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 registered public accounting firm.
The Audit Committee acts under a written charter first adopted and
approved by the Board of Directors on June 1, 2000 and subsequently amended.
The responsibilities of the Audit Committee include recommending to the
Board of Directors an accounting firm to be engaged as Focus independent
registered public accounting firm.
Additionally, and as appropriate, the Audit Committee reviews and
evaluates the independent registered public accounting firms performance, and
discusses and consults with Focus management and the independent registered
public accounting firm regarding the following:
The plan for,
and the independent registered public accounting firms report on, each audit
of Focus financial statements;
Focus
financial disclosure documents, including all financial statements and reports
filed with the SEC or sent to stockholders;
Changes in
Focus accounting practices, principles, controls or methodologies, or in Focus
financial statements;
Significant
developments in accounting rules; and
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 registered public accounting
firm to review and discuss the financial statements for the fiscal year ended
December 31, 2006. They also discussed
with the independent registered public accounting firm 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 registered public
accounting firm that firms independence and satisfied itself as to the
independent registered public accounting firms independence.
Based upon the Boards of Directors discussions with management and the
independent registered public accounting firm, and review of the
representations of management and the independent registered public accounting
firm, it recommended that the audited consolidated financial statements be
included in the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2006, to be filed with the SEC.
Management is responsible for Focus financial reporting process,
including its system of internal controls, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. Focus independent registered public accounting firm is
responsible for auditing those financial statements. Our responsibility is to
monitor and review these processes. It is not our duty or our responsibility to
conduct auditing or accounting reviews or procedures. We are not employees of
Focus and we may not be, and we may not represent ourselves to be or to serve
as, accountants or auditors by profession or experts in the fields of
accounting or auditing. Therefore, we have relied, without independent
verification, on managements representation that the financial statements have
been prepared with integrity and objectivity and in conformity with accounting
principles generally accepted in the United States of America and on the representations
of the independent registered public accounting firm included in their report
on Focus financial statements. Our oversight does not provide us with an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or policies, or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, our considerations
and discussions with management and the independent registered public
accounting firm do not assure that Focus financial statements are presented in
accordance with generally accepted accounting principles, that the audit of our
companys financial statement has been carried out in accordance with generally
accepted auditing standards or that our companys independent registered public
accounting firm are in fact independent.
|
THE AUDIT COMMITTEE
|
|
N. WILLIAM JASPER JR.,
CHAIR
|
|
CARL E. BERG
|
|
WILLIAM B. COLDRICK
|
18
COMPENSATION DISCUSSION AND
ANALYSIS
We have adopted a practice of offering competitive
compensation to attract, retain and motivate a qualified executive management
team. With respect to our Named Executives, this Compensation Discussion and
Analysis describes our compensation philosophy and objectives, methodologies to
establish their compensation, and the practices under which we administer such
programs.
(a)
Compensation Philosophy
and Objectives
The
compensation committee (the Committee) consisted entirely of non-employee
directors in 2006. In addition to offering market competitive compensation
programs, we place strong emphasis on pay for performance, where our primary
goal is motivating executive management to reach business and strategic
objectives that drive stockholder value. With respect to the Named Executives,
our executive compensation programs have been designed to achieve the following
key objectives:
To attract and retain talented and experienced executives by offering
market competitive compensation programs;
To support a pay-for-performance policy that provides annual cash
incentives based on the individual performance of the Named Executives and that
of the Company ;
To align the long-term economic interests of the Named Executives with
that of the stockholders; and
To encourage the Named Executives to achieve strategic business
initiatives that drive shareholder value.
The Committee
believes that these objectives are best achieved by compensation packages
including both cash and stock-based compensation, with an emphasis on pay for
performance.
(b)
Methodologies for
Establishing Compensation
To determine the
appropriate compensation levels for our chief executive officer, the Committee
meets outside the presence of all executive officers. With respect to the
compensation levels of all other Named Executives, the Committee meets outside
the presence of all executive officers except our chief executive officer. The
chief executive officer annually reviews the performance of each other Named
Executive with the Committee.
With the input of
our human resources department and various salary survey data, the chief
executive officer makes recommendations to the Committee regarding base salary
levels, target incentive awards, performance goals, special bonuses, and equity
incentive awards for the other Named Executives. From time to time, the chief
executive officer and the Committee also consider compensation data obtained
from proxy disclosures of specific publicly-traded companies (the Peer Group).
The Peer Group companies typically consist of electronic equipment and
semiconductor companies. The companies included in the Peer Group are similar
to us in revenue and/or market capitalization. Although the businesses the Peer
Group companies operate may or may not compete directly with our various
product offerings, but in any case compete with us in the market for executive
talent. The Peer Group included: Sipex Corporation, Netlogic Microsystems, Inc.,
TVIA Inc., Sigma Designs Inc. and Neomagic Corporation.
