible into shares of our common stock at a price of approximately $1.25
per share, the closing price of our common stock on the date preceding the
note's issuance. The promissory note is secured by a security agreement in favor
of Mr. Berg granting him a first priority security interest over substantially
all of the assets of Focus.
On February 28, 2001, Mr. Berg loaned us $1.0 million evidenced by a
promissory note and agreed to loan up to an additional $1.0 million to support
our working capital needs. The note was subsequently amended on April 24, 2001
to provide for, among other things, conversion into preferred stock. The
promissory note as amended 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. 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
common stock at a per share price of approximately $1.19 per share. The
promissory note is secured by a security agreement in favor of Mr. Berg granting
him a first priority security interest over substantially all of our assets.
12
On May 7, 2001, Carl Berg converted approximately $2.3 million of debt
and accrued interest currently owed by us to Mr. Berg into 1,904 shares of
Series B convertible preferred stock based on the estimated fair value of the
preferred stock as of the date on which the related subscription agreement was
executed.
On June 29, 2001, Carl Berg loaned us an additional $650,000 pursuant
to a secured convertible promissory note. The promissory note as amended 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. 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 our common stock at a per share price of $1.56 per
share. The promissory note is secured by a security agreement in favor of Mr.
Berg granting him a first priority security interest over substantially all of
our assets.
At October 25, 2002, we owed Mr. Berg approximately $4.2 million in
principal and interest.
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.
13
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 eight (8). The Board of
Directors was expanded to eight members on September 30, 2002 when Brett Moyer
became President and was added to the Board. It is expected that proposed Nasdaq
rules will require a majority of our board of directors to be "independent" as
defined by the proposed rules. In anticipation of these future rules, Mr. Thomas
Massie and Mr. John Cavailer current members of the Board of Directors, advised
the other members of the Board that they did not wish to be re-nominated to
serve as Directors. The current terms of Messrs. Massie and Cavalier will expire
at the Annual Meeting. Upon completion of the Annual Meeting, the Board will be
reduced to six (6) members.
The Board of Directors recommends the election as director the nominee
listed below, to hold office for the terms indicated and until his successor is
elected and qualified or until their earlier death, resignation or removal. Mr.
Moyer is being nominated for a three-year term after being placed on the Board
after becoming President in October 2002. 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 the nominee 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.
Nominations were due October 22, 2002.
The following sets forth the name and age as of October 25, 2002 of the
nominee for director and the term he has been nominated to serve:
Name Age Term to Expire
---- --- --------------
Brett Moyer 44 2005
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
---- --- --------------
Carl E. Berg 65 2004
William Coldrick 60 2003
Timothy E. Mahoney 46 2004
Michael D'Addio 58 2003
N. William Jasper, Jr. 54 2004
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEE
FOR DIRECTOR.
14
PROPOSAL 2:
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Proposal
The Focus Board of Directors recommends that you vote to amend the
Focus Certificate of Incorporation to increase the number of authorized shares
of common stock, $ 0.01 par value per share, from 50,000,000 to 60,000,000
shares. Of the 50,000,000 shares of common stock that are currently authorized,
36,158,269 shares were issued and outstanding as of October 25, 2002, the record
date for the Focus annual meeting. In addition, Focus has reserved 12,713,863
shares of common stock for issuance to holders of warrants and options. Shares
of Focus common stock, including the additional shares proposed for
authorization, do not have preemptive or similar rights.
If the proposed amendment is approved by the shareholders, the
additional authorized common stock may be issued by us without any further
action or approval by the shareholders. The purpose of the proposed amendment is
to provide additional authorized shares of common stock for possible 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 October 25, 2002, taking into account shares
reserved for issuance under existing convertible preferred stock, warrants,
options and other commitments of Focus, our Board of Directors has the authority
to issue approximately, 1,127,868 additional shares of common stock. If Focus
does not increase the number of shares, its ability to undertake these types of
transactions or distributions in the future will be significantly restricted.
Except as set forth below, we have 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.
