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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Photonics Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(4) Date Filed:
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Notes:
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PHOTONICS CORPORATION
1515 CENTRE POINTE DRIVE
MILPITAS, CALIFORNIA 95035
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1998
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 Friday, May 22, 1998, 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,
1997 on or about May 1, 1998, 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 20,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 20, 1998 the Company had outstanding and entitled
to vote 4,364,148 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. Abstentions and broker non-votes are
counted towards a quorum but are not counted for any purpose in determining
whether a matter is approved.
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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
1999 Annual Meeting of Shareholders must be received by the Company not later
than January 13, 1999 in order to be included in the proxy statement and proxy
relating to that Annual Meeting.
Sincerely,
David S. Lee
Chairman of the Board
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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 Friday, May 22, 1998 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 reserve an additional 140,000 shares of Common Stock for issuance under
the Photonics Corporation 1997 Stock Option Plan.
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,
1998.
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 20, 1998, 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 1, 1998
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.
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. 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
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<S> <C> <C>
David S. Lee................ 60 Chairman of the Board and Director
James T. Koo................ 56 President, Chief Executive Officer and Director
Ki Ching Yeung.............. 36 Vice President and Director
Robert P. Dilworth.......... 55 Director
John Miao................... 45 Director
</TABLE>
During the year ended December 31, 1997, Gary N. Hughes resigned from the
Board of Directors. John Miao was immediately appointed to fill the vacancy.
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., 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.
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
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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. Miao has been a member of the Board of Directors of the Company since July
1997. In 1981, as founder and President, Mr. Miao established the U. S.
operations and management team of American Mitac Corporation in San Jose,
California. Mr. Miao was active in that capacity until 1989. Mr. Miao is
currently President of BOC Leinhwa Industrial Gases Co., Ltd. in Taiwan and
President of Hantech Venture Capital Corporation in Taiwan.
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 1997 the Board of Directors held six
meetings. During the year ended December 31, 1997, all directors attended at
least two-thirds 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 two non-employee
directors: Messrs. David S. Lee and Robert P. Dilworth. 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 twice during
the fiscal year.
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PROPOSAL 2
APPROVAL OF INCREASING THE STOCK OPTION POOL OF THE 1997 STOCK PLAN
In April of 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. On June 2, 1997, the shareholders
of the Company approved the Plan.
Shareholders are requested in this Proposal 2 to approve a reservation of an
additional twenty (20) percent or 140,000 shares of Common Stock for issuance
under the Plan. If the shareholders fail to approve Proposal 2, the Company
may have difficulty recruiting and retaining high caliber employees, officers
and consultants, including directors, necessary to continue the current trend
toward profitability and success of the Company. 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.
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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.
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
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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 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.
6
<PAGE>
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 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
7
<PAGE>
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 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.
8
<PAGE>
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 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.
9
<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, 1998 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 1997. 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.
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
10
<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, 1997, 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>
David S. Lee, 1,117,951(7) 16.6%
Chairman of the Board
c/o Photonics Corporation
1515 Centre Pointe Drive
Milpitas, CA 95035
Broadsino Computer Development, Ltd. 916,412(6) 13.6%
K.C. Yeung
Room 1101, 1103, and 1104 Star Center
443-451 Castle Peak Road
Kwai Chung NT, Hong Kong
Domex Technology Corporation 779,621(5) 11.6%
No. 2, Technology Road 1
Science-Based Industrial Park
Hsinchu, Taiwan, ROC
James T. Koo, President 559,341(8) 8.3%
c/o Photonics Corporation
Robert P. Dilworth, Director 50,373 *
c/o Photonics Corporation
John Miao, Director 150,000(9) 2.2%
c/o Photonics Corporation
All Officers and Directors as a group 2,794,077 41.4%
</TABLE>
* Denotes less than 1%
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
11
<PAGE>
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 4,364,148 outstanding shares of
Common Stock, 2,106,009 shares of Preferred Stock and 303,951 warrants or
options to purchase stock held by the beneficial owners.
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, has 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 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, $1,700,439 into
502,830 shares of Common Stock reflected in this table after applying the
0.147853 multiplier. In late 1997, DTC Taiwan legally changed its name to
Domex Technology Corporation.
6. On February 18, 1995, the Company and Broadsino Computer Development Ltd.
of Hong Kong ("Broadsino") consummated an agreement under which the Company
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, the
Company 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. In fiscal 1996, the note was fully
collected and the shares released from escrow. In March 1997, in
conjunction with the private placement of the Company's Series A
Convertible Preferred Stock, Broadsino pledged to purchase 300,000 shares
at $1.00 per share. A note receivable from Broadsino was established and
300,000 shares issued. At fiscal year ended 1997, $141,000 had been paid
against the note receivable with $159,000 remaining.
