Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ___)
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FOCUS Enhancements, Inc.
------------------------
(Name of Registrant as Specified in its Charter)
FOCUS Enhancements, Inc.
------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
|_| 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:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------
(2) Form Schedule or Registration Statement No.:
--------------------
(3) Filing Party:
---------------------------------------------------
(4) Date Filed:
-----------------------------------------------------
FOCUS ENHANCEMENTS, INC.
800 WEST CUMMINGS PARK
WOBURN, MA 01801
(617) 938-8088
--------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------------
TO THE STOCKHOLDERS:
An Annual Meeting of Stockholders of FOCUS Enhancements, Inc., a
Delaware corporation, will be held on Monday, July 15, 1996, at 9:00 a.m., at
the Crowne Plaza Hotel, Woburn, Massachusetts, for the following purposes:
1. To elect two Class I directors to serve for a three-year term.
2. To approve, consider and act upon a proposal to approve the
adoption of the 1995 Non- Employee Director Stock Option Plan.
3. To consider and act upon a proposal to ratify the selection of
the firm of Wolf & Company, P.C. as independent auditors for
the fiscal year ending December 31, 1996.
4. To transact such other business as may properly come before
the meeting and any adjournments thereof.
Stockholders entitled to notice of and to vote at the Meeting shall be
determined as of June 10, 1996, the record date fixed by the Board of Directors
for such purpose.
By Order of the Board of Directors,
THOMAS L. MASSIE
Chairman of the Board and
Chief Executive Officer
June 11, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL.
FOCUS ENHANCEMENTS, INC.
800 WEST CUMMINGS PARK
WOBURN, MA 01801
(617) 938-8088
--------------------------
PROXY STATEMENT
--------------------------
JUNE 11, 1996
Proxies in the form enclosed with this proxy statement are solicited by
the Board of Directors of FOCUS Enhancements, Inc. (the "Company") for use at
the Annual Meeting of Stockholders to be held on Monday, July 15, 1996, at 9:00
a.m., at the Crowne Plaza Hotel, Woburn, Massachusetts.
Only stockholders of record as of June 10, 1996 will be entitled to
vote at the Meeting and any adjournments thereof. As of that date, 8,640,885
shares of Common Stock, $.01 par value, of the Company were issued and
outstanding. The holders of Common Stock are entitled to one vote per share on
any proposal presented at the Meeting. Stockholders may vote in person or by
proxy.
Execution of a proxy will not in any way affect a stockholder's right
to attend the Meeting and vote in person. Any stockholder giving a proxy has the
right to revoke it by notice to the Secretary of the Company at any time before
it is exercised.
The persons named as attorneys in the proxies are directors and
officers of the Company. All properly executed proxies returned in time to be
counted at the Meeting will be voted and, with respect to the election of the
Board of Directors, will be voted as stated below under "Election of Directors."
Any stockholder submitting a proxy has the right to withhold authority to vote
for any individual nominee to the Board of Directors by writing that nominee's
name on the space provided on the proxy. In addition to the election of
Directors, the stockholders will consider and vote upon proposals (i) to approve
the 1995 Non-Employee Director Stock Option Plan; and (ii) to ratify the
selection of Wolf & Company, P.C. as auditors, as further described in this
proxy statement. Where a choice has been specified on the proxy with respect to
the foregoing matters, the shares represented by the proxy will be voted in
accordance with the specification and will be voted FOR if no specification is
made.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is necessary
to establish a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker non-votes are counted as present or represented
for purposes of determining the presence or absence of a quorum. A "non-vote"
occurs when a broker holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the broker does not have
discretionary voting power and has not received instructions from the beneficial
owner. Directors are elected by a plurality of the votes cast by stockholders
entitled to vote at the Meeting. All other matters being submitted to
stockholders require the affirmative vote of the majority of shares present in
person or represented by proxy at the Meeting. An automated system administered
by the Company's transfer agent tabulates the votes. The vote on each matter
submitted to stockholders is tabulated separately. Abstentions are included in
the number of shares present or represented and voting on each matter.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any other matter should be presented at the meeting upon which a
vote properly may be taken, shares represented by all proxies received by the
Company will be voted with respect thereto in accordance with the judgment of
the persons named as attorneys in the proxies.
The Company's Annual Report to stockholders, containing financial
statements for the fiscal year ended December 31, 1995, is being mailed
contemporaneously with this proxy statement to all stockholders entitled to
vote. This proxy statement and the form of proxy were first mailed to
stockholders on or about the date above.
2
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock on June 10, 1996 by (i) each
person known to the Company who beneficially owns 5% or more of the 8,640,885
outstanding shares of its Common Stock, (ii) each director of the Company, (iii)
each executive officer identified in the Summary Compensation Tables below, and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated below, to the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP
------------------------------
NAME AND ADDRESS NUMBER
OF BENEFICIAL OWNER OF SHARES PERCENT(1)
- ------------------- --------- ----------
<S> <C> <C>
Thomas L. Massie(2)............................................ 858,871 9.73
Platinum Partners, L.P.(3)..................................... 570,000 6.49
c/o Hori Capital Management, Inc.