------------------------------------------- --------------------------
Current Common Stock Information As of October 25, 2002
------------------------------------------- --------------------------
Authorized shares 50,000,000
------------------------------------------- --------------------------
Shares of issued and outstanding 36,158,269
------------------------------------------- --------------------------
Shares reserved for issuance pursuant
to outstanding options or warrants
or conversion of preferred stock and
outstanding debt 12,713,863
------------------------------------------- --------------------------
Shares currently available for issuance 1,127,868
------------------------------------------- --------------------------
New Shares To Be Reserved for Issuance
Reason Number of shares of common stock
- ------ --------------------------------
2002 Stock Option Plan(1) 1,000,000
- ------------
(1) Subject to the approval by the shareholders of Focus. "See Proposal 3."
Dilution
Since our shareholders do not have preemptive rights, any additional
issuance of shares of common stock would dilute existing shareholders.
Anti-Takeover Effect
The issuance of additional shares of common stock could, under certain
circumstances, have an anti-takeover effect. For example, we could issue shares
to dilute the equity ownership and corresponding voting power of a shareholder
or group of shareholders who may oppose the policies or strategic plan of Focus'
existing management. Such additional shares could enable our Board of Directors
to make it more difficult or discourage an attempt by another person or entity
to obtain control of Focus. We have no present intention of issuing any of the
additional authorized shares of common stock for such purposes. A copy of the
Certificate of Amendment of the Focus Certificate
15
of Incorporation is attached as Appendix A.
Recommendation
THE FOCUS BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE AMENDMENT TO FOCUS' CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF FOCUS COMMON STOCK FROM 50,000,000 TO 60,000,000.
16
PROPOSAL 3:
APPROVAL OF 2002 NON-QUALIFIED STOCK OPTION PLAN
General
On October 30, 2002, the Board of Directors of Focus adopted the 2002
Non-Qualified Stock Option Plan. A copy of the 2002 Plan is attached as Appendix
B. The 2002 is subject to the approval of the 2002 Plan by the affirmative vote
of holders of a majority of the shares of Focus' common stock present in person
or by proxy and entitled to vote at the meeting.
Possible Dilutive Effects of the Option Plan
The common stock to be issued upon the exercise of options awarded
under the 2002 Plan may either be authorized but unissued shares of Focus common
stock or shares of Focus common stock purchased in the open market. In that
Focus shareholders do not have preemptive rights, to the extent that Focus funds
the 2002 Plan, in whole or in part, with authorized but unissued shares, the
interests of current shareholders will be diluted upon exercise of such options.
Description of the 2002 Non-Qualified Stock Option Plan
The purpose of the 2002 Plan is to promote the interests of Focus by
providing an inducement to obtain and retain the services of qualified persons.
The 2002 Plan is administered by the Board of Directors of Focus. The
Board of Directors, subject to the provisions of the 2002 Plan, has the power to
interpret the 2002 Plan, to determine all questions thereunder, and to adopt and
amend any rules and regulations for the administration of the 2002 Plan as it
may deem desirable.
The 2002 Plan, as amended, authorizes the grant of options for up to
1,000,000 shares of Focus common stock. Outstanding options under the 2002 Plan
are subject to adjustment for capital changes. If any options granted under the
2002 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
2002 Plan.
The exercise price per share of options granted under the 2002 Plan is
100% of the fair-market value of Focus' common stock on the date of grant. 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 Focus' capitalization.
The Plan requires that options granted thereunder will expire on the
date which is ten (10) years from the date of grant.
Each option granted under the 2002 Plan first becomes exercisable upon
time periods set by the Compensation Committee of the Focus Board of Directors
but in general, options granted to non-executive employees, vest so that, eight
point three three percent (8.33 %) of the shares vest every three months from
grant date and options granted to executive employees and board members vest so
that, two point seven seven percent (2.77 %) of the shares vest every month from
grant date. Subject to the terms and conditions of the 2002 Plan, an option
granted under the 2002 Plan shall be exercisable in whole or in part by giving
written notice to Focus 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. The vesting of options on each
vesting date is conditioned on the optionee having continuously served as a
member of the Focus Board of Directors or being employed by Focus through that
date.