Outside the
presence of all executive officers of the Company, the Committee is solely
responsible for determining the appropriate compensation levels and pay mix for
the chief executive officer. The Committee makes its determinations based on
CEO compensation survey data and on the pay practices of the Peer Group. With
regard to the chief executive officer and the other Named Executives, the
Committee generally targets total direct compensation (i.e., base salary,
annual cash incentives and value of long-term equity incentives) at or
approaching the 50th
percentile of
the market data. For the fiscal year ended December 31, 2006, the elements of
the compensation mix include:
Base salary,
Annual cash bonuses,
Equity-based compensation, and
Broad-based benefits programs.
Base Salary
The Committee
establishes the base salary of each Named Executive based on consideration of
the 50th percentile pay levels and on other factors, such as the individuals
performance and experience, company performance and how the salary relates to
all employees salaries. The Committee considers the recommendations of our
chief executive officer and human resources department and the data provided by
the compensation surveys in determining the appropriate base salary levels for
the Named Executives. The Committee increased base salary levels for our Named
Executives by 5% in 2006,
19
with the exception of our executive vice-president and general manager
of our semiconductor group. Base salary increases also take into account any
terms and conditions provided by any employment agreement with the Named
Executive. Although the Committee believes that competitive base salaries are
necessary to attract and retain a highly qualified executive team, it feels
that a significant portion of executive compensation should be based on actual
performance.
Annual Cash Bonuses
For our Named
Executives, annual cash incentive payments under our Management Bonus Plan, are
based upon (1) the Companys attaining specified revenue and operating income
targets and (2) achievement of individual management objectives. In setting the
target bonus amounts for each of the Named Executives, we consider bonus levels
at the 50th
percentile of the Peer Group and
published survey data. Bonuses paid to the Named Executives, however, are
subject to the discretion of the Committee based on its assessment of the
participants contribution to the organization and industry-specific conditions
existing during the applicable period. For 2006, the Committee approved bonus
payments to our CEO, CFO, and Executive Vice-President and general manager of
our semiconductor group as set forth in our Summary Compensation Table. All
other bonus payments to our Named Executives were approved by our CEO pursuant
to a delegation of authority under guidelines established by the Committee.
In addition to the
cash bonuses payable under the Management Bonus Plan, special bonuses for
extraordinary performance and achievement may be awarded to the Named
Executives from time to time. These extraordinary bonus payments are based on
the recommendation of the chief executive officer and subject to approval of
the Committee. No discretionary bonuses were awarded to the Named Executives in
fiscal year 2006.
Equity-Based Compensation
In 2006, grants of
restricted stock were made to the Named Executives pursuant to the 2004 Amended
Stock Incentive Plan to aid in their long-term retention and to align their
interests with those of our stockholders. Historically, the Committee had
emphasized equity-based compensation in the form of stock option grants.
However, as a result of Statement of Financial Accounting Standards No. 123R (SFAS
123R), the Committee decided to alter its equity-compensation practices by
awarding primarily restricted stock rather than stock options. The Committee
determined that this mix would be less dilutive to our current stockholders
than its traditional option award practices and would reduce the amount of
compensation expense that would be recognized in our statements of operations,
which in turn would result in higher reported net income or lower net loss.
The equity-based
compensation awarded to the Named Executives is set by the Committee based on
the practices of the Peer Group, published survey data and the recommendation
of the chief executive officer. The restricted stock grants vest over four
years (25% annually on each anniversary of the grant date), subject to the
Named Executives continued employment with the Company.
Executive Employment Agreements
Each of the Named
Executives has entered into an employment agreement with the Company. The
employment agreements have different terms for each Named Executive. The terms
provide cash severance of between six and twelve months base pay and benefits,
including health and disability insurance, upon involuntary termination of
employment without cause or in the event of voluntary termination for good
reason. In addition, certain employment agreements provide for unvested stock
options and restricted stock grants to become immediately exercisable or no
longer subject to vesting restrictions. The terms cause and good reason are
defined in the employment agreements.
Broad-Based Benefits Programs
These benefits
include health, dental, disability and life insurance, paid vacation or
personal time and Company contributions to a 401(k) savings and investment
plan. Benefits are provided to all employees in accordance with practices
within the marketplace and are a necessary element of compensation in
attracting and retaining employees.