One Liberty Square, 4th Floor
Boston, Massachusetts 02109
U. Haskell Crocker II(4)....................................... 209,863 2.40
John Cavalier(5)............................................... 85,871 *
Dr. Stavros Cademenos(6)....................................... 51,040 *
William Coldrick(7)............................................ 193,476 2.20
J. Daniel Shaver(8)............................................ 0 *
All officers and directors as a group (8 persons)(9)........... 1,345,121 14.66
</TABLE>
- ------------------------------------
* 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 43,571 shares of Common Stock held by Mr. Massie's wife and
children. Also includes 187,500 shares issuable pursuant to stock
options exercisable at June 10, 1996 or within 60 days thereafter but
excludes 62,500 shares issuable pursuant to outstanding stock options
that are not currently exercisable.
(3) Includes 140,000 shares issuable pursuant to Public Warrants that are
currently exercisable.
(4) Includes 38,761 shares of Common Stock held directly by Mr. Crocker.
Also includes 33,068 shares issuable pursuant to immediately
exercisable warrants to purchase Common Stock and 79,433 shares
issuable pursuant to stock options held directly by Mr. Crocker
exercisable at June 10, 1996 or within 60 days thereafter, but excludes
58,333 shares of Common Stock issuable pursuant to outstanding stock
options that are not currently exercisable. Mr. Crocker is a Managing
Director of VIMAC & Co., a voting trust formed by the VIMAC Division of
ML Securities Inc. ("VIMAC"), for the benefit of individual investors.
As a Managing Director and a trustee of VIMAC & Co., Mr. Crocker is
deemed to have voting control over 58,601 shares of Common Stock
currently outstanding. Mr. Crocker
3
disclaims beneficial ownership of all the shares issued and issuable to
VIMAC or the individual investors for whose benefit the shares and
warrants are held by VIMAC.
(5) Includes 6,438 shares of Common Stock held in trust with Mr. Cavalier's
wife. Also includes 79,433 shares issuable pursuant to stock options
exercisable at June 10, 1996, or within 60 days thereafter. Excludes
58,333 shares issuable pursuant to outstanding stock options that are
not currently exercisable.
(6) Dr. Cademenos resigned as an officer of the Company in March 1996.
(7) Includes 41,450 shares of Common Stock held jointly with Mr. Coldrick's
wife. Also includes 5,000 shares issuable pursuant to immediately
exercisable warrants, and 147,026 shares of Common Stock issuable
pursuant to outstanding stock options exercisable at June 10, 1996, or
within 60 days thereafter. Excludes 133,333 shares of Common Stock
issuable pursuant to outstanding stock options that are not currently
exercisable.
(8) Does not include 100,000 shares of Common Stock issuable pursuant to
outstanding stock options that are not currently exercisable.
(9) Includes 813,661 shares of Common Stock. Also includes 531,460 shares
issuable pursuant to options and warrants to purchase Common Stock
exercisable at June 10, 1996, or within 60 days thereafter.
ELECTION OF DIRECTORS
In accordance with the Company's Second Restated Certificate of
Incorporation, the Company's Board of Directors is divided into three classes.
Two Class I Directors, Messrs. Massie and Cavalier, were elected at the Special
Meeting of Stockholders on April 12, 1993 for a term ending on the date of the
Annual Meeting of Stockholders being held in 1996. Each of Messrs. Massie and
Cavalier are seeking re-election at the Meeting for a term of three years. The
Class II director, Mr. Coldrick, was elected at the Annual Meeting of
Stockholders on August 18, 1995 for a term ending on the date of the Annual
Meeting of Stockholders to be held in 1998. One of the Class III directors, Mr.
Crocker, was elected at the Annual Meeting of Stockholders held on June 24,
1994, and the other Class III director, Mr. Shaver, was elected by the Board of
Directors at a meeting held on March 1, 1996. Each of Messrs. Crocker and Shaver
will serve for a term ending on the date of the Annual Meeting of Stockholders
to be held in 1997.
The Class I Director nominees, Thomas L. Massie and John C. Cavalier,
are currently serving as directors. Shares represented by all proxies received
by the Board of Directors and not so marked to withhold authority to vote for
any individual nominee will be voted (unless one or both nominees are unable or
unwilling to serve) FOR the election of both nominees. The Board of Directors
knows of no reason why any such nominees should be unable or unwilling to serve,
but if such should be the case, proxies may be voted for the election of some
other person or for fixing the number of directors at a lesser number.
4
The following table sets forth for each nominee to be elected at the
Meeting and for each director whose term of office will extend beyond the
Meeting, the year each such nominee or director was first elected a director,
the positions currently held by each nominee or director with the Company, the
year each nominee's or director's term will expire and the class of director of
each nominee or director.