In the event an optionee ceases to be a member of the Focus Board of
Director or an employee of Focus for any reason other than death, permanent
disability, termination without cause or termination due to a change in control
of Focus, 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 for
a period of one year thereafter. In the event that an optionee ceases to be a
member of the Focus Board of Directors or employee of Focus by reason of his or
her permanent disability or death, any option granted to such optionee , to the
extent it is then vested, may be exercised by the optionee (or by the optionee's
personal representative, heir or legatee) within one year of such event.
Any option granted pursuant to the 2002 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 Focus Board of Directors may from time to time adopt amendments,
certain of which are subject to
17
shareholder approval, and may terminate the 2002 Plan at any time, however, such
action shall not affect options previously granted.
Awards Granted
Brett Moyer became President and Chief Executive Officer on September
30, 2002. Pursuant to an employment agreement, Mr. Moyer is to receive, among
other things, additional options to purchase 150,000 shares of common stock upon
the approval by Focus stockholders of any new stock benefit plan. Assuming
shareholder approval of the 2002 Plan, the exercise price of such options shall
be the fair market value of our common stock as determined by the 2002 Plan on
the date of shareholder approval of the 2002 Plan. Since the shares will be
granted at fair market value on the date of grant, the options will not have any
value unless the price of our common stock increases. See also " Executive and
Director Compensation - How do we compensate our executive officers? --
Employment Agreements." Except as discussed herein, no options have been awarded
under the 2002 Plan.
Federal Income Tax Consequences of the 2002 Non-Qualified Stock Option Plan
The following discussion summarizes certain federal income tax
consequences for directors and officers of Focus receiving options under the
2002 Plan and certain tax effects on Focus. 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 Plan is not subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended,
and the provisions of Section 401(a) of the Internal Revenue Code of 1986, as
amended, are not applicable to the 2002 Plan.
o Options granted under the 2002 Plan do not qualify as "Incentive
Stock Options" under Section 422 of the Code
o A director or officer will not recognize any taxable income upon
the grant of an option under the 2002 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.
o 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. No
tax deduction will be allowed to Focus upon the grant of an option
under the 2002 Plan. When a director or officer recognizes
compensation income as a result of the exercise of an option under
the 2002 Plan, Focus generally will be entitled to a corresponding
deduction for income tax purposes.
Existing Equity Compensation Plan Information
(c)
Number of securities
(a) (b) remaining available for
At Number of securities to be Weighted - average future issuance under
September 30, 2002 issued upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
------------- ------------------- ------------------- ------------------------
Equity compensation plans
approved by security holders (1) 6,674,343 $1.00 194,886
- ------------------
(1) Focus does not maintain any equity compensation plans that were not
submitted to, and approved by, its shareholders.
Recommendation
THE FOCUS BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE 2002 PLAN.
18
PROPOSAL 4:
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
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.
We have appointed Deloitte & Touche, LLP as our independent auditors
for the year ending December 31, 2002. It is expected that representatives of
Deloitte & Touche, LLP will be present at the meeting, will be available to
respond to appropriate questions you may ask.
Fees
The following table sets forth the aggregate audit fees and non-audit
related fees that Focus incurred for services provided by Deloitte & Touche, LLP
during the fiscal year ended December 31, 2001. The table lists audit fees,
financial information systems design and implementation fees, and all other
fees. All services rendered by Deloitte & Touche, LLP during the fiscal year
ended December 31, 2001 were furnished at customary rates and terms.
Fiscal Year Ended
-----------------
December 31, 2001
-----------------
Audit Fees........................................................ $81,540
Financial information systems design and implementation fees...... $0
All Other Fees.................................................... $70,018
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, 2001 and the reviews of the
financial statements included in Focus' Quarterly Reports on Forms 10-QSB for
fiscal year ended December 31, 2001.
The audit committee has considered the role of Deloitte & Touche in
providing additional services and other non-audit services to the Company and
has concluded that such services are compatible with Deloitte & Touche's
independence as the Company's auditors.
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 4.
19
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 10, 2003 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.