(c)
Administrative Policies
and Practices
In administering the compensation
programs for the Named Executives, the Committee meets when necessary in
conjunction with regularly scheduled Board of Director meetings. The Committee
also meets telephonically to discuss extraordinary items (such as the hiring or
dismissal of a Named Executive). The Committee members regularly confer with
our chief executive officer on matters regarding the compensation of the Named
Executives and other executive officers. In 2006, the Committee met during the
February Board meeting, and conducted the rest of its business in 2006 through
written
20
Employment Agreements
Brett Moyer is party to an employment contract with the
Company effective September 30, 2002. Pursuant to this employment
contract, Mr. Moyer serves as our Chief Executive Officer and President at a
current annual salary of $335,000. This employment contract provides for
payment of 12 months of salary and accelerated vesting of all options held by
Mr. Moyer so as to be immediately exercisable if Mr. Moyer is terminated without
cause, as defined in the employment contract. Additionally, in the event Mr.
Moyers contract is not renewed, Mr. Moyer shall receive 12 months of his then
current salary. The employment contract provides for incentive bonuses as
determined by our Board of Directors, and employee benefits, including health
and disability insurance, in accordance with our policies. The vesting of
certain of Mr. Moyers options would accelerate so as to be immediately
exercisable and restricted stock grants would become immediately vested and no
longer subject to restrictions in the event of a change in control, as
defined in the respective option plan/grant. Mr. Moyers employment
contract with us automatically renews for successive one-year terms, unless
terminated by either party 30 days prior to the end of the then current term.
Michael Conway is party
to an employment contract with the Company effective February 24, 2005.
Pursuant to this employment contract, Mr. Conway serves as our Senior
Vice President of Strategy and Business Development at a current annual salary
of $183,518. Mr. Conways contract automatically renews for one-year terms
unless terminated by either party 30 days prior to the end of the then current
term. This employment contract provides for payment of six months of
salary, payment of prorated bonus amounts and accelerated vesting of all
restricted stock and options held by Mr. Conway so as to be immediately
exercisable if Mr. Conway is terminated either without cause or in the event
of a change in control, as defined in the employment contract during the term
of the contract. Mr. Conways employment contract with the Company
provides for bonuses, as determined by our Board of Directors, and employee
benefits, including health and disability insurance, in accordance with Focus
policies.
Thomas Hamilton is party
to an employment contract with the Company effective October 17, 1996, as
amended to date, which renews automatically for one-year terms, unless
terminated by either party 30 days prior to the end of the then current term.
Pursuant to this employment contract, Mr. Hamilton serves as the General
Manager and Executive Vice President of our Semiconductor Group, at a current
salary of $195,000. This employment contract provides for payment of 12
months of salary and accelerated vesting of all options held by Mr. Hamilton so
as to be immediately exercisable if Mr. Hamilton is terminated without cause
as defined in the employment contract during the term of the contract.
Additionally, vesting of certain of Mr. Hamiltons options would accelerate
so as to be immediately exercisable and restricted stock grants would become
immediately vested and no longer subject to restrictions in the event of a change
in control, as defined in the respective option plan/grant. Mr. Hamiltons
employment contract with us provides for bonuses, as determined by our Board of
Directors, and employee benefits, including health and disability insurance, in
accordance with Focus policies.
Peter Mor is party to an
employment contract with the Company effective February 24, 2005.
Pursuant to this employment contract, Mr. Mor serves as our Senior Vice
President of Engineering and Operations at a current annual salary of $216,000.
Mr. Mors contract automatically renews for one-year terms unless
terminated by either party 30 days prior to the end of the then current term.
This employment contract provides for payment of six months of salary, payment
of prorated bonus amounts and accelerated vesting of all restricted stock and
options held by Mr. Mor so as to be immediately exercisable if Mr. Mor is
terminated either without cause or in the event of a change in control, as
defined in the employment contract during the term of the contract. Mr.
Mors employment contract with us provides for bonuses, as determined by our
Board of Directors, and employee benefits, including health and disability
insurance, in accordance with Focus policies.
Gary Williams is party to an employment contract with
the Company effective May 28, 2004. Pursuant to this employment contract,
Mr. Williams serves as our Executive Vice President of Finance and Chief
Financial Officer at a current annual salary of $222,000. Mr. Williams
contract automatically renews for a one-year term unless terminated by either
party 90 days prior to the end of the then current term. This employment
contract provides for payment of twelve months of salary, payment of prorated
bonus amounts and accelerated vesting of all restricted stock and options held
by Mr. Williams so as to be immediately exercisable if Mr. Williams is
terminated either without cause or in the event of a change in control, as
defined in the employment contract during the term of the contract. Mr.
Williams employment contract with us provides for bonuses, as determined by
our Board of Directors, and employee benefits, including health and disability
insurance, in accordance with Focus policies.