<TABLE>
<CAPTION>
NOMINEE'S OR DIRECTOR'S NAME
AND YEAR NOMINEE OR YEAR TERM CLASS OF
DIRECTOR FIRST BECAME DIRECTOR POSITION(S) HELD WILL EXPIRE DIRECTOR
------------------------------ ---------------- ----------- --------
<S> <C> <C> <C>
Thomas L. Massie......................... Chairman of the Board, 1996 I
1991 President and Chief
Executive Officer
John C. Cavalier......................... Director 1996 I
1992
William B. Coldrick...................... Director 1998 II
1993
U. Haskell Crocker II.................... Director 1997 III
1992
J. Daniel Shaver......................... Director 1997 III
1996
</TABLE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Class I nominees to be elected at
the Meeting, the current directors who will continue to serve as directors
beyond the Meeting, and the executive officers of the Company, their ages, and
the positions currently held by each such person with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas L. Massie................................... 34 Chairman of the Board, President
and Chief Executive Officer
William B. Coldrick................................ 54 Vice Chairman of the Board
Jeremiah J. Cole, Jr............................... 36 Vice President of Finance and
Administration and Treasurer
Carlton van Putten................................. 31 Vice President of Products
Pierre J. Esneau................................... 36 Managing Director,
FOCUS Enhancements b.v.
John C. Cavalier(1)................................ 56 Director
U. Haskell Crocker II(2)........................... 33 Director
J. Daniel Shaver................................... 54 Director
</TABLE>
- --------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
5
DIRECTORS TO BE ELECTED AT THE MEETING
THOMAS L. MASSIE is Chairman of the Board, President, Chief Executive
Officer, and a co-founder of the Company. From 1990 to January 1992, Mr. Massie
was the Senior Vice President of Articulate Systems, responsible for worldwide
sales, marketing and operations. Articulate Systems is a developer and
manufacturer of voice control and communications products for the PC
marketplace. From February 1986 to 1990, Mr. Massie was the Chairman of the
Board, Executive Vice President and founder of MASS Microsystems. MASS
Microsystems is a publicly-held developer of multimedia hardware products and
high-end removal storage subsystems for the Apple Macintosh marketplace.
JOHN C. CAVALIER has served as a Director of the Company since May
1992. He has more than 29 years of business management experience. Mr. Cavalier
joined Amdahl Company in early 1993 as Vice President and General Manager of
Huron, Amdahl's software business. In July of 1993, he was also appointed
President and CEO of Antares Alliance Group, a joint venture between Amdahl and
EDS. From July 1990 to July 1992, he was President, Chief Executive Officer and
a director of Bimillenium Company, a software development company. Bimillenium
is a developer of scientific software for the Macintosh and UNIX marketplace.
From April 1987 to January 1992, Mr. Cavalier was a Director of MASS
Microsystems. He was President, Chief Executive Officer and a director of
ShareBase Company, a database systems company, from November 1987 to June 1990.
He earned his undergraduate degree from the University of Notre Dame and an MBA
from Michigan State University.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
WILLIAM B. COLDRICK has served as a Director of the Company since
January 1993 and was Executive Vice President of the Company from July 1994 to
May 1995. In March 1991, Mr. Coldrick retired as Senior Vice President, U.S.
Sales, for Apple Computer, Inc., which he joined in 1982. As Senior Vice
President, U.S. Sales, for Apple Computer, Mr. Coldrick was responsible for
leading all sales, support, service, distribution and channel activities for
Apple throughout the United States. Previously at Apple, Mr. Coldrick held the
position of Vice President and General Manager for Western Operations, and was
responsible for overseeing sales, marketing, service and support for Apple's
largest business unit in the field organization. In a prior position as National
Sales Director, U.S. Sales, Mr. Coldrick directed the expansion of the U.S.
field sales force. Mr. Coldrick also held the position of Area Sales Director of
the Northeast Area. Before joining Apple, Mr. Coldrick spent 14 years with
Honeywell Information Systems, where he held a number of positions including
Regional Marketing Director. Mr. Coldrick holds a Bachelor of Science degree in
Marketing from Iona College in New Rochelle, New York.
U. HASKELL CROCKER II has served as a Director of the Company since May
1992. Mr. Crocker is currently the Managing Director of the VIMAC Division of ML
Securities, Inc., a full-service professional investment firm. From January 1991
through February 1993, Mr. Crocker was an Investment Manager for Venture
Investment Management Company, which, in February 1993, was transferred to ML
Securities Inc. Prior to joining Venture Investment Management Company, Mr.
Crocker was founder and Chief Executive Officer of The Aftermarket Inc., a
business in the automotive electronics market. Mr. Crocker attended Northeastern
University.
J. DANIEL SHAVER has served as a Director of the Company since March
1996. Mr. Shaver is currently the President, Chief Operating Officer and a
Director of Minerva Systems, Inc., a privately-held supplier of digital video
processing and encoding systems. From May 1993 to October 1995, Mr. Shaver was
Vice President, Worldwide Sales and Marketing for Radius, Inc., a publicly-held
developer and marketer of graphics products. Prior thereto, he was Vice
President, Worldwide Sales and Marketing for Axel Workstations, a division of
Hyundai America. From 1982 to 1990, Mr. Shaver served in various positions with
Apple Computer, with his last position being Vice President, Channel Strategy
and Reseller Development. Mr. Shaver has also held
6
positions with IBM Corporation, Sun Microsystems, Inc. and Microage, Inc. Mr.
Shaver received a Bachelor of Science degree in Economics from Dickinson
College.
