<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DIRECT FOCUS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registrant statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO]
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1999
------------------------------
To the Stockholders of Direct Focus, Inc.:
The Annual Meeting of the shareholders of Direct Focus, Inc. will be
held at the Heathman Lodge, 7801 N.E. Greenwood Drive, Vancouver, Washington
on June 25, 1999, at 10:00 a.m. PDT, for the following purposes:
1. To elect seven directors to the Company's Board of Directors, each for
a one year term; and
2. To consider and act upon any other matter which may properly come
before the Annual Meeting or any adjournment thereof.
Only shareholders who held their shares at the close of business on May
21, 1999, the record date, are entitled to notice of and to vote at the
Annual Meeting or any adjournment or postponement thereof.
All shareholders are cordially invited to attend the Annual Meeting, at
which management will present a review of the Company's operations for the
year ended December 31, 1998. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, PLEASE SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD, WHICH YOU
MAY REVOKE AT ANY TIME PRIOR TO ITS USE. A prepaid, self-addressed envelope
is enclosed for your convenience. Your shares will be voted at the Annual
Meeting in accordance with your proxy. If you attend the meeting, you may
revoke your proxy and vote in person.
By Order of the Board of Directors
ROD W. RICE
CHIEF FINANCIAL OFFICER AND SECRETARY
VANCOUVER, WASHINGTON
MAY 27, 1999
<PAGE>
DIRECT FOCUS, INC.
2200 N.E. 65TH AVENUE
VANCOUVER, WASHINGTON 98661
------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 25, 1999
------------------------------
The Board of Directors of Direct Focus, Inc. (the "Company") is
furnishing this Proxy Statement and the accompanying Annual Report to
Shareholders, Notice of Annual Meeting and proxy card in connection with its
solicitation of proxies for use at the Company's 1999 Annual Meeting of
Shareholders or any adjournment thereof (the "Annual Meeting"). The Annual
Meeting will be held at the Heathman Lodge, 7801 N.E. Greenwood Drive,
Vancouver, Washington on June 25, 1999, at 10:00 a.m., Pacific Daylight
Savings Time. The Company is bearing all expenses associated with this
solicitation. The Company's officers or regular employees, without
additional remuneration, may follow this written proxy solicitation with
personal solicitation of certain shareholders in person or by telephone or
facsimile transmission.
The Board of Directors has designated the two persons named on the
enclosed proxy card, Brian R. Cook and Rod W. Rice, to serve as proxies in
connection with the Annual Meeting. These proxy materials and the
accompanying Annual Report to Shareholders are being mailed on or about May
27, 1999, to the Company's shareholders of record on May 21, 1999.
REVOCABILITY OF PROXIES
Any shareholder who executes a proxy is entitled to revoke it at any
time prior to its use at the Annual Meeting by:
- Delivering written notice of revocation to the Company's Secretary;
- Delivering an executed proxy bearing a later date to the Company's
Secretary; or
- Attending the Annual Meeting and voting in person.
RECORD DATE
The Board of Directors has fixed the close of business on May 21, 1999,
as the record date for determining which of the Company's shareholders are
entitled to notice of and to vote at the Annual Meeting. At the close of
business on the record date, 10,452,100 shares of the Company's common stock
were outstanding and held of record by approximately 80 shareholders.
VOTING AT THE ANNUAL MEETING
Each share of common stock outstanding on the record date is entitled to
one vote per share at the Annual Meeting. Shareholders are not entitled to
cumulate their votes. The presence, in person or by proxy, of the holders of a
majority of the Company's outstanding shares of common stock is
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necessary to constitute a quorum at the Annual Meeting. If a quorum is
present, the seven nominees who receive the greatest number of votes cast for
the election of directors by the shares present and voting in person or by
proxy will be elected as directors. Directors are elected by a plurality of
the votes cast and only votes cast in favor of a nominee will have an effect
on the outcome. Therefore, abstention from voting or nonvoting by brokers
will not affect the outcome of the election.
PROXY PROCEDURE
When a proxy card is properly dated, executed and returned, the shares
it represents will be voted at the Annual Meeting in accordance with the
instructions specified in the proxy. If no specific instructions are
specified, the shares will be voted FOR the election of the director nominees
described below. If other matters properly come before the Annual Meeting,
the persons named in the accompanying proxy will vote in accordance with
their best judgment with respect to such matters.
