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SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 250.14a-11(c) or Section 240.14a-12
Photonics Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
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PHOTONICS CORPORATION
1515 Centre Pointe Drive
Milpitas, California 95035
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 2, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
Dear Shareholder:
The enclosed proxy is solicited on behalf of the Board of Directors of Photonics
Corporation, a California corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held on Monday, June 2, 1997, at 10:00 a.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the Company's principal executive office
located at 1515 Centre Pointe Drive, Milpitas, California 95035. The Company
intends to mail this proxy statement and accompanying proxy card and its 10-KSB
for the year ended December 31, 1996 on or about May 13, 1997, to all
shareholders entitled to vote at the Annual Meeting.
Solicitation
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to shareholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram, or
personal solicitation by directors, officers or other regular employees of the
Company, or, at the Company's request, Proxy Services. No additional
compensation will be paid to directors, officers or other regular employees for
such services, but Proxy Services will be paid its customary fee, estimated to
be about $600, if it renders solicitation services.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on April 16,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 16, 1997 the Company had outstanding and entitled to
vote 4,328,970 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one vote
for each share held on all matters to be voted upon at the Annual Meeting. With
respect to the election of directors, shareholders may exercise cumulative
voting rights. Under cumulative voting, each holder of Common Stock will be
entitled to five votes for each share held. Each shareholder may give one
candidate all the votes such shareholder is entitled to cast or may distribute
such votes among as many candidates as such shareholder chooses. However, no
shareholder will be entitled to cumulative votes unless the candidate's name has
been placed in nomination prior to the voting and at least one shareholder has
given notice at the meeting, prior to the voting, of his or her intention to
cumulate votes. Unless the proxyholders are otherwise instructed, shareholders,
by means of the accompanying proxy, will grant the proxyholders discretionary
authority to cumulative votes.
All votes will be tabulated by the inspector(s) of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the shareholders and will
have the same effect as negative votes.
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Abstentions and broker non-votes are counted towards a quorum but are not
counted for any purpose in determining whether a matter is approved.
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to revoke
it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office located at
1515 Centre Pointe Drive, Milpitas, CA 95035, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by
itself, revoke a proxy.
Shareholder Proposals
Proposals of shareholders that are intended to be presented at the Company's
1998 Annual Meeting of Shareholders must be received by the Company not later
than January 13, 1998 in order to be included in the proxy statement and proxy
relating to that Annual Meeting.
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PHOTONICS CORPORATION
1515 Centre Pointe Drive
Milpitas, California 95035
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Photonics
Corporation, d/b/a DTC Data Technology, a California corporation (the
"Company"), will be held on Monday, June 2, 1997 at 10:00 a.m. local time at the
Company's offices at 1515 Centre Pointe Drive, Milpitas, California, 95035 for
the following purposes:
1. To elect directors to serve for the ensuing year and until their successors
are elected.
2. To approve the Photonics Corporation 1997 Stock Option Plan and reserve
700,000 shares of common stock for issuance thereunder.
3. To ratify the selection of Meredith, Cardozo & Lanz L.L.P. to serve as the
Company's independent accountants for the fiscal year ending December 31,
1997.
4. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on April 16, 1997, as the
record date for the determination of shareholders entitled to notice of and to
vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors,
/s/ David S. Lee
David S. Lee
Chairman of the Board
Milpitas, California
May 13, 1997
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the seven Board positions presently authorized in
the Company's Bylaws. Each director to be elected will hold office until the
next annual meeting of shareholders and until his successor is duly elected and
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company and was elected by
the shareholders at the Company's last annual meeting.
Vote Required
The five nominees receiving the highest number of affirmative votes of the
shares entitled to be voted shall be elected directors of the Company. Shares
represented by executed proxies will be voted, if authority to do so is not
withheld, for the election of the five nominees named below. Votes withheld
from any director are counted for purposes of determining the presence or
absence of a quorum, but have no legal effect under California law. While there
is no definitive statutory or case law authority in California as to the proper
treatment of abstentions and broker non-votes in the election of directors, the
Company believes that both abstentions and broker non-votes should be counted
solely for purposes of determining whether a quorum is present at the Annual
Meeting. In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions and broker non-votes with respect to the election
of directors in this manner.
Unless otherwise directed, the proxy holders will vote the proxies received by
them for the five nominees named below, all of whom were elected by the
shareholders at the last annual meeting and are presently directors of the
Company. In the event that any nominee should be unavailable for election as a
result of an unexpected occurrence, such shares will be voted for the election
of such substitute nominee as management may propose. Each person nominated for
election has agreed to serve if elected and management has no reason to believe
that any nominee will be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Nominees
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
Name Age Position With the Company
- ---------------------------------------------------------------
<S> <C> <C>
David S. Lee 59 Chairman of the Board and Director
James T. Koo 55 President, Chief Executive Officer and Director
Ki Ching Yeung 35 Vice President and Director
Robert P. Dilworth 54 Director
Gary N. Hughes 58 Director
</TABLE>
Mr. Lee has been the Chairman and a member of the Board of the Company since
February 6, 1996. Prior to the acquisition of Data Technology Corporation
("DTC") by the Company, Mr. Lee had been on the DTC Board since 1986 and the
Chairman of the Board since 1987. From 1985 to 1993, he was the President and
Chief Executive Officer of DTC. Currently, Mr. Lee is also the Chairman of the
Board of Cortelco Systems Holding Corporation, a company in the
telecommunications business. Mr. Lee is also a member of the Board of Directors
of CMC Industries, Inc., COMSAT RSI Plexsys, Linear Technology Corporation,
Award Software International, BCS Technologies, Inc., Daily Wellness Co.,
Internex, Centigram Communications Corporation, and the California Chamber of
Commerce. In addition, Mr. Lee is a member of the Board of Regents for the
University of California.