25
COMPANY STOCK PRICE
PERFORMANCE GRAPH
The graph below compares the five-year cumulative total stockholder
return on our common stock with the cumulative total return on the Nasdaq US
Market Index and the Nasdaq Electronic Components Index for the last five
fiscal years ended December 31, 2006, assuming an investment of $100 at the
beginning of that five-year period and the reinvestment of any dividends. No
dividends were declared or paid by Focus during the five-year period.
The comparisons in the graph below are based upon historical data and
are not indicative of, nor intended to forecast, future performance of our
common stock.
CERTAIN TRANSACTIONS WITH RELATED PERSONS
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?
Pursuant to our written Audit Committee Charter, all
related party transactions must be approved or disapproved by the Audit
Committee whenever the Audit Committee is informed or becomes aware of any such
existing or proposed transaction. Related party transactions means transactions
required to be disclosed pursuant to SEC Regulation S-K, Item 404. The Audit Committee reports to the Board
all actions taken by it with respect to related party transactions.
One of the members of the Audit Committee, Carl Berg, was a guarantor of certain
Company obligations relating to the bank loans described below. The entire
Board of Directors approved the transactions with Mr. Berg described below
while Mr. Berg recused himself from the discussion and vote. In lieu of audit
committee approval, with respect to the other related party transactions
described below (i) stock and option grants for Mark DAddio and
Michael DAddio Jr. were approved by our Compensation Committee
and salary and other cash compensation for Mark DAddio and Michael DAddio Jr.
was approved by our Chief Executive Officer and (ii) contract relating to Mr.
Schlomka was assumed by us in connection with our acquisition of COMO,
which was approved by our then constituted Board of Directors.
Carl Berg
In December 2002, Mr. Carl Berg, a director of the Company,
provided Samsung Semiconductor Inc., one of the Companys contracted ASIC
manufacturers, with a personal guarantee to secure the Companys working
capital requirements for ASIC purchase order fulfillment. Mr. Berg agreed to provide
the personal guarantee on the Companys
30
behalf
without additional cost or collateral, as Mr. Berg maintains a secured priority
interest in substantially all the Companys assets. At December 31, 2006, the
Company owed Samsung $91,000, under net 30 terms.
In November 2004, we secured a line of credit of up to $4.0
million under which we can borrow up to 90% of our eligible outstanding
accounts receivable. This line of credit is collateralized by a personal
guarantee from Mr. Berg. In connection with this line of credit, the bank
obtained a priority security interest in our accounts receivable. Mr. Berg will
maintain his security interest in all our assets, subject to the banks lien on
accounts receivable.
On
June 28, 2005, we signed a term loan agreement with Greater Bay
Bank under which we can
borrow up to $2.5 million. Mr. Berg has personally guaranteed the term loan. In
connection with Mr. Bergs extension of his personal guarantee, we agreed to
continue Mr. Bergs priority interest in our assets, except for our accounts
receivable, which Mr. Berg has subordinated to the bank, and to issue to Mr.
Berg a warrant to purchase 100,000 shares of our common stock
at an exercise price of $0.81 per share and which
expires on June 28, 2009. The warrant
was valued at $42,000 using the Black-Scholes option-pricing model.
In connection with the $10.0 million convertible note
financing completed in January 2006, we entered into an amendment to the
Intercreditor Agreement by and among Greater Bay Bank, Mr. Berg and the
Company, pursuant to which Greater Bay Bank, Mr. Berg and the holders of the
notes have defined their relative rights and priorities with respect to the
shared collateral, with Greater Bay Bank having a first priority security
interest in certain specified collateral of the Company and an Intercreditor
Agreement specifying the shared interests of the note holders and Mr. Berg in
the collateral securing both the notes (all of the Companys assets) and Mr.
Bergs guaranty of the Companys obligations to Greater Bay Bank, subject to
the priority security interest of the Greater Bay Bank.
On March 19, 2007, we entered
into a Sixth Amendment to Loan and Security Agreement (Sixth Amendment) with
Venture Banking Group, a division of Greater Bay Bank N.A. (Bank). In
connection with this Sixth Amendment, our $4.0 million accounts
receivable-based line of credit and $2.5 million term loan, previously maturing
on March 23, 2007, were extended to February 23, 2008. In connection with the
Sixth Amendment, Mr. Berg agreed to
continue to personally guarantee both the $4.0 million account
receivable-based line of credit and the $2.5 million term loan to the Bank.
In connection with Mr. Bergs continued extension of his personal
guarantee, we agreed to continue Mr. Bergs priority interest in the Companys
assets, except for our accounts receivable, which Mr. Berg has subordinated to
the Bank, and to issue to Mr. Berg a warrant to purchase 48,148 shares of common
stock
at
an exercise price of $1.35 per share. The warrant was valued at $26,000 using
the Black-Scholes option-pricing model.