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ELECTION OF DIRECTORS
In accordance with the Company's Amended and Restated Bylaws, the Board of
Directors shall be comprised of no less than five and no more than fifteen
directors, with the specific number to be determined by the Board of Directors.
By resolution adopted on May 7, 1999, the Board of Directors set the number of
directors at seven.
NOMINEES
At the Annual Meeting, the shareholders will elect a board of seven
directors to serve until the 2000 annual meeting or until their respective
successors are elected and qualified. The Board of Directors has nominated
the individuals listed below to serve on the Board. All nominees other than
Paul F. Little are current directors of the Company. As of the date of this
Proxy Statement, each nominee has consented to serve as a director. If any
nominee is unable or unwilling to serve as a director at the time of the
Annual Meeting, the Board of Directors may provide for a lesser number of
directors or designate a substitute. If the Board of Directors designates a
substitute, the proxy holders will have the discretionary authority to vote
for the substitute. Proxies may not be voted for more than seven nominees.
<TABLE>
<CAPTION>
NAME AGE HAS BEEN A DIRECTOR SINCE
------------------- --- -------------------------
<S> <C> <C>
Kirkland C. Aly 42 1996
C. Reed Brown 52 1998
Brian R. Cook 49 1986
Gary L. Hopkins 51 1993
Paul F. Little 56 N.A.
Roger J. Sharp 43 1995
Roland E. Wheeler 50 1986
</TABLE>
KIRKLAND C. ALY has been a director of Direct Focus since 1996. Mr. Aly
was named Senior Vice President of Webforia, Inc. in May 1999, with
responsibility for managing and developing webforia.com. Commencing in 1997,
Mr. Aly was Executive Vice President of Softbank Content Services, Inc., and
subsequently served as Vice President of Worldwide Sales & Marketing at
Software Logistix Corporation following its acquisition of Softbank in 1998.
Logistix develops, implements and manages integrated supply chains for high
technology companies. From 1996 to 1997, Mr. Aly was a principal in KDI
Capital, LLC, and from 1995 to 1997, Mr. Aly was the President and Chief
Executive Officer of Atrieva Corporation. Throughout 1994, Mr. Aly was the
President of Prism Group, Inc. Mr. Aly received his B.A. in Communications
from Washington State University.
C. REED BROWN joined Direct Focus in 1998 as the Director of Business/Legal
Affairs and has served as a director since 1998. From 1996 to 1997, Mr. Brown
served as Vice President/General Counsel and Director of Business Affairs at
Williams Worldwide Television, and also served briefly as President and Chief
Operating Officer of Stilson & Stilson Advertising and Marketing. From 1992 to
1996, Mr. Brown held various positions at HealthRider, Inc.,
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including General Counsel/Vice President, Executive Vice President, Corporate
Secretary and President of HealthRider Kiosk, Inc. Mr. Brown received his
J.D. in 1973 from the University of Utah College of Law. Mr. Brown also
serves as a director of Pen Interconnect, Inc.
BRIAN R. COOK has served as a director and the President and Chief
Executive Officer of Direct Focus since 1986. Mr. Cook received his B.A. in
Business Administration, with a major in accounting, from Western Washington
University. He is a Certified Public Accountant. Mr. Cook is married to the
sister of Mr. Hopkins' wife.
GARY L. HOPKINS has been a director of Direct Focus since January 1993.
Mr. Hopkins is currently the Branch Operations Manager of Qpoint Mortgage, a
position he has held since March 1998. Mr. Hopkins previously served as a
Senior Lending Officer at Olympic NW Mortgage from 1996 to 1998, a Senior
Loan Officer at Emerald Mortgage from 1994 to 1996, and as President and CEO
of Merit Escrow from 1990 to 1994. Mr. Hopkins is married to the sister of
Mr. Cook's wife.
PAUL F. LITTLE has been a principal in a Canadian merchant banking
group, Gornitzki, Thompson & Little ("GTL"), since its inception in 1986.