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Mr. Koo has served as the President, Chief Executive Officer and member of the
Board of the Company since February 6, 1996. Prior to the acquisition of DTC by
the Company, he was the President, Chief Executive Officer and member of the
Board of DTC since 1994. From 1992 to 1994, he was a Vice President of Qume
Corporation and General Manager of DTC Data Technology, then a wholly-owned
subsidiary of Qume Corporation. Prior to joining DTC, Mr. Koo was with Mosel
Vitelic, a developer and manufacturer of memory integrated circuits, from 1984
until April 1992. There he held several positions including Senior Vice
President of Engineering, Operations, Marketing and Sales of Taiwan Operations,
and Vice President for the Static Random Access Memory (SRAM) group.
Mr. Yeung has been a member of the Board of Directors of the Company since
February 6, 1996 and has served as Vice President of DTC since November 1994. He
was a member of the Board of Directors of DTC since November 1994. Since
November 1994 Mr. Yeung has served as Vice President of the Company and as
President of Data Technology Hong Kong Limited, a subsidiary of the Company.
Since January 1992, Mr. Yeung has served as President of Broadsino Development
Ltd., Great Concept Development Ltd., Action Well Development Ltd., First Alpha
Ltd. and Unique Computer GmbH. From 1982 to 1992, he was the President of
Unicorn Electronic Company Ltd., a manufacturer of electronic components.
Mr. Dilworth has served as a member of the Board of the Company since February
6, 1996. Prior to that time, he served as a member of the Board of DTC since
1987. He is the President and Chief Executive Office of Metricom, Inc., a
manufacturer of RF pocket radio communications networks and electronic meters.
Prior to joining Metricom, from 1985 to 1987, Mr. Dilworth served as President
of Zenith Data Systems, a microcomputer supplier and a wholly-owned subsidiary
of Zenith Electronics Corporation. Mr. Dilworth is also a director of VLSI
Technology, Inc.
Mr. Hughes has been a member of the Board of Directors of the Company since
October 1990. From January 1997 to February 1997, he was the President of
Certicom Corporation. He was the President and Chief Executive Officer of the
Company from October 1990 to March 1996. From February 1985 to September 1990,
Mr. Hughes co-founded and served as President and Chief Executive Officer of
Precision Image Corporation, an electrostatic plotter company. From 1977 to
1980, he served as President of Memorex Canada Limited. From 1970 to 1976, Mr.
Hughes held executive positions in operations, sales and corporate development
for Systems Dimensions Ltd., a computer services company. Prior to that time,
Mr. Hughes worked for ten years with IBM Canada where he held technical and
sales management positions.
Board Committees and Meetings
During the year ended December 31, 1996 the Board of Directors held four
meetings. During the year ended December 31, 1996, all directors except Gary
Hughes attended at least 75% of the aggregate of the meetings of the Board and
of the committees on which they served that were held during the period for
which they were a director or committee member, respectively. The Board has an
Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of three non-employee
directors: Messrs. David S. Lee, Robert P. Dilworth and Gary N. Hughes. It met
one time during the fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Messrs. David S. Lee and Robert P. Dilworth. It met one time during the fiscal
year.
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PROPOSAL 2
APPROVAL OF 1997 STOCK PLAN
In April 1997, the Board of Directors adopted the Company's 1997 Stock Plan (the
"Plan") and reserved 700,000 shares of Common Stock for issuance thereunder
subject to shareholder approval. As of this time, no awards have been made
under the 1997 Plan.
Shareholders are requested in this Proposal 2 to approve the Plan. If the
shareholders fail to approve this Proposal 2, options granted under the Plan
after the Annual Meeting will not qualify as performance-based compensation and,
in some circumstances, the Company may be denied a business expense deduction
for compensation recognized in connection with the exercise of these stock
options. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and voting at the meeting will be
required to approve the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Plan are outlined below:
General
The Plan provides for the grant of both incentive and nonstatutory stock
options. Incentive stock options granted under the Plan are intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock options
granted under the Plan are intended not to qualify as incentive stock options
under the Code. See below for Federal Income Tax Consequences for the tax
treatment of incentive and nonstatutory stock options.
Purpose
The Plan was adopted to provide a means by which selected officers, employees
and consultants, including directors ("Service Providers") to the Company and
any parent or subsidiary of the Company could be given an opportunity to acquire
stock in the Company, to assist in retaining the services of employees holding
key positions, to secure and retain the services of persons capable of filling
such positions and to provide incentives for such persons to exert maximum
efforts for the success of the Company. All of the Service Providers are
eligible to participate in the Plan.