SEC rules permit management to vote proxies in its discretion if (a)
Focus receives notice of the proposal before the close of business on October
13, 2003 and advises stockholders in next year's proxy statement about the
nature of the matter and how management intends to vote on such matter, or (b)
does not receive notice of the proposal prior to the close of business on
October 13, 2002. In the event our 2003 annual meeting is more than 30 days
before or more than 60 after the anniversary date of this annual meeting, to be
timely, stockholder notices much be delivered not earlier than the close of
business on the later of the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such annual
meeting or the close of business on the 10th day following the day on which
public announcement of the date of such meeting is first made by Focus. Notices
of intention to present proposals at the 2003 annual meeting should be addressed
to Secretary, Focus Enhancements, Inc., 1370 Dell Avenue, Campbell, California
95008. Focus reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with these
and other applicable requirements.
VOTING SECURITIES
Stockholders of record at the close of business on October 25, 2002,
will be eligible to vote at the meeting. The voting securities of Focus consist
of our Common Stock, of which 36,158,269 shares were outstanding on October 25,
2002 and our Series B Preferred Stock of which 1,904 shares were outstanding on
October 25, 2002. 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.
20
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 Enhancements, 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 11, 2002. 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 11, 2002
21
Appendix
FOCUS ENHANCEMENTS, INC.
1370 Dell Avenue
Campbell, California 95008
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 20, 2002 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 20, 2002 at
1370 Dell Avenue, Campbell, California 95008, at 10:00 a.m., California time,
and at any adjournment or postponement thereof as follows:
1. ELECTION OF DIRECTORS FOR THE TERMS INDICATED
FOR election of the
nominee listed below WITHHOLD AUTHORITY
to vote for the
nominee
Nominee:
[ ] [ ] Brett Moyer
(term to expire in 2005)
2. Proposal to amend the Focus Enhancements, Inc. Certificate of Incorporation
to increase the number of authorized shares of common stock from 50,000,000 to
60,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to adopt the Focus Enhancements, Inc. 2002 Non-Qualified Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification of the selection of Deloitte & Touche, LLP as independent
auditors of the Corporation for the year ending December 31, 2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. 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 NOS. 2, 3 and 4.
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 11, 2002, an Annual Report on Form 10-KSB for the year
ended December 31, 2001 and a Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.
Dated: ___________________, 2002 [ ] 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.
APPENDIX A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
FOCUS ENHANCEMENTS, INC.
FOCUS Enhancements, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to the
provisions of the General Corporation Law of the State of Delaware (the "DGCL"),
DOES HEREBY CERTIFY as follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first paragraph of Section 4 of the Certificate of
Incorporation in its present form and substituting therefor new first and second
paragraphs of Section 4 in the following form:
A. The Corporation is authorized to issue two classes of stock,
to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares this corporation is
authorized to issue is Sixty-Three Million (63,000,000) shares
capital stock.
B. Of such authorized shares, Sixty Million (60,000,000) shares
shall be designated "Common Stock" and have a par value of
$0.01 per share. Three Million (3,000,000) shares shall be
designated "Preferred Stock" and have a par value of $0.01 per
share.
SECOND: The amendment of the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its advisability and submitting it to the shareholders
of the Corporation for their approval, and (b) the shareholders of the
Corporation having duly adopted such amendment by vote of the holders of a
majority of the outstanding stock entitled to vote thereon at a special meeting
of shareholders called and held upon notice in accordance with Section 222 of
the DGCL.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and the Certificate of Amendment to be signed by Brett Moyer,
its President, and attested to by Gary L. Williams, its Secretary, this
__________ day of ________, 2002.
FOCUS ENHANCEMENTS, INC.
By:
------------------------------
Brett Moyer
President
ATTEST:
- ---------------------------------
Secretary
APPENDIX B
FOCUS ENHANCEMENTS, INC.