GTL provides development capital for entrepreneurial companies that desire
access to the public market. Mr. Little is a Chartered Accountant and holds
an M.B.A. from the University of British Columbia.
ROGER J. SHARP has been a director of Direct Focus since 1995. Since
1993, he has served as the President of The Sharp Law Firm in Vancouver,
Washington, a general civil legal practice. He received his J.D. from the
University of Washington School of Law in 1981. Mr. Sharp has provided, and
from time to time may continue to provide, legal services to Direct Focus.
ROLAND E. "SANDY" WHEELER has served as a director of Direct Focus since
1986. Since 1998, he has served as the President and CEO of DynaMed, Inc., a
cancer research company. In addition, since 1996, he has served as the
President of V-Care Health Systems, Inc., a medical equipment company. From
1994 to 1995, Mr. Wheeler served as the Vice President of Marketing of Direct
Focus.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1998, the Board of Directors held four (4) meetings and took
action pursuant to three (3) unanimous written consents. No director while
in office attended fewer than 75% of the Board meetings.
The Board of Directors has two committees: an Audit Committee and a Year
2000 Committee. Kirkland C. Aly, Roger J. Sharp, and C. Reed Brown serve on
the Audit Committee. The Audit Committee has authority to: (1) make
recommendations to the Board of Directors regarding the selection of
independent auditors; (2) review the results and scope of audits and other
services provided by the Company's independent auditors; and (3) review and
evaluate the Company's audit and control functions. C. Reed Brown and Roland
Wheeler serve on the Year 2000 Committee, which is charged with developing,
overseeing and reviewing the Company's Year 2000 response and contingency
plan. In 1998, the full Board of Directors considered and
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took action on matters within the jurisdiction of the Audit Committee and
Year 2000 Committee. Consequently, neither the Audit Committee nor the Year
2000 Committee met in 1998.
The Company does not have a nominating committee or a compensation
committee. Instead, the full Board of Directors considers and determines
nomination and compensation issues. No officer or employees who is a
director participates in Board deliberations regarding their own compensation.
DIRECTOR COMPENSATION
The Company pays all of its non-employee directors $500 per day plus
travel expenses for each Board meeting they attend in person, and $150 per
day for each Board meeting they attend telephonically. On February 27, 1998,
the Board of Directors granted to each non-employee director an option to
purchase 5,000 shares of the Company's common stock at an exercise price
equal to the market price of the Company's common stock at the close of
trading on the Toronto Stock Exchange on the date of grant. On May 8, 1998,
the Board of Directors granted to Mr. Brown an option to purchase 5,000
shares of the Company's common stock under the same terms. In addition, on
May 8, 1998, the Board of Directors granted a $10,000 bonus to each director
other than C. Reed Brown and Brian R. Cook.
BOARD RECOMMENDATION
The Board of Directors recommends a vote in favor of each of the
nominees named in this Proxy Statement.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information regarding the
beneficial ownership of the Company's outstanding common stock as of May 21,
1999, by: (1) each director and director nominee; (2) each executive officer
whose name appears in the summary compensation table; (3) all persons that
the Company knows are beneficial owners of more than 5% of the Company's
common stock, and (4) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
---------------------------
DIRECTORS, EXECUTIVE OFFICERS AND 5% SHAREHOLDERS(1) NUMBER PERCENTAGE(2)
- ---------------------------------------------------- ----------- -------------
<S> <C> <C>
Brian R. Cook(3) 671,071 6.4%
Randal R. Potter(4) 160,666 1.5
Rod W. Rice(5) 105,999 1.0
C. Reed Brown(6) 15,000 *
Kirkland C. Aly(7) 14,000 *
Gary L. Hopkins(8) 44,000 *
Paul F. Little(9) 352,610 3.4
Roger J. Sharp(10) 33,723 *
Roland E. Wheeler(11) 324,586 3.1
All directors and executive officers as a group (9 persons) 1,721,655 16.5
</TABLE>
* Less than 1%.
(1) The address of all directors and executive officers is the Company's
address: 2200 N.E. 65th Avenue, Vancouver, Washington 98661.