Administration of the Plan
Procedure. The Plan may be administered by different Committees with
---------
respect to different groups of Service Providers. To the extent that the Board
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of 162(m) of the Code. To the extent that it is
desirable to qualify transactions hereunder as exempt under Rule 16b-3, the
transactions contemplated hereunder shall be structured to satisfy the
requirements for exemption under Rule 16b-3. Other than as provided above, the
Plan shall be administered by (a) the Board or (b) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
Powers of the Board. Subject to the provisions of the Plan, and in the
--------------------
case of a Committee, the Board shall have the authority, in its discretion: (i)
to determine the Fair Market Value of the Common Stock; (ii) to select the
Service Providers to whom Options and Stock Purchase Rights may be granted
hereunder; (iii) to determine the number of shares of Common Stock to be covered
by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms
of agreement for use under the 1997 Plan; (v) to determine the terms and
conditions, not inconsistent with the terms of the Plan, of any Option or Stock
Purchase Right granted hereunder. Such terms and conditions include, but are
not limited to, the exercise price, the time or times when Options or
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Stock Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock Purchase Right of
the shares of Common Stock relating thereto, based in each case on such factors
as the Board, in its sole discretion, shall determine; (vi) to reduce the
exercise price of any Option or Stock Purchase Right to the then current Fair
Market Value if the Fair Market Value of the Common Stock covered by such Option
or Stock Purchase Right shall have declined since the date the Option or Stock
Purchase Right was granted; (vii) to institute an Option Exchange Program
whereby outstanding Options are surrendered in exchange for Options with a lower
exercise price. (viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules
and regulations relating to the Plan, including rules and regulations relating
to sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws; (x) to modify or amend such option or Stock
Purchase Right (subject to Section 15(c) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan; (xi) to allow
Optionees to satisfy withholding tax obligations by electing to have the Company
withhold from the Shares to be issued upon exercise of an Option or Stock
Purchase Right that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the Board
may deem necessary or advisable; (xii) to authorize any person to execute on
behalf of the Company any instrument required to effect the grant of an Option
or Stock Purchase Right previously granted by the Board; and (xiii) to make all
other determinations deemed necessary or advisable for administering the Plan.
Effect of Board's Decision. The Board's decisions, determinations and
--------------------------
interpretations shall be final and binding on all Optionees and any other
holders of Options or Stock Purchase Rights.
Limitations
Each Option shall be designated in the Option Agreement as either an Incentive
Stock Option or a Nonstatutory Stock Option. However, notwithstanding such
designation, to the extent that the aggregate Fair Market Value of the Shares
with respect to which Incentive Stock Options are exercisable for the first time
by the Optionee during any calendar year (under all plans of the Company and any
Parent or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options. For purposes of Section 6(a) in the Plan, Incentive
Stock Options shall be taken into account in the order in which they were
granted. The Fair Market Value of the Shares shall be determined as of the time
the Option with respect to such Shares is granted.
Neither the Plan or any Option or Stock Purchase Right shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
The following limitations shall apply to grants of Options: (i) No Service
Provider shall be granted, in any fiscal year of the Company, Options to
purchase more than 100,000 Shares. (ii) In connection with his or her initial
service, a Service Provider may be granted Options to purchase up to an
additional 250,000 Shares which shall not count against the limit set forth in
subsection (i) above. (iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13 herein. (iv) If an Option is canceled in the same
fiscal year of the Company in which it was granted (other than in connection
with a transaction described in Section 13), the canceled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Options and the grant of a new Option.
Term of Plan
Subject to Section 19 of the Plan, the Plan became effective upon its adoption
by the Board and it shall continue in effect for a term of ten years unless
terminated earlier under Section 15 of the Plan.
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Term of Option
The term of each Option shall be stated in the Option Agreement. In the case of
an Incentive Stock Option, the term shall be ten years from the date of grant or
such shorter term as may be provided in the Option Agreement. Moreover, in the
case of an Incentive Stock Option granted to an Optionee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary, the term of the Incentive Stock Option shall be
five (5) years from the date of grant or such shorter term as may be provided in
the Option Agreement.
Option Exercise Price and Consideration
Exercise Price. The per share exercise price for the Shares to be issued
--------------
pursuant to exercise of an Option shall be determined by the Board, subject to
the following:
1. In the case of an Incentive Stock Option: (a) granted to an Employee who, at
the time the Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant, or
(b) granted to any Employee other than an Employee described in paragraph
(a) immediately above, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.
2. In the case of a Nonstatutory Stock Option, the per Share exercise price
shall be determined by the Board. In the case of a Nonstatutory Stock Option
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
3. Notwithstanding the foregoing, Options may be granted with a per Share
exercise price of less than 100% of the Fair Market Value per Share on the
date of grant pursuant to a merger or other corporate transaction.
Waiting Period and Exercise Dates. At the time an Option is granted, the
---------------------------------
Board shall fix the period within which the Option may be exercised and shall
determine any conditions which must be satisfied before the Option may be
exercised.
Form of Consideration. The Board shall determine the acceptable form of
---------------------
consideration for exercising an Option, including the method of payment. In the
case of an Incentive Stock Option, the Board shall determine the acceptable form
of consideration at the time of grant. Such consideration may consist entirely
of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (a) in
the case of Shares acquired upon exercise of an option, have been owned by the
Optionee for more than six months on the date of surrender, and (b) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised; (v) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan; (vi) a reduction in the amount of any
Company liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement; (vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance of Shares
to the extent permitted by Applicable Laws.
Exercise of Option
Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Board and set forth in the
Option Agreement. Unless the Board provides otherwise, vesting of Options
granted hereunder shall be tolled during any unpaid leave of absence. An Option
may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written or
electronic notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for
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the Shares with respect to which the Option is exercised. Full payment may
consist of any consideration and method of payment authorized by the Board and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
Termination of Relationship as a Service Provider. If an Optionee ceases
-------------------------------------------------
to be a Service Provider, other than upon the Optionee's death or Disability,
the Optionee may exercise his or her Option within such period of time as is
specified in the Option Agreement to the extent that the Option is vested on the
date of termination (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
three months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Board, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
Disability of Optionee. If an Optionee ceases to be a Service Provider as
----------------------
a result of the Optionee's Disability, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
Death of Optionee. If an Optionee dies while a Service Provider, the
-----------------
Option may be exercised within such period of time as is specified in the Option
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve months following the Optionee's termination. If, at the
time of death, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall immediately revert to
the Plan. The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee's will or the laws of descent or distribution. If the Option
is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
Buyout Provisions. The Board may at any time offer to buy out for a
-----------------
payment in cash or Shares an Option previously granted based on such terms and
conditions as the Board shall establish and communicate to the Optionee at the
time that such an offer is made.