Michael
DAddio
Messrs.
Mark DAddio and Michael DAddio Jr., both sons of director Michael DAddio,
are employed by Focus as Vice President of Business Development Emerging
Markets and Director of Test and Documentation, respectively. For the year
ended December 31, 2006, Mark DAddio received wages including commission and
bonus of $146,113 and received a grant of restricted stock for 21,492 shares
which vests in equal annual installments over a four-year period. For the year
ended December 31, 2006, Michael DAddio Jr. received wages of $136,760 and
received a stock option grant for 10,746 shares which vests in equal quarterly
installments over a four-year period. Neither are executive officers of the
Company.
Norman
Schlomka
Norman Schlomka, General Manager
of COMO and one of our executive officers since February 2006, owns one third
of the building located in Raisdorf, Germany, that COMO occupies. In the year
ended December 31, 2006 Focus paid rents of approximately $74,000 related to
this building. The lease, entered into on July 1, 2005, runs through June 30,
2008 and calls for monthly payments of approximately $8,000.
General
All material affiliate transactions
and loans between our officers, directors, principal stockholders or other
affiliates and us are made or entered into on terms that are no less favorable
to such individuals than would be obtained
31
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 our expense to our counsel or
independent legal counsel.
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.
WHERE YOU CAN FIND MORE INFORMATION
Our common stock is listed on the
Nasdaq Capital 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 SECs Internet website, at http://www.sec.gov.
We have enclosed copies of our Annual Report on Form 10-K for the period ended
December 31, 2006 and our Quarterly Report on Form 10-Q for the period ended
September 30, 2007 with this proxy statement.
If
you would like another copy of our 2007 Annual Report on Form 10-K, we will
send you one without charge. The Annual Report on Form 10-K includes a list of
exhibits filed with the SEC, but does not include the exhibits. If you wish to
receive copies of the exhibits, we will send them to you upon request. Expenses for copying and mailing the exhibits
to you will be your responsibility.
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. Alternatively,
you can visit our website at www.focusinfo.com for such documents.
You should rely only on the
information contained in or accompanying 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 or accompanies this document. This document is dated November
16, 2007. You should not assume that the information contained in this document
is accurate as of any date other than the date indicated, and the mailing of
this document does not create any implication to the contrary.
By Order of the
Board of Directors
Gary L. Williams, Secretary
32
APPENDIX A
FOCUS ENHANCEMENTS, INC.
AMENDED 2004 STOCK INCENTIVE PLAN
1.
Purpose
.
This Stock Incentive Plan, to be known as the 2004 Stock Incentive 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 $0.01 per share, of the Company (the common stock)
for which options or restricted stock may be granted under this Plan shall not
exceed 5,952,000 shares, subject to adjustment in accordance with paragraph 2
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 or restricted stock granted under this Plan are
surrendered or forfeited before exercise or lapse without exercise, in whole or
in part, the shares reserved therefore shall continue to be available under
this Plan.
In the event of any change in the outstanding shares
of common stock or other securities then subject to the Plan by reason of any
stock split, reverse stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, or if the outstanding securities of the class then subject to the Plan
are exchanged for or converted into cash, property or a different kind of
security, or if cash, property or securities are distributed in respect of such
outstanding securities (other than a regular cash dividend), then, unless the
terms of such transaction shall provide otherwise, such equitable adjustments
shall be made in the Plan and the awards thereunder (including, without
limitation, appropriate and proportionate adjustments in (i) the number
and type of shares or other securities that may be acquired pursuant to awards
theretofore granted under the Plan; (ii) the maximum number and type of
shares or other securities that may be issued pursuant to awards thereafter
granted under the Plan; (iii) the number of shares of restricted stock
that are outstanding; and (iv) the maximum number of shares or other
securities with respect to which awards may thereafter be granted to any
Participant in any Plan Year) as the Committee determines are necessary or
appropriate, including, if necessary, any adjustment in the maximum number of
shares of common stock available for distribution under the Plan as set forth
in this Section 3. Such adjustments shall be conclusive and binding for
all purposes of the Plan.
3.
Administration
. This Plan shall be administered by the by the
Compensation Committee, which consists of two or more members of the Board,
each of whom shall be both a Non-Employee Director, as that term is defined
in Rule 16b-3(b)(3)(i) of the Exchange Act, and an outside director
within the meaning of Section 162(m) of the Code. 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 or Restricted Shares / Eligibility
. Subject to the availability of shares under
this Plan, the Committee may make grants of options and/or restricted shares 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.