(2) All percentages have been calculated assuming that 10,452,100 shares of the
Company's common stock are issued and outstanding. In accordance with SEC
regulations, each percentage calculation with respect to a shareholder
assumes the exercise of all outstanding options that such shareholder holds
and that can be exercised within 60 days after the date of this proxy
statement.
(3) Includes 80,000 shares issuable upon the exercise of options.
(4) Includes 39,166 shares issuable upon the exercise of options.
(5) Includes 18,333 shares issuable upon the exercise of options.
(6) Includes 15,000 shares issuable upon the exercise of options.
(7) Includes 5,000 shares issuable upon the exercise of options.
(8) Includes 15,000 shares issuable upon the exercise of options.
(9) Includes 202,810 shares held by Westover Investments, Inc., of which Mr.
Little is the sole shareholder and director. Mr. Little's address is 211
Queen's Quay West, Suite 911, Toronto, Ontario, Canada M5J 2M6.
(10) Includes 5,000 shares issuable upon the exercise of options, 4,000 shares
held by Mr. Sharp's spouse and 1,900 shares held by Mr. Sharp's children.
Mr. Sharp's spouse is the custodian for all shares held by their children.
(11) Includes 5,000 shares issuable upon the exercise of options and 18,900
shares held by Mr. Wheeler's daughter.
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EXECUTIVE OFFICERS
The following table identifies the Company's current executive officers,
the positions they hold and the year in which they began serving in their
respective capacities. The Board of Directors elects all officers, who hold
office until their respective successors are elected and qualified.
<TABLE>
<CAPTION>
Position
Name Age Position(s) with the Company Held Since
--------------- --- ---------------------------- ----------
<S> <C> <C> <C>
Brian R. Cook 49 President and Chief Executive Officer, 1986
Director
Randal R. Potter 31 Vice President of Marketing 1995
Rod W. Rice 35 Chief Financial Officer, Treasurer and 1995
Secretary
</TABLE>
For information on Brian R. Cook's business background, see "Nominees
for Director" above.
RANDAL R. POTTER joined Direct Focus in 1991 as a Creative Director and
Marketing Manager and was named Vice President of Marketing in December 1995.
Mr. Potter, who received his B.S. in Social Science from Washington State
University, has been involved in the direct marketing industry since 1986.
ROD W. RICE joined Direct Focus in 1994 as Controller and was named
Chief Financial Officer, Treasurer and Secretary in 1995. From 1992 to 1994,
Mr. Rice was a senior assistant accountant with Deloitte & Touche LLP. Mr.
Rice received his B.S. in Business Administration, with a major in Accounting
and Economics, from Portland State University. He is a Certified Public
Accountant.
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EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation the Company paid to its Chief Executive Officer and other
executive officers whose salary and bonus together exceeded $100,000 in 1998.
These individuals are referred to collectively in this Proxy Statement as
the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ---------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($)(2) UNDERLYING OPTIONS (#)
- ---------------------------- ---- ------------- ------------ ----------------------
<S> <C> <C> <C> <C>
Brian R. Cook, President & 1998 $175,000 $175,000 30,000
CEO
Randal R. Potter, Vice 1998 $105,000 $105,000 20,000
President, Marketing
Rod W. Rice, Chief 1998 $ 90,000 $ 90,000 25,000
Financial Officer,
Treasurer and Secretary
</TABLE>
(1) In February 1999, the Board of Directors approved salary increases for each
of the Named Executive Officers. The 1999 salaries for Messrs. Cook,
Potter and Rice are $225,000, $150,000 and $120,000, respectively.
(2) The Board of Directors has sole discretion in establishing bonus awards.
All bonuses awarded in 1998 were in accordance with the performance-based
criteria established by the Board of Directors in February 1998.
OPTION GRANTS
The following table sets forth information concerning stock option
grants to the Named Executive Officers during 1998.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
------------------------------------------------------------------- --------------------
NUMBER OF
SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE GRANT DATE
NAME GRANTED(1) (#) IN 1998(2) PRICE ($/Sh)(3) EXPIRATION DATE PRESENT VALUE(4) ($)
- ---------------- --------------- ------------------ --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Brian R. Cook 30,000 16.0% $4.62 2/28/2003 $90,000
Randal R. Potter 20,000 10.6% $4.62 2/28/2003 $60,000
Rod W. Rice 25,000 13.3% $4.62 2/28/2003 $75,000
</TABLE>
(1) The options were granted on February 27, 1998. Mr. Cook's option vested in
full on the date of grant. Mr. Potter's and Mr. Rice's options vest in
one-third increments on each of the first
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three anniversaries of the grant date.