Stock Purchase Rights
Rights to Purchase. Stock Purchase Rights may be issued either along, in
------------------
addition to, or in tandem with other awards granted under the Plan and/or cash
awards made outside of the Plan. After the Board determines that it will offer
Stock Purchase Rights under the Plan, it shall advise the offeree in writing or
electronically, by means
10
<PAGE>
of a Notice of Grant, of the terms, conditions and restrictions related to the
offer, including the number of Shares that the offeree shall be entitled to
purchase, the price to be paid, and the time within which the offeree must
accept such offer. The offer shall be accepted by execution of a Restricted
Stock Purchase Agreement in the form determined by the Board.
Repurchase Option. Unless the Board determines otherwise, the Restricted
-----------------
Stock Purchase Agreement shall grant the Company a repurchase option exercisable
upon the voluntary or involuntary termination of the purchaser's service with
the Company for any reason (including death or Disability). The purchase price
for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Board.
Other Provisions. The Restricted Stock Purchase Agreement shall contain
----------------
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Board in its sole discretion.
Rights as a Shareholder. Once the Stock Purchase Right is exercised, the
-----------------------
purchaser shall have the rights equivalent to those of a shareholder, and shall
be a shareholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the Stock
Purchase Right is exercised, except as provided in Section 13 of the Plan.
Non-Transferability of Options and Stock Purchase Rights
Unless determined otherwise by the Board, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Board makes an Option or Stock Purchase Right transferable, such Option or Stock
Purchase Right shall contain such additional terms and conditions as the Board
deems appropriate.
Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale
Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number of price of shares of Common Stock subject to an Option or Stock
Purchase Right.
Dissolution or Liquidation. In the event of the proposed dissolution or
--------------------------
liquidation of the Company, the Board shall notify each Optionee as soon as
practicable prior to the effective date of such proposed transaction. The Board
in its discretion may provide for an Optionee to have the right to exercise his
or her Option until ten days prior to such transaction as to all of the Optioned
Stock covered thereby, including Shares as to which the Option would not
otherwise be exercisable. In addition, the Board may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an Option
or Stock Purchase Right shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
11
<PAGE>
contemplated. To the extent it has not been previously exercised, an Option or
Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.
Merger or Asset Sale. In the event of a merger of the Company with or into
--------------------
another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Board shall
notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
days from the date of such notice, and the Option or Stock Purchase Right shall
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option or Stock Purchase Right, for each Share of Optioned Stock subject to
the Option or Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
Date of Grant
The date of grant of an Option or Stock Purchase Right shall be, for all
purposes, the date on which the Board makes the determination granting such
Option or Stock Purchase Right, or such other later date as is determined by the
Board. Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
Amendment and Termination of Plan
Amendment and Termination. The Board may at any time amend, alter, suspend
-------------------------
or terminate the Plan.
Shareholder Approval. The Company shall obtain shareholder approval of any
--------------------
Plan amendment to the extent necessary and desirable to comply with Applicable
Laws.
Effect of Amendment or Termination. No amendment, alteration, suspension
----------------------------------
or termination of the Plan shall impair the rights of any Optionee, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company. Termination of
the Plan shall not affect the Board's ability to exercise the powers granted to
it hereunder with respect to Options granted under the Plan prior to the date of
such termination.
Federal Income Tax Consequences
Incentive Stock Options. An Optionee who is granted an incentive stock
------------------------
option does not recognize taxable income at the time the Option is granted or
upon its exercise, although the exercise may subject the Optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the Option and one year after exercise of the Option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the Optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the
12
<PAGE>
Option exercises or (ii) the sale price of the shares. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income is treated as long-term or short-term capital gain or
loss, depending on the holding period. A different rule for measuring ordinary
income upon such a premature disposition may apply if the optionee is also an
officer, director, or 10% shareholder of the Company. The Company is entitled to
a deduction in the same amount as the ordinary income recognized by the
Optionee.
Nonstatutory Stock Options. An Optionee does not recognize any taxable
--------------------------
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the Optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the Optionee. Upon a disposition of such shares by the Optionee, any difference
between the sale price and the Optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
The foregoing is only a summary of the effect of federal income taxation upon
Optionees and the Company with respect to the grant and exercise of options
under the 1997 Plan and does not purport to be complete. In addition, this
summary does not discuss the tax consequences of the employee's or consultant's
death or the provisions of the income tax laws of any municipality, state or
foreign country in which the employee or consultant may reside.
Conditions Upon Issuance of Shares
Legal Compliance. Shares shall not be issued pursuant to the exercise of
----------------
an Option or Stock Purchase Right unless the exercise of such Option or Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
Investment Representations. As a condition to the exercise of an Option or
--------------------------
Stock Purchase Right, the Company may require the person exercising such Option
or Stock Purchase Right to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without an
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
Reservation of Shares. The Company, during the term of this Plan, will at
---------------------
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve months after the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under Applicable Laws.