2002 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
2002 Non-Qualified Stock Option Plan (hereinafter, this "Plan") is intended to
promote the interests of FOCUS Enhancements, Inc. (hereinafter, the "Company")
by providing an inducement to obtain and retain the services of qualified
persons to serve as employees of the Company or members of its Board of
Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock") for which options may
be granted under this Plan shall not exceed 1,000,000 shares, subject to
adjustment in accordance with paragraph 10 of this Plan. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Grant of Options. Subject to the availability of shares under this
Plan, the Committee may make grants to employees of the Company and/or members
of the Board under this Plan from time to time in accordance with the terms of
the Plan.
5. Shareholder Approval. Anything in this Plan to the contrary
notwithstanding, the effectiveness of this Plan and of the grant of all options
hereunder is in all respect subject to this Plan and options granted under it
shall be of no force and effect unless and until the approval of this Plan by
the vote of the holders of a majority of the Company's shares of Common Stock
present in person or by proxy and entitled to vote at a meeting of shareholders
at which this Plan is presented for approval.
6. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on either (i) the day the option is granted, or (ii) such other day as
the Board shall determine at their sole discretion. The option price will be
subject to adjustment in accordance with the provisions of paragraph 11 of this
Plan. For purposes of this Plan, if, at the time an option is granted under the
Plan, the Company's Common Stock is publicly traded, "fair market value" shall
be determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such option is
granted and shall mean (i) the lower of the last sale price for the Company's
Common Stock or the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market. However, if the Common Stock is not publicly traded at the time
an option is granted under the Plan, "fair market value" shall be deemed to be
the fair value of the Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. Period of Option. Unless sooner terminated in accordance with the
provisions of paragraph 9 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
8. (a) Vesting of Shares and Non-Transferability of Options.
Options granted under this Plan shall not be exercisable until they become
vested. Options granted under this Plan shall vest in the optionee and thus
become exercisable in accordance with the vesting schedule as determined by the
Committee from time to time in a option grant letter, or upon the occurrence of
a specified event, provided, however, the optionee has continuously served as a
member of the Board, as an employee of the Company, or in another advisory role
to the Company.
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan; provided however, any option
granted under this Plan shall in no event be exercised unless and until this
Plan has been approved by the Company's stockholders, but upon such approval the
vesting shall become effective as of the date of the grant.
(b) Non-transferability. Any option granted pursuant to this
Plan shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
9. Termination of Option Rights.
(a) Except as otherwise specified in the agreement relating to
an option, in the event an optionee ceases to be an employee of Company or a
member of the Board, as the case may be, for any reason other than death or
permanent disability, any then unexercised portion of options granted to such
optionee shall, to the extent not then vested, immediately terminate and become
void; except as set forth in paragraphs 9(b) and 9(c), any portion of an option
which is then vested but has not been exercised at the time the optionee so
ceases to be a member of the Board or an employee may be exercised, to the
extent it is then vested by the optionee within ninety days after such event.
(b) Notwithstanding the foregoing, in the event any optionee
(i) ceases to be a member of the Board of Directors at the request of the
Company, (ii) is removed without cause, or (iii) otherwise does not stand for
nomination or re-election as a director of the Company at the request of the
Company, then any portion of any Option granted to such Optionee may be
exercised, to the extent it is then vested by the optionee within one year after
such event. Notwithstanding anything to the contrary herein, in no event shall
any option be exercised if the Optionee is dismissed from employment or removed
from the Board of Directors for any one of the following reasons: (i)
disloyalty, gross negligence, dishonesty or breach of fiduciary duty to the
Company; or (ii) the commission of an act of embezzlement, fraud or deliberate
disregard of the rules or polices of the Company which results in loss, damage
or injury to the Company, whether directly or indirectly; or (iii) the
unauthorized disclosure of any trade secret or confidential information of the
Company; or (iv) the commission of an act which constitutes unfair competition
with the Company or which induces any customer of the Company to break a
contract with the Company; or (v) the conduct of any activity on behalf of any
organization or entity which is a competitor of the Company (unless such conduct
is approved by a majority of the members of the Board of Directors).
(c) In the event that an optionee ceases to be an employee of
the Company or a member of the Board, as the case may be, by reason of his or
her death or permanent disability, any option granted to such optionee shall be
immediately and automatically accelerated and become fully vested and all
unexercised options shall be exercisable by the optionee (or by the optionee's
personal representative, heir or legatee, in the event of death) for a period of
one year thereafter.