EXECUTIVE OFFICERS
JEREMIAH J. COLE, JR. joined the Company as Vice President of Finance &
Administration in November 1995. Mr. Cole has over fifteen years experience and
has held positions in finance and operations with several publicly held
corporations. Prior to joining the Company, he served in a number of financial
and operational positions with Eastman Kodak Company's Billerica,
Massachusetts-based electronic prepress subsidiaries from 1986 to 1995. Mr.
Cole's most recent positions have included Director of Customer Administration,
Business Manager, Controller, and Manager of Accounting. In addition, Mr. Cole
has held financial positions with Wang Laboratories, Midland Ross and Voltek,
Inc. Mr. Cole received a Bachelor of Business Administration - Accounting from
the University of Lowell in 1981 and a Masters in Business Administration from
New Hampshire College in 1983. Mr. Cole also holds a Certificate in Management
Accounting (CMA).
CARLTON VAN PUTTEN joined the Company as Vice President of Products in
March 1996. Prior to joining the Company, Mr. van Putten was an engineering
operations manager for Apple Computer Inc.'s Systems Software Division and a
product manager for Powerbook products from January 1993 to February 1996. He
has also served as a systems administrator for the Information Services Division
of Silicon Graphics, Inc. from February 1992 to January 1993. Mr. van Putten
received a Bachelor of Science degree in Psychology and a Master in Business
Administration degree from the University of California in Los Angeles.
PIERRE J. ESNEAU joined the Company as Managing Director of FOCUS
Enhancements b.v. in March 1996. From August 1991 to March 1996, Mr. Esneau was
the European Director of Marketing for SyQuest Technology, Inc.'s DOS/Windows
division. In addition, Mr. Esneau has held various senior management positions
at the Hard Disk Drive Division of Kyocera Electronics (France) as Sales and
Marketing Director responsible for Southern Europe (from 1990 to 1991), at
Rodime, Inc. as South European Sales Manager (from 1988 to 1990) and at Texas
Instruments (France) as a Sales Engineer for the Systems Division and Consumer
Division (from 1984 to 1988). Mr. Esneau received a Degree in Business from
L'Ecole de Hautes Etudes Commerciales in Lille, France.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met five times during the fiscal year ended
December 31, 1995. None of the Directors attended fewer than 75% of the meetings
held during the period. The Board of Directors also took action by unanimous
written consent in lieu of a meeting on seven occasions during 1995. The
Compensation Committee of the Board, of which Mr. Cavalier and Mr. Shaver are
members, sets the compensation of the Chief Executive Officer, reviews and
approves the compensation arrangements for all other officers of the Company and
administers the Company's 1992 Plan. The Compensation Committee met on three
occasions during the fiscal year ended December 31, 1995 and took action by
unanimous written consent in lieu of a meeting on four occasions during this
period. The Audit Committee of the Board, of which Mr. Crocker and Mr. Coldrick
are members, reviews all financial functions of the Company, including matters
relating to the appointment and activities of the Company's auditors. The Audit
Committee did not meet during the fiscal year ended December 31, 1995. The Board
of Directors does not currently have a standing nominating committee.
7
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation for services in all capacities to the Company
for the fiscal years ended December 31, 1995, 1994 and 1993, of those persons
who were, at December 31, 1995, (i) the Company's Chief Executive Officer and
(ii) other executive officers of the Company receiving total cash and bonus
compensation in excess of $100,000 (the "Named Officers"). The Company did not
grant any restricted stock awards or stock appreciation rights or make any long
term incentive plan payouts to the individuals named in the tables below during
the fiscal year indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
Name and Fiscal Salary Bonus Other Annual
Principal Position Year ($) ($) Compensation($)(2) Options/SAR(5)
------------------ ------ ------ ----- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Thomas L. Massie......................... 1995 $129,166 $50,000 $11,538(3) 250,000(6)
CEO and Chairman of the Board 1994 $131,243 -- $10,385(3) --
1993 $119,999 $25,000 $ 6,923(3) --
William B. Coldrick...................... 1995 $101,042 -- -- 250,000(6)
Executive Vice President and 1994 $ 52,229 -- -- --
Vice Chairman of the Board
Dr. Stavros Cademenos.................... 1995 $ 78,182 $ 1,615(4) -- 20,000
Vice President of International 1994 $ 78,571 $21,813(4) -- 13,000
Development 1993 $ 68,943 $37,535(4) -- 10,000
</TABLE>
- ------------------------------------
(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) Reflects the payment to Mr. Massie in 1995, 1994 and 1993 of
compensation for unused vacation time from 1994, 1993 and 1992,
respectively.
(4) Represents commissions paid to Dr. Cademenos in each of the periods
indicated.
(5) 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.
(6) One-half of these options are currently exercisable, with the balance
becoming exercisable in equal installments of 62,500 shares on June 30,
1996 and June 30, 1997.
The following table sets forth information concerning options granted
during the fiscal year ended December 31, 1995 to the executives named in the
Summary Compensation Table above. The Company did not grant any stock
appreciation rights during the fiscal year.