13
<PAGE>
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Meredith, Cardozo and Lanz, L.L.P. as the
Company's independent public accountants for the fiscal year ending December 31,
1997 and has further directed that the management submit the selection of
independent public accounts for ratification by the shareholders at the Annual
Meeting. Meredith, Cardozo and Lanz, L.L.P. audited the Company's financial
statements for fiscal year 1996. Representatives of Meredith, Cardozo and Lanz,
L.L.P. are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Shareholder ratification of the selection of Meredith, Cardozo and Lanz, L.L.P.
as the Company's independent public accountants is not required by the Company's
Bylaws or otherwise. However, the Board is submitting the selection of
Meredith, Cardozo and Lanz, L.L.P. to the shareholders for ratification as a
matter of good corporate practice. If the shareholders fail to ratify the
selection, the Audit Committee and the Board will reconsider whether or not to
retain that firm. Even if the selection is ratified, the Audit Committee and
the Board in their discretion may direct the appointment of different
independent accounting firm at any time during the year if they determine that
such a change would be in the best interests of the Company and its
shareholders.
Effective December 2, 1996 Meredith, Cardozo & Lanz, L.L.P. were formally
instated as the Company's independent auditing firm. This was necessitated by
the termination of KPMG Peat Marwick, L.L.P.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and voting at the Annual Meeting will be required
to ratify the selection of Meredith, Cardozo and Lanz, L.L.P.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
14
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shares of the Company's Common Stock
beneficially owned at December 31, 1996, by (i) each person who is known by the
Company to be the beneficial owner of more than five percent of its Common
Stock, (ii) by each director, (iii) by each executive officer listed in the
Summary Compensation Table for 1996, and (iv) by all directors and officers of
the Company as a group. The options, warrants and stock represented in this
table reflect the 1 for 5 reverse split of Photonics stock which became
effective February 9, 1996 prior to the finalization of the merger.
The acquisition of DTC Data Technology Corporation by Photonics Corporation was
consummated on March 5, 1996. The agreement, as ratified by DTC Data Technology
Corporation's Shareholders at the annual meeting held on February 6, 1996,
specifies "The Board of Directors of DTC Data Technology Corporation would file
a Certificate of Dissolution in the state of Delaware after consummation of the
Acquisition. Thereafter, DTC Data Technology Corporation shall continue for a
term of three year or longer...." After the dissolution is complete, the
conversion of DTC Data Technology stock to Photonics stock will be affected at a
conversion rate currently estimated to be at a multiplier of 0.147853. All
calculations of beneficial ownership, exercise and conversion of all outstanding
options, warrants and other right to purchase shares of common stock uses this
multiplier as though the dissolution had in fact occurred.
<TABLE>
<CAPTION>
Shares
Beneficially Percent
Beneficial Owner Owned (1)(3)(4) of Class(2)
- ----------------- --------------- -----------
<S> <C> <C>
DTC Technology Corporation 779,621 (5) 18.0%
2F 542-2 Chung Cheng Road
Hsin-Tien, Taiwan
Republic of China, China
Broadsino Computer Development, Ltd., Ltd. 591,412 (6) 13.7%
Room 1101,1103, and 1104 Star Center (7)
443-451 Castle Peak Road
Kwal Chung NT, Hong Kong
David S. Lee, Chairman of the Board 439,044 (8) 10.2%
c/o Photonics dba DTC Data Technology
1515 Centre Pointe Drive
Milpitas, Ca. 95035
James T. Koo, President 199,661 (9) 4.6%
c/o Photonics dba DTC Data Technology
1515 Centre Pointe Drive
Milpitas, Ca. 95035
Robert P. Dilworth, Director 13,500 *
c/o Photonics dba DTC Data Technology
1515 Centre Pointe Drive
Milpitas, Ca. 95035
All Officers and Directors as a group 652,205 15.1%
</TABLE>
* Denotes less than 1%
15
<PAGE>
1. Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
2. Percentage calculations are based upon the 4,323,560 outstanding share of
Common Stock, as of December 31, 1996.
3. On August 31, 1995, Photonics and DTC announced that they had executed an
agreement under which Photonics would acquire all the assets and certain
liabilities of DTC in exchange for the issuance to DTC of share and/or rights
to shares of common stock representing 77.5% of Photonics outstanding stock.
The transaction was consummated on March 5, 1996. The transaction was
treated as a purchase for accounting purposes. Since DTC stockholders owned
a majority of the shares in the combined entity and retained management and
board control, the transaction was accounted for as though DTC was the
acquirer, though Photonics was the surviving legal entity.
4. On March 6, 1996, the Company's Board of Directors declared a 0.147853 to 1
reverse stock split. All reference to number of shares, and to per share
information, have been adjusted to reflect the reverse stock split
retroactive basis.
5. On July 8, 1994, DTC entered into an agreement with DTC Technology
Corporation ("DTC Taiwan") and DTC Taiwan assigned its interest in certain
receivables, sold shares of its common stock and issued a convertible
promissory note in consideration for the settlement of amounts owed by DTC to
DTC Taiwan of approximately $12.4 million. The $2 million subordinated
convertible promissory note bore interest at 8% per annum and was payable in
monthly minimum installments and convertible into nonvoting cumulative
convertible Compac International Company ("Compac"), a subsidiary of DTC
Taiwan, whereby DTC disposed of its redeemable preferred stock at the
conversion price of $1.00 per share, with the preferred shares being
convertible into common stock. On February 16, 1996, DTC effectively
converted the remaining balance of the promissory note, $1,700,439 into
502,830 shares of common stock reflected in this table after applying the
0.145873 multiplier. The complete transaction is further discussed in Notes
to Consolidated Financial Statements, numbers 2 and 13 of the 10-KSB.