Stockholder
Approval
. Anything in this Plan to
the contrary notwithstanding, the effectiveness of this Plan and of the grant
of all options or restricted stock hereunder is in all respect subject to this
Plan and options or restricted stock 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 Companys shares of common stock present in person or by
proxy and entitled to vote at a meeting of stockholders at which this Plan is
presented for approval.
6.
Options
. (a) 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 the day the option is granted.
The option price will be subject to adjustment in accordance with the
provisions of paragraph 2 of this Plan. For purposes of establishing the
exercise price and for all other valuation purposes under the Plan, the fair
market value of a share of common stock on any relevant date will be
the closing sales price of the common stock in the case where the common
stock is traded on a national securities exchange, the NASDAQ Capital Market or
NASDAQ National
A-1
Market. Alternatively, fair market value shall be determined by
the average between the highest and lowest sales price quoted (on that date) by
an established quotation service if the common stock is quoted on the
over-the-counter bulletin board (the OTCBB). If
the common stock is not publicly traded on a national securities
exchange, the Nasdaq Capital Market, Nasdaq National Market or OTCBB, 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 arms length.
(b)
Period
of Option
. Unless sooner terminated
in accordance with the provisions of paragraph 6(e) of this Plan, an option
granted hereunder shall expire on the date that is ten (10) years after the
date of grant of the option.
(c)
Vesting
of Options 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 or performance criteria (including certain performance
criteria similar to that set forth in paragraph 7(b)(4)), 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 Companys stockholders, but upon such
approval the vesting shall become effective as of the date of the grant.
(d)
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 optionees lifetime only by him or her.
(e)
Termination
of Option Rights
.
(1) 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 6(b) and 6(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.
(2) Notwithstanding the
foregoing, in the event any optionee who is a member of the Board
of Directors (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.
(3) 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).
A-2
(4) 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 optionees personal representative, heir
or legatee, in the event of death) for a period of one year thereafter.
(f)
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
95008, 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
participants direction at the time of exercise. Notwithstanding the foregoing, the Committee
shall have the authority, in their absolute discretion to settle options that
are exercised by way of the cashless exercise method described in (c) of this
paragraph 9 through an issuance of the net shares, where the term net shares
is the number of shares that is equivalent in value to the fair market value of
the underlying stock on the exercise date, as determined in accordance with the
provisions of paragraph 5, less the exercise price. The Companys 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.
7.
Restricted
Stock
. Restricted stock awards under
the Plan shall consist of grants of shares of common stock of the Company
subject to the terms and conditions hereinafter provided.
(a)
Grant
of Awards
. The Committee shall
(i) select the officers and key employees to whom restricted stock may
from time to time be granted, (ii) determine the number of shares to be
covered by each award granted, (iii) determine the issue price, (iv)
determine the terms and conditions (not inconsistent with the Plan) of any
award granted hereunder, and (v) prescribe the form of the agreement,
legend or other instrument necessary or advisable in the administration of
awards under the Plan. Restricted stock
may be granted to Board members in lieu of Board fees.
(b)
Terms
and Conditions of Awards
. Any
restricted stock award granted under the Plan shall be evidenced by a
Restricted Stock Agreement executed by the Company and the recipient, in such
form as the Committee shall approve, which agreement shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions not inconsistent with the Plan as the Committee shall prescribe:
(1) Number of Shares
Subject to an Award: The Restricted
Stock Agreement shall specify the number of shares of common stock subject to
the Award.
(2) Restriction
Period: The period of restriction
applicable to each Award shall be established by the Committee but may not be
less than one year, unless the Committee determines otherwise. The Restriction Period applicable to each
Award shall commence on the Award Date.
(3) Consideration: With respect to employees of the Company,
each recipient, as consideration for the grant of an award, shall remain in the
continuous employ of the Company for at least one year from the date of the
granting of such award, or as otherwise determined by the Committee, and any
shares covered by such an award shall lapse if the recipient does not remain in
the continuous employ of the Company for at least one year from the date of the
granting of the award, except as otherwise determined by the Committee.
A-3
(4) Restriction
Criteria: The Committee shall establish
the criteria upon which the Restriction Period shall be based. Restrictions shall be based upon either or
both of (i) the continued employment of the recipient or (ii) the
attainment by the Company of one or more of the following measures of operating
performance:
a.
Earnings
|
|
d.
Financial return ratios
|
|
|
|
b.
Revenue
|
|
e.
Total Stockholder Return
|
|
|
|
c.
Operating or net cash flows
|
|
f.
Market share
|
The Committee shall establish the specific targets for the
selected criteria and, in its judgment, can select additional measures of
performance. These targets may be set at
a specific level or may be expressed as relative to the comparable measure at
comparison companies or a defined index.