8
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------
Percentage of
Shares Total Options
Subject to Granted to
Options Employees in Exercise Expiration
Name Granted FY 1995(1) Price Date
---- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C>
Thomas L. Massie.......................... 250,000 32.7% $1.10 6/30/02
William B. Coldrick....................... 250,000 32.7% $1.10 6/30/02
Dr. Stavros Cademenos..................... 20,000(2) 2.6% $4.6875 9/25/00
</TABLE>
- ------------------------------------
(1) Net of cancellations, a total of 263,406 options were granted to
employees in 1995 under the Company's 1992 Stock Option Plan, the
purpose of which is to provide an incentive to employees who are in a
position to make significant contributions to the Company. In addition,
the Company granted non-qualified options to purchase an aggregate of
500,000 shares of Common Stock to Messrs. Coldrick and Massie.
(2) An option for 20,000 shares was granted on September 22, 1995. These
options have a term of five years from the date of grant and become
exercisable as to one-third of the shares covered thereby each year
until such options are fully exercisable. The options granted in 1995
qualify as incentive stock options under Section 422 of the Internal
Revenue Code.
The following table sets forth information concerning option exercises
during fiscal year 1995 and the value of unexercised options as of December 31,
1995 held by the executives named in the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised,
Unexercised In-the-Money
Options at Options at
Shares December 31, 1995 December 31, 1995
Acquired on Value (Exercisable/ (Exercisable/
Name Exercise(#) Realized($)(1) Unexercisable) Unexercisable)(2)
---- ----------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Thomas L. Massie....................... 0 0 125,000 (Exercisable) $660,000 (Exercisable)
125,000 (Unexercisable) $660,000 (Unexercisable)
William B. Coldrick.................... 20,173 $ 91,749 147,026 (Exercisable) $755,432 (Exercisable)
133,333 (Unexercisable) $691,249 (Unexercisable)
Dr. Stavros Cademenos.................. 29,610 $136,788 2,667 (Exercisable) $13,515 (Exercisable)
32,000 (Unexercisable) $94,660 (Unexercisable)
</TABLE>
- ------------------------------------
(1) Value is based on the difference between the option exercise price and
the fair-market value of the Common Stock on the date the option was
exercised multiplied by the number of options exercised.
(2) Value is based on the difference between option exercise price and the
fair-market value at 1995 fiscal year-end ($6.38 per share, the closing
price as quoted on the Nasdaq Small-Cap Market at the close of trading
on December 31, 1995) multiplied by the number of shares underlying the
option.
9
On April 27, 1995, the Board of Directors authorized, and ratified on
June 26, 1995, the grant to each of Messrs. Massie and Coldrick warrants (the
"Series A Warrants") to purchase 250,000 shares of Series A Preferred Stock
exercisable at $1.10 per share, the fair-market value on the date of the grant.
In accordance with their terms, the Series A Warrants were automatically
exchanged for non-qualified options to purchase 250,000 shares of Common Stock
exercisable at $1.10 per share in August 1995 when the stockholders of the
Company approved an increase in the authorized Common Stock of the Company to
16,000,000 shares. As originally granted, Mr. Massie's options became
exercisable in one-third increments annually commencing June 15, 1995 and Mr.
Coldrick's options were exercisable at the rate of 50% immediately, with 25%
becoming exercisable on June 15, 1996 and June 15, 1997. On December 1, 1995,
the Board authorized the acceleration of the vesting on Mr. Massie's options so
that 50% of the options are exercisable immediately, with 25% becoming
exercisable on June 15, 1996 and June 15, 1997.
EMPLOYMENT AGREEMENTS
The Company and Thomas L. Massie are parties to an Employment Contract
effective January 1, 1992, as amended to date, which renews automatically such
that it is always effective for a period of three years, subject to certain
termination provisions. This Employment Contract includes a one-year
non-competition provision following termination of employment. Pursuant to this
Employment Contract, Mr. Massie serves as Chairman of the Board, President and
Chief Executive Officer of the Company at a base salary of $150,000 per year.
This Employment Contract requires a lump-sum severance payment to Mr. Massie of
three times his aggregate compensation or allowances then in effect if Mr.
Massie is terminated without cause during the term of the contract. In addition,
the vesting of all options held by Mr. Massie shall be accelerated so as to be
immediately exercisable. The Employment Contract provides for bonuses as
determined by the Board of Directors and employee benefits, including health and
disability insurance, in accordance with the Company's policies.
COMPENSATION OF DIRECTORS
All members of the Board of Directors who are not employees of the
Company receive $8,000 per year for their services as Directors. Directors who
are employees of the Company do not receive any cash compensation for the
services as directors. On October 15, 1993, the Board of Directors of the
Company adopted the 1993 Directors Plan, subject to approval by the Company's
stockholders. The 1993 Directors Plan authorized the grant on October 15, 1993
of a stock option for 25,000 shares of Common Stock to each member of the
Company's Board of Directors who at the time was neither an employee nor officer
of the Company, subject to approval by the Company's stockholders. An option was
granted to each of Messrs. Cox, Coldrick, Cavalier and Crocker, the members of
the Board of Directors entitled to participate in the 1993 Directors Plan. These
options have an exercise price of $2.625 per share, the fair-market value on the
date of grant.