6. On February 28, 1995, the Company and Broadsino Computer Development Ltd. of
Hong Kong ("Broadsino") consummated an agreement under which DTC authorized
the sale of an aggregate of four million shares of its common stock
(1.600,000 shares held in escrow) for the sum of $1.0 million or $0.25 per
share. As consideration for the sale of its common stock, DTC received
$300,000 in cash, $395,000 in inventory and a 9% note receivable of $305,000.
In fiscal 1996, the note was fully collected and the shares released from
escrow. (See Notes to Consolidated Financial Statements, number 7 of the 10-
KSB for further details).
7. In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock (discussed on page 7 under Liquidity and Capital
Resources of the 10-KSB), Broadsino has pledged to purchase 300,000 shares at
$1.00 per share during fiscal 1997.
8. In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock (discussed on page 7 under Liquidity and Capital
Resources of the 10-KSB), Mr. Lee has pledged to purchase 574,407 shares at
$1.00 per share during fiscal 1997. Of this amount, Mr. Lee had contributed
$100,000 in the form of a bridge loan during 1996. In addition, Mr. Lee is
owed $10,493 dollars in interest and expenses that will be converted to
equity and is included in the number of shares stated above.
9. In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock (discussed on page 7 under Liquidity and Capital
Resources of the 10-KSB), Mr. Koo has pledged to purchase 245,641 shares at
$1.00 per share during fiscal 1997. In addition, Mr. Koo is owed $18,659 in
interest and that will be converted to equity and is included in the number
of shares stated above.
16
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
During the year ended December 31, 1996, the Company's directors did not receive
any cash compensation for service on the Board of Directors or any committee
thereof, or reimbursement of any expenses in connection with attendance at Board
and committee meetings.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. David S. Lee, Robert P. Dilworth,
and Gary N. Hughes. No member of the Compensation Committee of the Company
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or Compensation Committee. (For a description of
transactions and relationships involving the Company and members of the
Compensation Committee, see "Certain Transactions.")
Compensation of Executive Officers
SUMMARY OF COMPENSATION
The following table sets forth the cash compensation paid to the executive
officers in excess of $100,000 paid or accrued for services rendered during the
last fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Securities All Other
Annual Underlying Compen-
Name and Principle Year Salary Bonus Compensa- Options/ sation
Position Ending ($) ($) tion($) SARs)#(1) ($)(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary N. Hughes, Pres. 12/31/96 0 0 0 0 0
CEO & Director 02/28/96 118,671 0 0 0 0
James T. Koo, Pres. 12/31/96 93,472 0 0 62,612 2,000
CEO & Director 02/28/96 139,196 0 0 - -
</TABLE>
1. In fiscal year 1996, the Board of Directors and Shareholders in concert with
the acquisition purchase between DTC Data Technology Corporation and
Photonics Corporation, approved a reverse split at an exchange rate of
0.147853 for all outstanding DTC Data Technology Corporation stock to become
Photonics stock. Mr. Koo's previous option for 170,000 DTC Data Technology
Corporation shares became 25,134 shares of Photonics stock.
2. Mr. Koo was a participant in the DTC 401(k) shared savings plan. $2,000 was
contributed by the Company under this contribution plan on his behalf.
Options Granted in Last Fiscal Year
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended December 31, 1996 to the Company's
executive officers named in the Summary Compensation Table:
17
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted
Options/ Employees
SARs in Exercise or Base Expiration
Name Granted # Fiscal Year Price($/sh) Date
- ------------------- ---------- ------------ ----------------- ----------
<S> <C> <C> <C> <C>
Gary N. Hughes, 0 0 0 0
Former Pres., CEO
& Director
James T. Koo, 25,134 24% $0.1550 2001
Pres., CEO & 37,478 33% $0.1550 2006
Director
</TABLE>
1. In fiscal year 1996, the Board of Directors and Shareholders in concert with
the acquisition purchase between DTC Data Technology Corporation and
Photonics Corporation, approved a reverse split at an exchange rate of
0.147853 for all outstanding DTC Data Technology Corporation stock to become
Photonics stock. Mr. Koo's previous options for 170,000 DTC Data Technology
Corporation shares became 25,134 shares of Photonics stock. Subsequently,
the Board of Directors approved an additional option of 37,478 shares of
Photonics common stock.
Aggregated Option Excercises in Last Fiscal Year
------------------------------------------------
and FY-End Option Values
------------------------
<TABLE>
<CAPTION>
Value of
Securities Unexercised
Underlying In-the
Unexercised Money Options
Shares Options at
Acquired on Value at FY-end # FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name # ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Gary N. Hughes none 0 / 0 0 / 0 0 / 0
James T. Koo none 0 / 0 0 / 62,612 0 / 0
</TABLE>
Board of Director's Report on Repricing of Options/SARs
On April 22, 1996, the Company's Board of Directors granted all optionees,
including executive officers, under the Company's 1988 Stock Option Plan (the
"1988 Stock Option Plan") the opportunity to exchange their current higher-
priced options for new stock options with an exercise price set at the then
current fair market value of the Company's Common Stock, which was $0.1550 per
share. In addition, while most of the other terms of the new stock options
remained the same as those previously granted under the 1988 Stock Option Plan,
such new options provided for a five (5) year expiration date and were not
exercisable until April 22, 1997.
The Board of Directors granted optionees this 30-day opportunity of exchange and
repriced their stock options to further the principal purpose of the Company's
1988 Stock Option Plan which were to provide an equity incentive to remain in
the employment of the Company and to work diligently in its best interests.