(2) During 1998, the Board of Directors granted options to purchase a total of
188,000 shares of Direct Focus common stock.
(3) In accordance with the Company's Stock Option Plan, the exercise price per
share equals the closing price of the Company's common stock on the grant
date. The exercise price may be adjusted only upon the occurrence of
specific events that would dilute the Company's share capital.
(4) The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: (a) all options granted will vest as scheduled; (b) no
dividend yield; (c) a risk-free interest rate of 5%; and (d) an expected
volatility of 76%.
The following table summarizes the number and value of options exercised by
the Named Executive Officers during 1998 and the value of options held by such
persons as of May 17, 1999.
AGGREGATED OPTION EXERCISES IN 1998 AND
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT YEAR END (#) MONEY OPTIONS AT YEAR END ($)
--------------------------- -----------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian R. Cook -- $ -- 80,000 -- $1,026,300 $ --
Randal R. Potter 63,500 $333,688 107,500 20,000 $1,581,675 $211,200
Rod W. Rice 37,213 $100,705 36,666 48,334 $ 527,791 $603,009
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
BRIAN R. COOK is employed as the Company's President and Chief Executive
Officer pursuant to an employment agreement dated as of January 1, 1998 (the
"Cook Agreement"). Mr. Cook's current salary is $225,000 per year, and is
subject to increase at the discretion of the Board of Directors. He is also
entitled to reimbursement for reasonable out-of-pocket expenses. The Cook
Agreement had an initial term of one year, with automatic renewals for
subsequent one-year terms. The Company may terminate the Cook Agreement by
providing Mr. Cook with at least six months' notice of such termination.
Upon the receipt of such notice, all unpaid salary that would have been paid
to Mr. Cook during the remaining term of his employment would become
immediately due and payable.
RANDAL R. POTTER is employed as the Company's Vice President of
Marketing pursuant to an employment agreement dated as of January 1, 1998
(the "Potter Agreement"). Mr. Potter's current salary is $150,000 per year,
and is subject to increase at the discretion of the Board of Directors. He
is also entitled to reimbursement for reasonable out-of-pocket expenses. The
Potter Agreement had an initial term of one year, with automatic renewals for
subsequent one-
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year terms. The Company may terminate the Potter Agreement by providing Mr.
Potter with at least six months' notice of such termination. Upon the
receipt of such notice, all unpaid salary that would have been paid to Mr.
Potter during the remaining term of his employment would become immediately
due and payable.
ROD W. RICE is employed as the Company's Chief Financial Officer
pursuant to an employment agreement dated as of January 1, 1998 (the "Rice
Agreement"). Mr. Rice's current salary is $120,000 per year, and is subject
to increase at the discretion of the Board of Directors. He is also entitled
to reimbursement for reasonable out-of-pocket expenses. The Rice Agreement
had an initial term of one year, with automatic renewals for subsequent
one-year terms. The Company may terminate the Rice Agreement by providing
Mr. Rice with at least six months' notice of such termination. Upon the
receipt of such notice, all unpaid salary that would have been paid to Mr.
Rice during the remaining term of his employment would become immediately due
and payable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not have a compensation committee. During
1998, director Brian R. Cook, who is also the Company's President and Chief
Executive Officer, participated in Board deliberations regarding the
compensation of all executive officers other than himself.
REPORT ON EXECUTIVE COMPENSATION
The following report of the Company's Board of Directors describes the
compensation policies and rationale with respect to the Company's executive
officers during 1998. The information contained in the report shall not be
deemed "soliciting material" or "filed with the SEC," and such information
shall not be incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Exchange Act except to the extent
that the Company specifically incorporates such information by reference.