On August 18, 1995, the Board of Directors adopted the 1995 Directors
Plan, subject to approval by the Company's stockholders. The 1995 Directors Plan
authorized the grant on August 18, 1995 of a stock option for 100,000 shares of
Common Stock to each member of the Company's Board of Directors who is neither
an employee nor officer of the Company subject to approval by the Company's
stockholders. An option was granted to each of Messrs. Cox, Cavalier and
Crocker, the members of the Board of Directors entitled to participate in the
1995 Directors Plan. Such options have an exercise price of $3.81, the
fair-market value on the date of grant.
10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 16, 1993, a wholly-owned subsidiary of the Company was
merged with and into Lapis Technologies, Inc. ("Lapis"). The Company issued
500,013 shares of the Company's Common Stock to the Lapis stockholders in
exchange for all of the outstanding common stock of Lapis. James C. Harris, who
was the President, Chief Executive Officer and Chairman of the Board of Lapis,
and Phillip Scott Anderson, who was a Vice President and Director of Lapis, each
received Common Stock of the Company on the same terms as the other Lapis
stockholders. As a result of the merger, Mr. Harris became a Director and Chief
Operating Officer of the Company, positions he held until March 31, 1995, when
he resigned these positions. Also as a result of the merger, Mr. Anderson now
serves as Vice President of Product Development of the Company.
Prior to the merger of Lapis into the Company, Mr. Harris and his wife,
Shirley Bollinger, made loans to Lapis in July and October 1993 totalling in the
aggregate $107,500. The loans were evidenced by demand notes bearing interest at
the rate of 6% per annum. In March 1994, these loans were repaid by the Company.
In November 1994, the Company made a claim against the former
stockholders of Lapis arising out of its merger with Lapis. The Company claimed
$8,000,000 for damages due to alleged misrepresentations about, and omissions
regarding, material changes in Lapis's financial condition before the merger.
Certain former Lapis stockholders thereafter filed a counterclaim against the
Company for damages due to alleged misrepresentations about the Company's
financial condition before the merger. One principal former Lapis stockholder
alleged such damages to be at least $3,900,000.
During the period ended September 30, 1995, the Company and the former
Lapis stockholders settled substantially all claims arising from the Company's
merger with Lapis. Pursuant to the settlement agreement, the Company issued
123,879 shares of Common Stock to the former Lapis stockholders, and the merger
agreement was amended to eliminate the stock value guarantee to the Lapis
stockholders. With the exception of two Lapis stockholders, all of the Lapis
stockholders have accepted the terms of the settlement agreement.
Negotiations are ongoing to settle the remaining claims.
In November 1994, the Company filed a claim against Lakeview
Telesystems, Inc. ("Lakeview") for collection of approximately $147,000 in
past-due accounts receivable. Lakeview is a Macintosh system integrator which
purchases peripheral enhancement products from both the Company and Lapis. Mr.
Harris owns 50% of Lakeview and is Chairman of its Board of Directors. In
connection with Mr. Harris's separation from the Company, as described below,
the Company and Lakeview entered into a settlement agreement pursuant to which
Lakeview paid the Company $147,000 in 1995. Mr. Harris pledged 24,490 shares of
the Company's Common Stock to secure Lakeview's payment.
In March 1995, the Company entered into a separation agreement with Mr.
Harris, pursuant to which he resigned as an officer and a director of the
Company and left the Company to pursue other interests. Under the agreement, Mr.
Harris is receiving payments totaling $66,000 over a 10-month period ending
February 15, 1996. Mr. Harris agreed to forfeit options to purchase 33,193
shares of the Company's Common Stock, and agreed not to compete with the Company
until July 31, 1996. Mr. Harris and the Company also agreed to release all
claims each may have against the other arising out of his employment and the
Company's prior acquisition of Lapis. Consequently, the Company issued to Mr.
Harris 2,811 shares of Common Stock as settlement of claims relating to the
Lapis acquisition.
In June 1994, VIMAC, at the time a principal stockholder of the
Company, and Marshall Cox and William Coldrick, currently directors of the
Company, loaned the Company $100,000, $50,000 and $25,000, respectively, in
connection with a $425,000 debt financing. VIMAC, Mr. Cox and Mr. Coldrick
received subordinated promissory notes bearing interest at the rate of 10% per
annum and warrants to purchase 20,000, 10,000 and 5,000 shares of Common Stock,
respectively, exercisable at a price of $1.80 per share. In August
11
1995, Mr. Cox converted his loan into 47,619 shares of Common Stock and Mr.
Coldrick's loan was repaid. In December 1995, VIMAC converted its loan into
22,831 shares of Common Stock.
The Company believes the foregoing transactions were on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on the Company's review of the copies of such forms
received by it or written representations from certain reporting persons, the
Company believe that during the year ended December 31, 1995, all filing
requirements applicable to its directors, executive officers and
greater-than-10% beneficial owners were met, except that Stavros Cademenos (a
former officer of the Company) filed a late Statement of Changes of Beneficial
Ownership of Securities (Form 4) with respect to the purchase of 1,800 shares of
Common Stock in August 1995.