Because many employees then held options exercisable at prices significantly
above the then current market price of the Company's Common Stock, the Board of
Directors determined that the purpose of the 1988 Stock Option Plan would not be
achieved and that it was critical to the best interest of the Company and its
shareholders that the Company retain the service of such employees.
18
<PAGE>
The Option Exchange Program adopted by the Board of Directors was an
acknowledgment of the importance to the Company of having equity incentives in
the hands of key employees. Stock options which are "out of the money" provide
no particular compensatory incentives if an employee is considering alternative
opportunities. The Board of Directors considered the renewed vesting period
incurred in the Option Exchange Programs as a means of retaining the services of
valued employees for a longer period of time and considered the continued
services of the participants and the resetting of the vesting commencement date
of such exchanged options as constituting adequate consideration to the Company
for implementing the Option Exchange Program. The Board of Directors decided to
include officers in the Exchange because of the importance of their
administrative and technical leadership to the success of the Company's
business.
The table below provides the specified information concerning all repricing of
option/SARs during the last ten completed fiscal years of DTC awarded to
Executive Officers. The options and exercise prices represented in the table
reflect the 0.147853 reverse split which became effective March 5, 1996.
Ten Year Option/SAR Repricings
------------------------------
<TABLE>
<CAPTION>
Number Length of
Securities Market Price Exercise Original
Underlying of Stock at Price New Option Term
Date of Options Time of at Time of Exercise at date of
Name Repricing Repriced ($) Repricing ($) Repricing ($) Price ($) Repricing*(1)
<S> <C> <C> <C> <C> <C> <C>
James Koo 04/22/97 17,742 $0.1550 $1.6909 $0.1550 8yrs 5mos
President 04/22/97 7,393 $0.1550 $1.6909 $0.1550 8yrs 5 mos
Morris Chubb*(2) 01/22/97 14,785 $0.1550 $1.6909 $0.1550 9yrs 7mos
</TABLE>
*(1) Options were originally issued with 48 month vesting and 10 year
expiration. Repriced options retain 48 month vesting and expire in 5 years.
*(2) Former Chief Financial Officer.
EMPLOYMENT AGREEMENTS
None of the Company's employees is party to an employment agreement with the
Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors ("Committee") is composed
of Messrs. David S. Lee and Robert P. Dilworth, none of whom are currently
employees of the Company. The Committee is responsible for establishing the
Company's compensation programs for all employees, including executives. For
executive officers, the Committee evaluates performance and determines
compensation policies and levels.
Compensation Philosophy
The Company operates in a highly competitive and rapidly changing high
technology industry. The goals of the compensation program are to align
compensation with business objectives and performance and to enable the Company
to attract, retain and reward executive officers and other key personnel who
contribute to the long-term success of the Company and to motivate them to
enhance long-term shareholder value. Key elements of this philosophy are:
19
<PAGE>
1. Total compensation should be sufficiently competitive with other companies
in the computer-peripheral equipment industry so that the Company can
attract and retain qualified personnel.
2. The Company desires to maintain annual incentive opportunities sufficient
to provide motivation to achieve specific operating goals and to generate
rewards that bring total compensation to competitive levels.
3. The Company desires to provide significant equity-based incentives for
executives and other key employees to ensure that they are motivated over
the long-term to respond to the Company's business challenges and
opportunities as owners and not just as employees.
Base Salary. The Committee annually reviews each executive officer's base
-----------
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices. Due to the financial health of the
Company, none of the executives have been given an increase in the past two
years.
Long-Term Incentives. The Company's long-term incentive program consists
--------------------
of the 1997 Stock Option Plan. The stock option program utilizes vesting periods
(generally four years) to encourage key employees to continue in the employ of
the Company. Through option grants, executives receive equity incentives to
build long-term shareholder value. Grants are made at 100% of fair market value
on the date of the grant. Executives receive value from these grants only if the
Company's Common Stock appreciates of the long term. The size of option grants
is determined by the Company's philosophy of linking executive compensation with
shareholder interests.
Compensation of Chief Executive Officer
Mr. Koo's base salary has not changed over the past two years. In 1996, he
invested a portion of his salary to purchase the Company's Series A Convertible
Preferred Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended (the "Exchange
Act") requires the Company's officers (as defined in Rule 16a-1(f), directors
and persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. The Company lost its Chief Financial Officer in February 1997. In
reviewing the files and subsequently checking with the officers and directors of
the Company, Form 13G was not filed for the 10% shareholders. The Company has
contacted all concerned officers and directors and is now in the process of
filing a late return. No stock transactions were consummated during the fiscal
year for any of the directors and officers of the Company.
20
<PAGE>
CONCLUSION
Although the Company is not financially sound, nevertheless, it is imperative
that its employees be competitively remunerated. This the Company hopes to
achieve through the plans described above. The Company remains committed to
this philosophy of pay for performance, recognizing that the competitive market
for talented executives and the volatility of the Company's business may result
in highly variable compensation for a particular time period.
Compensation Committee
David S. Lee
Robert P. Dilworth
21
<PAGE>
CERTAIN TRANSACTIONS
On August 31, 1995, the Company, together with DTC, announced that they had
executed an agreement under which Photonics would acquire all the assets and
certain liabilities of DTC in exchange for the issuance to DTC of share and/or
rights to shares of common stock representing 77.5% of Photonics outstanding
stock. The transaction was consummated on March 5, 1996. The transaction was
treated as a purchase for accounting purposes. Since DTC stockholders owned a
majority of the shares in the combined entity and retained management and board
control, the transaction was accounted for as though DTC was the acquirer,
though Photonics is the surviving legal entity.