These targets may be based upon the total Company, one or more business
units of the Company or a defined business unit that the executive has
responsibility for or influence over. In
cases where objective performance criteria are established, the Committee shall
determine the extent to which the criteria have been achieved and the
corresponding level to which restrictions will be removed from the Award or the
extent to which a participants right to receive an Award should be lapsed in
cases where the performance criteria have not been met and shall certify these
determinations in writing. The Committee
may provide for the determination of the attainment of such restrictions in
installments where deemed appropriate.
(c)
Terms
and Conditions of Restrictions and Forfeitures
. The shares of common stock awarded pursuant
to the Plan shall be subject to the following restrictions and conditions:
(1) During the
Restriction Period, the participant will not be permitted to sell, transfer,
pledge or assign restricted stock awarded under this Plan.
(2) Except as provided
in Section 7(c)(1), or as the Committee may otherwise determine, the
participant shall have all of the rights of a stockholder of the Company,
including the right to vote the shares and receive dividends and other distributions
provided that distributions in the form of stock shall be subject to the same
restrictions as the underlying restricted stock.
(3) In the event of a
participants retirement, death or disability prior to the end of the
Restriction Period for a participant who has satisfied the one year employment
requirement of Section 7(b)(3) with respect to an award prior to retirement,
death or disability, or as otherwise determined by the Committee, the
participant, or the participants estate, shall be entitled to receive that
proportion (to the nearest whole share) of the number of shares subject to the
Award granted as the number of months of the Restriction Period which have
elapsed since the Award date to the date at which the participants retirement,
death or disability occurs, bears to the total number of months in the
Restriction Period. The participants
right to receive any remaining shares shall be canceled and forfeited and the
shares will be deemed to be reacquired by the Company.
(4) In the event of a
participants retirement, death, disability or in cases of special
circumstances as determined by the Committee, the Committee may, in its sole
discretion when it finds that such an action would be in the best interests of
the Company, accelerate or waive in whole or in part any or all remaining time
based restrictions with respect to all or part of such participants restricted
stock.
(5) Upon termination of
employment for any reason during the Restriction Period, subject to the
provisions of paragraph (3) above or in the event that the participant fails
promptly to pay or make satisfactory arrangements as to the withholding taxes
as provided in the following paragraph, all shares still subject to restriction
shall be forfeited by the participant and will be deemed to be reacquired by
the Company.
A-4
(6) A participant may,
at any time prior to the expiration of the Restriction Period, waive all rights
to receive all or some of the shares of a restricted stock Award by delivering
to the Company a written notice of such waiver.
(7) Notwithstanding the
other provisions of this Section 7, the Committee may adopt rules that would
permit a gift by a participant of restricted shares to members of the
participants immediate family (spouse, parents, children, stepchildren,
grandchildren or legal dependants) or to a trust whose beneficiary or
beneficiaries shall be either such a person or persons or the participant.
(8) Any attempt to
dispose of restricted stock in a manner contrary to the restrictions shall be
ineffective.
8.
Acceleration
Upon Change in Control
. The
Committee may, in its discretion, provide that unvested awards will accelerate
upon the occurrence of a Change in Control.
The terms of such acceleration shall be specifically set out in an
agreement upon the grant of an award or pursuant to an employment, severance or
similar agreement.
Change
in Control shall mean any of the following occurrences:
(a) any person, as such
term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company), is or becomes the beneficial owner (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Companys then outstanding securities;
(b) during any period of
two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (a), (c) or (d) of this definition)
whose election by the Board of Directors or nomination for election by the
Companys stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
(c) the stockholders of
the Company approve a merger or consolidation of the Company with any other
entity, other than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person (as hereinabove defined) acquires
more than 50% of the combined voting power of the Companys then outstanding
securities; or
(d) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all of the Companys assets.
9.
Legend on Certificates
. The certificates representing restricted
shares or 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 Companys 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.
10.
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).
A-5
11.
Agreement
. Each option or restricted stock award granted
under the provisions of this Plan shall be evidenced by an agreement, which
agreement shall be duly executed and delivered on behalf of the Company and by
the grantee to whom such award is granted.
The 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.
12.
Termination
and Amendment of Plan
. Awards may no
longer be granted under this Plan after May 27, 2014, 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 awards may be granted under this Plan
(except by adjustment pursuant to Section 8), (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.
13.