PROPOSAL TO APPROVE THE 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On August 18, 1995, the Board of Directors of the Company adopted the
1995 Non-Employee Director Stock Option Plan (the "1995 Director Plan"), subject
to approval by the Company's stockholders. As of August 18, 1995, three members
of the Board of Directors were entitled to participate in the 1995 Director
Plan. On August 18, 1995, Messrs. Cavalier, Cox and Crocker were each
automatically granted an option to purchase 100,000 shares of Common Stock with
fair-market value exercise prices as of such date.
Approval of the 1995 Director Plan will require the affirmative vote of
a majority of the shares of the Common Stock of the Company present or
represented and entitled to vote at the Annual Meeting. The Board of Directors
recommends a vote FOR the approval of the 1995 Director Plan.
DESCRIPTION OF THE 1995 DIRECTOR PLAN
Purpose. The purpose of the 1995 Director Plan is to promote the
interests of the Company by providing an inducement to obtain and retain the
services of qualified persons who are not employees or officers of the Company
to serve as members of its Board of Directors.
Administration. The 1995 Director Plan is administered by the Board of
Directors of the Company. The Board of Directors, subject to the provisions of
the 1995 Director Plan, has the power to construe the 1995 Director Plan, to
determine all questions thereunder, and to adopt and amend such rules and
regulations for the administration of the 1995 Director Plan as it may deem
desirable.
Shares Subject to the 1995 Director Plan. The 1995 Director Plan
authorizes the grant of options for up to 400,000 shares of Common Stock,
100,000 of which remain available for grant as of the date hereof. Outstanding
options under the 1995 Director Plan are subject to adjustment for capital
changes. If any options granted under the 1995 Director 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 1995 Director Plan.
As of June 10, 1996, the aggregate market value of shares of Common Stock
issuable pursuant to outstanding options under the
12
1995 Director Plan was $397,537 based upon the average of the bid and ask prices
as quoted on the Nasdaq Small-Cap Market at the close of trading on that date.
Eligibility; Automatic Grant of Options under the 1995 Director Plan.
Each person who was a member of the Company's Board of Directors on August 18,
1995, and who was not an employee or an officer of the Company, was
automatically granted on such date an option to purchase 100,000 shares of the
Company's Common Stock. Each person who is neither an employee nor an officer of
the Company who is first elected a member of the Board of Directors after August
18, 1995 will automatically be granted, on the date of such election, an option
to purchase 100,000 shares of the Company's Common Stock. Anything in the 1995
Director Plan to the contrary notwithstanding, the effectiveness of the 1995
Director Plan and of the grant of all options thereunder is in all respects
subject to the approval of the 1995 Director Plan by the affirmative vote of
holders of a majority of the shares of the Company's Common Stock present in
person or by proxy and entitled to vote at a meeting of stockholders at which
the 1995 Director Plan is presented for approval.
Option Price. The exercise price per share of options granted under the
1995 Director Plan is 100% of the fair-market value of the Company's Common
Stock on the business day immediately prior to the date the option is granted.
The Option Price is subject to adjustment as described in "Changes in
Capitalization and Other Matters."
Option Duration. The 1995 Director Plan requires that options granted
thereunder will expire on the date which is ten years from the date of grant.
Vesting of Shares. Each option granted under the 1995 Director Plan
first becomes exercisable with respect to one-third of the shares subject to
such option on each anniversary date of the grant, until the option is
exercisable with respect to all of the shares subject thereto. The vesting of
options on each annual vesting date is conditioned on the optionee having
continuously served as a member of the Board of Directors through that date.
Exercise of Options and Payment for Stock. Subject to the terms and
conditions of the 1995 Director Plan, an option granted under the 1995 Director
Plan shall be exercisable in whole or in party by giving written notice to the
Company at its principal executive offices. The notice must state the number of
shares as to which the option is being exercised and must be accompanied by
payment in full for such shares.
Termination of Option Rights. In the event an optionee ceases to be a
member of the Board of Director of the Company for any reason other than death
or permanent disability, any then-unexercised options granted to such optionee
shall, to the extent not then vested, immediately terminate and become void, and
any options which are then vested but have not been exercised may be exercised
by the optionee until the scheduled termination date of the option.
In the event that an optionee ceases to be a member of the Board of
Directors of the Company by reason of his or her permanent disability or death,
any option granted to such optionee shall be immediately and automatically
accelerated and become fully vested and all unexercised options shall be
exercisable by the optionee (or by the optionee's personal representative, heir
or legatee) until the scheduled expiration date of the option.
Non-Assignability of Options. Any option granted pursuant to the 1995
Director 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.
Changes in Capitalization and Other Matters. Option holders are
protected against dilution in the event of a stock dividend, recapitalization,
stock split, merger or similar transaction. Upon the happening of any of the
foregoing events, the class and aggregate number of shares reserved for issuance
upon the exercise of options under the 1995 Director Plan shall also be
appropriately adjusted to reflect the events described above.
13
Termination and Amendment of the 1995 Director Plan. The Board of
Directors may from time to time adopt amendments, certain of which are subject
to stockholder approval, and may terminate the 1995 Director Plan at any time
(although such action shall not affect options previously granted).