On March 6, 1996, DTC's Board of Directors declared a 0.147853 to 1 reverse
stock split followed by Photonics' reverse five to one merger.. All reference
to number of shares, and to per share information, have been adjusted to reflect
both reverse stock splits on a retroactive basis.
On July 8, 1994, DTC entered into an agreement with DTC Technology Corporation
("DTC Taiwan") and Compac International Company ("Compac"), a subsidiary of DTC
Taiwan, whereby DTC disposed of its interest in DTC Taiwan assigned its interest
in certain receivables, sold shares of its common stock and issued a convertible
promissory note in consideration for the settlement of amounts owed by DTC to
DTC Taiwan of approximately $12.4 million. The $2 million subordinated
convertible promissory note bore interest at 8% per annum and was payable in
monthly minimum installments and convertible into nonvoting cumulative
convertible redeemable preferred stock at the conversion price of $1.00 per
share, with the preferred shares being convertible into common stock. On
February 16, 1996, DTC effectively converted the remaining balance of the
promissory note, into 502,830 shares of common stock reflected in this table
after applying the 0.145873 multiplier. The complete transaction is further
discussed in Notes to Consolidated Financial Statements numbers 2 and 13.
On February 28, 1995, DTC and Broadsino Computer Development Ltd. of Hong Kong
("Broadsino") consummated an agreement under which DTC authorized the sale of an
aggregate of four million shares of its common stock (1.600,000 shares held in
escrow) for the sum of $1.0 million or $0.25 per share. As consideration for
the sale of its common stock, DTC received $300,000 in cash, $395,000 in
inventory and a 9% note receivable of $305,000. In fiscal 1996, the note was
fully collected and the shares released from escrow. (For further details, see
Notes to Consolidated Financial Statements number 7 in the Company's Annual
Report on 10-KSB in conjunction with the private placement of the Company's
Series A Convertible Preferred Stock discussed on page 7 under Liquidity and
Capital Resources). Broadsino has pledged to purchase 300,000 shares at $1.00
per share during fiscal 1997.
In conjunction with the private placement of the Company's Series A Convertible
Preferred Stock (discussed on page 7 under Liquidity and Capital Resources in
the Company's Annual Report on 10-KSB), Mr. Lee has pledged to purchase 574,407
shares at 1.00 per share during fiscal 1997. Of this amount Mr. Lee has
contributed $100,000 in the form of a bridge loan during 1997. In addition, Mr.
Lee is owed $10,493 dollars in interest and expenses that will be converted to
equity and is included in the number of shares stated above.
In conjunction with the private placement of the Company's Series A Convertible
Preferred Stock (discussed on page 7 under Liquidity and Capital Resources in
the Company's Annual Report on 10-KSB), Mr. Koo has pledged to purchase 245,641
shares at $1.00 per share during fiscal 1997. In addition, Mr. Koo is owed
$18,659 in interest and that will be converted to equity and is included in the
number of shares stated above.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual Meeting. If
any other matters properly come before the Annual Meeting, it is the intention
of the persons named in the enclosed form of Proxy to vote the shares they
represent as the Board of Directors may recommend.
22
<PAGE>
By Order of the Board of Directors
/s/ James T. Koo
James T. Koo
President
Dated: May 13, 1997
<PAGE>
PHOTONICS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
June 2, 1997
The undersigned hereby appoints David S. Lee and James T. Koo, and each of them,
as attorneys and proxies of the undersigned, with full power of substitution, to
vote all of the shares of stock of Photonics Corporation which the undersigned
may be entitled to vote at the Annual Meeting of Shareholders of Photonics
Corporation to be held of the Company's offices, 1515 Centre Pointe Drive,
Milpitas, California 95035 on Monday, June 2, 1997 at 10:00 a.m., P.D.T. and at
any and all continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 THROUGH 4, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(Continued and to be signed on the other side.)
<PAGE>
-------------- ------------ PLEASE MARK YOUR
ACCOUNT NUMBER COMMON CHOICES LIKE THIS
[_] IN BLUE OR
BLACK INK
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW AND
PROPOSALS 2 - 4
Proposal 1: To elect directors to hold office until the next Annual Meeting of
Shareholders and until their successors are elected.
FOR all nominees listed WITHHOLD AUTHORITY Nominees: Robert P. Dilworth,
below (except as marked to vote for all Gary N. Hughes, James
to the contrary) nominees listed T. Koo, David S. Lee,
below and Ki Ching Yeung
To withhold authority to vote
for any nominee(s), write such
nominee(s) name(s) below:
[_] [_] --------------------------------
- --------------------------------------------------------------------------------
Proposal 2: To approve the Photonics Corporation Proposal 4: To transact
1997 Stock Option Plan and reserve such other
700,000 shares of common stock for business as may
issuance thereunder. Properly come
before the
meeting or any
adjournment or
postponement
thereof.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[_] [_] [_]
[_] [_] [_]
DATED: , 1997
- ----------------------------------------------------- ---------------
Proposal 3: To ratify the selection of Meredith,
Cardozo & Lanz L.L.P. to serve as the ---------------------------
Company's independent accountants for
fiscal 1997. ---------------------------
SIGNATURE(S)
FOR AGAINST ABSTAIN
Please sign exactly as your
[_] [_] [_] name appears herein. If
the share is registered in
the names of two or more
- -----------------------------------------------------persons each should sign.
Executor, administrators,
trustees, guardians and
attorney-in-fact should add
their titles. If signer is
a corporation, please give
full corporate name and
have a duly authorized
officer sign, stating
title. If signer is a
partnership, please sign in
partnership name by
authorized person.
Please vote, date and properly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