10. Exercise of Option. Subject to the terms and conditions of this
Plan and the option agreements, an option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Secretary of the Company by mail or in person addressed to FOCUS
Enhancements, Inc., 1370 Dell Avenue, Campbell, California, at its principal
executive offices, or other such address as Optionee may be informed from time
to time, stating the number of shares with respect to which the option is being
exercised, accompanied by payment in full for such shares. Payment may be (a) in
United States dollars in cash or by check, (b) in whole or in part in shares of
the Common Stock of the Company already owned by the person or persons
exercising the option
or shares subject to the option being exercised (subject to such restrictions
and guidelines as the Board may adopt from time to time), valued at fair market
value determine in accordance with the provisions of paragraph 6 or (c)
consistent with applicable law , through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise. There shall be no such exercise
at any one time as to fewer than one hundred (100) shares. The Company's
transfer agent shall, on behalf of the Company, prepare a certificate or
certificates representing such shares acquired pursuant to exercise of the
option, shall register the optionee as the owner of such shares on the books of
the Company and shall cause the fully executed certificate(s) representing such
shares to be delivered to the optionee as soon as practicable after payment of
the option price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
or her upon the due exercise of the option.
11. Adjustments Upon Changes in Capitalization and Other Events. Upon
the occurrence of any of the following events, an optionee's rights with respect
to options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivisions, combination or stock dividend.
(b) Recapitalization Adjustments. If (i) the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise and (ii) the Board
resolves at its sole discretion to vest options upon the completion of such
merger or sale, then each option granted under this Plan which is outstanding
but unvested as of the effective date of such event shall become exercisable in
full twenty (20) days prior to the effective date of such event. In the event of
a reorganization, re-capitalization, merger, consolidation, or any other change
in the corporate structure or shares of the Company, to the extent permitted by
Rule 16b-3 of the Securities Exchange Act of 1934, adjustments in the number and
kind of shares authorized by this Plan and in the number and kind of shares
covered by, and in the option price of outstanding options under this Plan
necessary to maintain the proportionate interest of the optionees and preserve,
without exceeding, the value of such options, shall be made. Notwithstanding the
foregoing, no such adjustment shall be made which would, within the meaning of
any applicable provisions of the Internal Revenue Code of 1986, as amended,
constitute a modification, extension or renewal of any Option or a grant of
additional benefits to the holder of an Option.
(c) Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
(d) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in paragraph 2 of
this Plan that are subject to options which previously have been or subsequently
may be granted under this Plan shall also be appropriately adjusted to reflect
such events. The Board shall determine the specific adjustments to be made under
this paragraph 11, and its determination shall be conclusive.
12. Legend on Certificates. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
13. Representations of Optionee. If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares
under the option is made for investment and not with a view to their
distribution (as that term is used in the Securities Act of 1933).
14. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the committee
and the officer executing it.
15. Termination and Amendment of Plan. Options may no longer be granted
under this Plan after October 30, 2012, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that if stockholder approval
of the Plan is required by law, the Board may not, without approval by the
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or by proxy and voting on such matter at a meeting, (a)
increase the maximum number of shares for which options may be granted under
this Plan (except by adjustment pursuant to Section 11), (b) materially modify
the requirements as to eligibility to participate in this Plan, (c) materially
increase benefits accruing to option holders under this Plan or (d) amend this
Plan in any manner which would cause Rule 16b-3 under the Securities Exchange
Act (or any successor or amended provision thereof) to become inapplicable to
this Plan Termination or any modification or amendment of this Plan shall not,
without consent of a participant, affect his or her rights under an option
previously granted to him or her.
16. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect to amounts considered
to be compensation includible in the optionee's gross income.
17. Compliance with Regulations. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended provision thereof) and any applicable
Securities and Exchange Commission interpretations thereof. If any provision of
this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall
be null and void.
18. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.
Approved by Board of Directors of the Company: October 30, 2002.