Federal Tax Considerations. The following discussion summarizes certain
federal income tax considerations for Directors receiving options under the 1995
Director Plan and certain tax effects on the Company. However, the summary does
not address every situation that may result in taxation. For example, it does
not address every situation that may result in taxation. For example, it does
not address the tax implications arising from a Director's death. Furthermore,
that are likely to be federal self-employment tax and state income tax
consequences which are not discussed herein. This summary is not intended as a
substitute for careful tax planning and each Director is urged to consult with
and rely on his or her own advisors with respect to the possible tax
consequences (federal, state and local) of exercising his or her rights under
the 1995 Director Plan. The 1995 Director Plan is not subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the provisions of Section 401(a) of the Code are not applicable to the 1995
Director Plan.
1. Options granted under the 1995 Director Plan do not qualify as
"Incentive Stock Options" under Section 422 of the Code.
2. A Director will not recognize any taxable income upon the grant of
an option under the 1995 Director Plan, but will generally recognize ordinary
compensation income at the time of exercise of the option in an amount equal to
the excess,if any, of the fair-market value of the shares on the date of
exercise over the exercise price.
3. When a Director 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 as compensation income as a result of his
or her exercise of the option). If the Director's holding period for the stock
exceeds one year, the gain or loss will be long-term capital gain or loss.
4. No tax deduction will be allowed to the Company upon the grant of an
option under the 1995 Director Plan. When a director recognizes compensation
income as a result of the exercise of an option under the 1995 Director Plan,
the Company generally will be entitled to a corresponding deduction for income
tax purposes.
Approval of the 1995 Director Plan will require the affirmative vote of
a majority of the outstanding shares of Common Stock of the Company represented
in person or by proxy at the Annual Meeting. The Board of Directors recommends a
vote FOR the approval of the 1995 Director Plan.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Wolf & Company, P.C.,
independent certified public accountants, to serve as auditors for the fiscal
year ending December 31, 1996. Wolf & Company, P.C. has acted as the Company's
independent auditors since June, 1996. It is expected that a member of Wolf &
Company, P.C. will be present at the Annual Meeting of Stockholders with the
opportunity to make a statement if so desired and will be available to respond
to appropriate questions.
The Board of Directors recommends a vote FOR ratification of its
selection of Wolf & Company, P.C. as independent auditors for the fiscal year
ending December 31, 1996.
14
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement
to be mailed to all stockholders entitled to vote at the next annual meeting of
stockholders of the Company must be received at the Company's principal
executive offices not later than December 31, 1996. In order to curtail
controversy as to the date on which a proposal was received by the Company, it
is suggested that proponents submit their proposals by Certified Mail Return
Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation by proxies will be borne by the Company, and
in addition to directly soliciting stockholders by mail, the Company may request
banks and brokers to solicit their customers who have stock of the Company
registered in the name of a nominee and, if so, will reimburse such banks and
brokers for their reasonable out-of-pocket costs. Solicitation by officers and
employees of the Company may be made of some stockholders in person or by mail
or telephone.
15
SOLICITED BY THE BOARD OF DIRECTORS
FOCUS ENHANCEMENTS, INC.
ANNUAL MEETING OF STOCKHOLDERS
JULY 15, 1996
P The undersigned stockholder of FOCUS Enhancements, Inc. (the "Company")
hereby appoints Thomas L. Massie and William B. Coldrick, and each of them
R acting singly, with power of substitution, the attorneys and proxies of the
undersigned and authorizes them to represent and vote on behalf of the
O undersigned, as designated, all of the shares of capital stock of the
Company that the undersigned is entitled to vote at the Annual Meeting of
X Stockholders of the Company to be held on July 15, 1996, and at any
adjournment or postponement of such meeting for the purposes identified on
Y the reverse side of this proxy and with discretionary authority as to any
other matters that properly come before the Annual Meeting, in accordance
with and as described in the Notice of Annual Meeting of Stockholders and
Proxy Statement. This proxy when properly executed will be voted in the
manner directed herein by the undersigned stockholder. If this proxy is
returned without direction being given, this proxy will be voted FOR
proposals 1, 2 and 3.
-----------
SEE REVERSE
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE) SIDE
-----------
|X| Please mark
votes as in
this example.
FOR WITHHOLD
1. Election of two Class I Directors: |_| |_|
Nominees: Thomas L. Massie WITHHOLD FOR NOMINEE BELOW:
John C. Cavalier
FOR AGAINST ABSTAIN
2. Approve the adoption of the 1995 Non- |_| |_| |_|
Employee Director Stock Option Plan.
3. Ratify the appointment of Wolf & |_| |_| |_|
Company, P.C. as independent auditors.
MARK HERE FOR MARK
ADDRESS CHANGE |_| HERE FOR |_|
AND NOTE BELOW COMMENTS
Please sign exactly as your name appears on stock certificate. If acting as
attorney, executor, trustee, guardian or in other representative capacity, sign
name and title. 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. If held jointly, both parties must sign
and date.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature:_________________________________ Date:______________________
Signature:_________________________________ Date:______________________