Reorganization
or Liquidation of the Company
. In
the event of (a) the complete liquidation of the Company, (b) a merger,
reorganization, or consolidation of the Company with any other corporation
(other than a Subsidiary of the Company) in which the Company is not the
surviving corporation, or (c) the sale of all or substantially all of the
Companys assets, any unvested restricted stock and unexercised options then
outstanding shall be deemed canceled as of the effective date of such event
unless the surviving corporation in any such merger, reorganization or
consolidation or the acquiring corporation in any such sale elects to assume
the unvested restricted stock and unexercised options under the Plan or to
issue substitute unvested restricted stock and options in place thereof. Notwithstanding anything in this Plan or any
option agreement to the contrary, the Company shall not be deemed to have been
liquidated by reason of the merger or consolidation of the Company with or into
a Subsidiary of the Company in a transaction in which the Company is not the
surviving corporation. The Company shall
give each optionee at least thirty (30) days prior written notice of the
anticipated effective date of any such liquidation, merger, reorganization,
consolidation or sale. Notwithstanding
anything in this Plan or in any Stock Option Agreement to the contrary, (i) all
Option exercises effected during the 30-day period prior to the effective date
of any such merger, reorganization , consolidation or sale, shall be deemed to
be effective immediately prior to the closing of such liquidation, merger,
reorganization, consolidation or sale and (ii), if the Company abandons or
otherwise fails to close any such liquidation, merger, reorganization,
consolidation or sale, then (a) all exercises during the foregoing 30-day
period shall cease to be effective ab initio and (b) the outstanding options
shall be exercisable as otherwise determined under the applicable option
agreement and without consideration of this paragraph 12 or the corresponding
provisions of any option agreement.
14.
Withholding
of Income Taxes
. The Company shall
make appropriate provisions for the payment of any Federal, state or local
taxes or any other charges that may be required by law to be withheld by reason
of a grant or the issuance of shares of common stock pursuant to the Plan. At the election of the optionee or
restricted stockholder, the withholding obligation may be satisfied: (a)
through payment in United States dollars in cash or check, (b) through the
optionees or restricted stockholders surrender of shares of common stock that
the optionee or restricted stockholder had owned for more than six (6) months
prior to the date of such transfer, (c) by authorizing a Company-approved third
party to sell the shares (or a sufficient portion of the shares) acquired upon
exercise of the option and remit to the Company a sufficient portion of the
sale proceeds to pay any tax withholding resulting from such exercise, and (d)
through the Companys retention of shares of common stock which would otherwise
be issued as a result of the exercise of the option or the award of the
restricted stock. Notwithstanding the
foregoing, in the case where optionee elects tax withholding alternative (c),
the Committee shall have the authority, in their absolute discretion to satisfy
the employer tax withholding holding through the Companys retention of shares
of common stock which would otherwise be issued as a result of the exercise of
the option.
15.
Compliance
with Regulations
. It is the Companys
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.
A-6
16.
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, as amended: October 22, 2007.
A-7
FOCUS
ENHANCEMENTS, INC.
1370 Dell
Avenue
Campbell,
California 95008
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD DECEMBER 21, 2007
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., a Delaware corporation (the Corporation),
or its designee, proxy of the undersigned, with full power of substitution, to
vote all of the shares of the Corporation that the undersigned may be entitled
to vote at the Annual Meeting of Stockholders of the Corporation to be held on
Friday, December 21, 2007 at 1370 Dell Avenue, Campbell, California 95008, at
8:00 a.m., local 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:
|
|
|
|
|
|
o
|
|
o
|
|
N. William Jasper
(term to
expire in 2010)
|
o
|
|
o
|
|
Carl E. Berg
(term to
expire in 2010)
|
2. Proposal to amend the Focus
Enhancements, Inc. 2004 Stock Incentive Plan to increase the number of
available shares of common stock reserved for issuance of restricted stock and
upon exercise of options from 4,952,000 to 5,952,000.
o
|
FOR
|
o
|
AGAINST
|
o
|
ABSTAIN
|
3. Ratification of the
selection of Burr, Pilger and Mayer, LLP as the independent registered public
accounting firm of the Corporation for the fiscal year ending December 31,
2007.
o
|
FOR
|
o
|
AGAINST
|
o
|
ABSTAIN
|
4. In its discretion, the proxy is
authorized 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 THE NOMINEES LISTED ABOVE AND FOR PROPOSALS 2 AND
3.
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 16, 2007,
an Annual Report on Form 10-K for the year ended December 31, 2006 and a
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
Dated: ,
2007
|
o
|
Please check
here if you plan to
|
|
|
attend the
Annual Meeting
|
|
|
Number
attending
|
PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES
APPEAR ON THIS PROXY. WHEN SHARES ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN.
WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, ATTORNEY, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH. IF A SIGNER IS A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY DULY AUTHORIZED OFFICER, GIVING TITLE AS SUCH. IF SIGNER IS A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Focus Enhancements (NASDAQ:FCSE)
Historical Stock Chart
From Jun 2024 to Jul 2024
Focus Enhancements (NASDAQ:FCSE)
Historical Stock Chart
From Jul 2023 to Jul 2024