The Board of Directors administers the Company's executive compensation
program. As part of its mandate, the Board of Directors is responsible for:
(1) determining the most effective overall executive compensation strategy
based upon the Company's needs and consistent with shareholder interests; (2)
administering the Company's executive compensation program and policies; (3)
monitoring the Company's performance and its relationship to executive
compensation; and (4) reviewing and making appropriate changes to executive
compensation as warranted.
COMPENSATION PHILOSOPHY
The Board's executive compensation program is designed to encourage,
compensate and reward employees on the basis of individual and corporate
performance, both in the short and long term. Each executive compensation
package is comprised of a base salary and an annual incentive bonus tied to
corporate performance, and is supplemented by long-term incentives in the form
of stock options. As an executive officer's level of responsibility increases,
a greater percentage of total compensation is based on performance, and the mix
of total compensation
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shifts toward stock options. The Board of Directors believes that this
compensation program increases the mutuality of interest between the
Company's executive officers and shareholders.
BASE SALARY
The Board of Directors sets base salaries for its executive officers at
levels it believes are competitive with the base salaries paid by leading,
comparably sized corporations in the direct marketing and fitness industries.
The Board of Directors approves base salary ranges for the Company's
executive officers based on reviews of market data from peer group, industry
and national surveys. Within each range, the Board of Directors establishes
a base salary for each executive officer based on individual performance, the
executive officer's level of responsibility and the importance of the
position to the Company.
ANNUAL BONUS
In the first quarter of each year, the Board of Directors establishes
target corporate performance goals based on actual earnings per share and
other significant factors, such as cash management, strategic business
development and personnel management. At the end of each year, the Board of
Directors evaluates corporate performance in light of these goals. If the
Company meets or surpasses the pre-established performance goals, the Board
of Directors generally will award a bonus to each executive officer equal to
100.0% of his base salary. However, the Board of Directors has absolute
discretion in awarding annual bonuses and may award greater or lesser annual
bonuses to one or more executive officers based, whether or not the Company
achieves its performance goals. In 1998, the Company surpassed its
performance goals and each of the Company's executive officers were awarded a
100.0% annual bonus.
STOCK OPTIONS
The Board of Directors views stock options as the key long-term element
in its performance-based executive compensation program. The Board of
Directors grants stock options to the Company's executive officers based on
the Board's estimation of each executive officer's contribution to the
Company's long-term growth and profitability. Generally, each stock option
granted to an executive officer has an exercise price equal to the market
price on the grant date and vests in one-third increments over a three-year
period. See "Option Grants in Last Fiscal Year" for a summary of options
granted to the Company's executive officers during 1998.
1998 COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Board of Directors established Mr. Cook's 1998 base salary of
$175,000 in the manner described in "Base Salaries" above with respect to all
executive officers. Mr. Cook earned a $175,000 annual bonus based on
corporate and individual performance as described in "Annual Bonus" above.
In 1998, the Board of Directors awarded Mr. Cook an option to purchase 30,000
shares of the Company's common stock.
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SUBMITTED BY THE BOARD OF DIRECTORS:
Kirkland C. Aly Gary L. Hopkins
C. Reed Brown Roger J. Sharp
Brian R. Cook Roland E. Wheeler
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company acquired the rights to its Bowflex technology from Tessema
D. Shifferaw, the inventor of the technology and an original shareholder,
pursuant to an agreement that provides for royalty payments to Mr. Shifferaw
equal to 3.0% of the net sales of the Company's Bowflex products. The
Company's typical royalty fees with independent third parties range between
3.0% and 5.0% of net product sales. The Company paid approximately $1.6
million to Mr. Shifferaw in 1998. In 1992, Mr. Shifferaw negotiated a
separate royalty-based agreement with Brian R. Cook and Roland E. Wheeler to
induce them to continue their employment with the Company. Under this
agreement, Mr. Shifferaw is obligated to pay Messrs. Cook and Wheeler 40.0%
(20.0% each) of annual royalties in excess of $90,000. For 1998, Messrs.
Cook and Wheeler each expect to receive $302,765 from Mr. Shifferaw under
this arrangement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") requires the Company's directors and executive officers and
persons who own more than ten percent of the outstanding shares of the
Company's Common Stock ("ten percent stockholders"), to file with the SEC
initial reports of beneficial ownership and reports of changes in beneficial
ownership of shares of Common Stock and other equity securities of the
Company. The Company's common stock was not registered under the 1934 Act
during 1998. Consequently, none of its directors, executive officers or 10%
shareholders were required to file any Section 16(a) reports during 1998.
SHAREHOLDER PROPOSALS
Proposals by shareholders intended to be presented at the Company's 2000
Annual Meeting of Shareholders must be received by the Company at its
principal executive office no later than February 26, 2000, in order to be
included in the Company's 2000 Proxy Statement. The Company's Amended and
Restated Bylaws require shareholders to deliver proposals they intend to
present at the Company's 2000 Annual Meeting to the Company's principal
executive office no later than sixty calendar days (April 26, 2000) and no
earlier than 90 calendar days (March 27, 2000) prior to the first anniversary
of the Company's 1999 Annual Meeting.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company employed Deloitte & Touche LLP as its independent accountants
during 1998. There have been no disagreements with Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make
reference to the matter in their report. Representatives of Deloitte & Touche
LLP are expected to be present at
14
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the Annual Meeting. Each representative will be given the opportunity to
make a statement on behalf of their firm if such representative so desires,
and each representative will be available to respond to appropriate
stockholder questions.
TRANSACTION OF OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors is not
aware of any other matters that may come before the Annual Meeting. The
persons named in the enclosed proxy card intend to vote the proxy in
accordance with their best judgment if any other matters properly come before
the Annual Meeting.
Please return the enclosed proxy card as soon as possible. Unless a
quorum consisting of a majority of the outstanding shares entitled to vote is
represented at the Annual Meeting, no business can be transacted. Therefore,
please be sure to date and sign your proxy card exactly as your name appears
on your stock certificate and return it in the enclosed postage prepaid
return envelope. Please act promptly to insure that you will be represented
at this important meeting.
By the Order of the Board of Directors:
----------------------------------------
Rod W. Rice
Chief Financial Officer, Treasurer and
Secretary
Dated: May 27, 1999.
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DIRECT FOCUS, INC.
Proxy for Annual Meeting of Shareholders to be Held June 25, 1999
The undersigned hereby names, constitutes and appoints Brian R. Cook and
Rod W. Rice, or either of them acting in absence of the other, with full
power of substitution, my true and lawful attorneys and proxies for me and in
my place and stead to attend the Annual Meeting of the Shareholders of Direct
Focus, Inc. (the "Company"), to be held at 10:00 a.m. PDT on Friday, June 25,
1999, and at any adjournment thereof, and to vote all the shares of common
stock held of record in the name of the undersigned on May 21, 1999, with all
the powers that the undersigned would possess if he were personally present.
1. PROPOSAL 1: ELECTION OF DIRECTORS
/ / FOR all nominees named below
/ / WITHHOLD AUTHORITY for all nominees named below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH NOMINEE'S NAME)
Kirkland C. Aly Gary L. Hopkins Roland E. Wheeler
Brian R. Cook Paul F. Little
C. Reed Brown Roger J. Sharp
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED ABOVE.
2. Upon such other matters as may properly come before, or incident to the
conduct of the Annual Meeting, the Proxy holders shall vote in such manner
as they determine to be in the Company's best interests. Management is not
presently aware of any such matters to be presented for action at the
meeting.
COMPANY MANAGEMENT IS SOLICITING THIS PROXY. IF NO SPECIFIC DIRECTION IS GIVEN
AS TO THE ABOVE ITEM, THIS PROXY WILL BE VOTED FOR THE NOMINEES NAMED IN
PROPOSAL 1.
Dated
--------------------------------------
--------------------------------------------
Shareholder (PRINT NAME)
--------------------------------------------
Shareholder (SIGN NAME)
I DO / / DO NOT / / PLAN TO ATTEND THE MEETING.
The shareholder signed above reserves the right to
revoke this Proxy at any time prior to its exercise by
written notice delivered to the Company's Secretary at
the Company's corporate offices at 2200 N.E. 65th
Avenue, Vancouver, Washington 98661, prior to the
Annual Meeting. The power of the Proxy holders shall
also be suspended if the shareholder signed above
appears at the Annual Meeting and elects in writing to
vote in person.