7. In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock, which closed on March 31, 1997, Mr. Lee
purchased 517,407 shares at $1.00 per share. Of this amount, Mr. Lee
contributed $100,000 in the form of a bridge loan during 1996.
8. In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock, which closed on March 31, 1997, Mr. Koo
purchased 267,069 shares.
9. In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock, which closed on March 31, 1997, Mr. Miao
purchased 150,000 shares.
12
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During the year ended December 31, 1997, the Company's directors did not
receive any cash compensation for service on the Board of Directors or any
committee thereof nor 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 and Robert P.
Dilworth. 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 $100,000 paid or accrued for services rendered during
the last fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
OTHER UNDERLYING ALL OTHER
NAME AND YEAR ANNUAL OPTIONS/ COMPENSATION
PRINCIPLE POSITION ENDED SALARY ($) BONUS ($) COMPENSATION($) SARS(1) ($)(2)
- ------------------ -------- ---------- --------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
James T.
Koo, 12/31/97 141,015 0 0 30,000 2,000
Pres.,
CEO &
Director
</TABLE>
1. In fiscal year ended 1997, an option to purchase 25,000 shares of Photonics
stock was awarded to Mr. Koo and to each of the Directors who had served on
the Board for a full year. These options were granted in appreciation of
the time and effort afforded to the Company by the Directors who serve
without remuneration. Mr. Koo was granted an option to purchase an
additional 5,000 shares as an employee of the Company during a time when a
general grant was made to all employees.
2. Mr. Koo was a participant in the Photonics 401(k) shared savings plan. As
provided in the "employer match" provision of the plan, the Company
contributed $2,000 on his behalf.
13
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended December 31, 1997 to the Company's
executive officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS/ GRANTED EMPLOYEES EXERCISE OR EXPIRATION
NAME SARS GRANTED # IN FISCAL YEAR BASE PRICE($/SH) DATE
- ---- -------------------- ------------------ ---------------- ----------
<S> <C> <C> <C> <C>
James T.
Koo, 25,000 8% $0.3750 2007
Pres., CEO
&
Director 5,000 1% $0.1875 2007
</TABLE>
1. In fiscal year 1996, the Board of Directors and Shareholders in concert
with the acquisition purchase between DTC Data Technology Corporation and
Photonics Corporation, approved a reverse split at an exchange rate of
0.147853 for all outstanding DTC Data Technology Corporation stock to
become Photonics stock. Mr. Koo's previous options for 170,000 DTC Data
Technology Corporation shares became 25,134 shares of Photonics stock.
Subsequently, the Board of Directors approved an additional option of
37,478 shares of Photonics Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE MONEY OPTIONS
VALUE AT FY-END # AT FY-END ($)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
ON EXERCISE # ($) UNEXERCISABLE UNEXERCISABLE
--------------- -------- --------------------- --------------------
<S> <C> <C> <C> <C>
James T. 17,742 2,750/0 0/74,870 0/0
Koo,
Pres.,
CEO &
Director
</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
fair market value of the Company's Common Stock, which was $0.1550 per share.
In addition, while most of the other terms of the new stock options remained
the same as those previously granted under the 1988 Stock Option Plan, such
new options provided for a five (5) year expiration date and were not
exercisable until April 22, 1997.
The Board of Directors granted optionees a 20-day opportunity of exchange and
repriced their stock options to further the principal purpose of the Company's
1988 Stock Option Plan, which was to provide an equity incentive for employees
to work diligently and remain in the employ of the Company. Because many
employees held options exercisable at prices significantly above that of the
then market price, the Board of Directors determined that the purpose of the
1988 Stock Option Plan would not be achieved and that it was in the best
interest of the Company and its shareholders that the Company retain the
service of such employees.
14
<PAGE>
The following table provides the specified information concerning all
repricing of option/SARs during the last ten (10) fiscal years of the Company
awarded to Executive Officers. The options and exercise prices represented in
the table reflect the 0.147853 reverse split, which became effective on March
5, 1996.
TEN YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER LENGTH OF
SECURITIES MARKET PRICE ORIGINAL
UNDERLYING OF STOCK AT EXERCISE PRICE NEW OPTION TERM
DATE OF OPTIONS TIME OF AT TIME OF EXERCISE AT DATE OF
NAME REPRICING REPRICED ($) REPRICING ($) REPRICING ($) PRICE ($) REPRICING*(1)
- ---- --------- ------------ ------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
James T. 04/22/97 25,135 $0.1550 $1.6909 $0.1550 8yrs 5mos
Koo
Pres.,
CEO &
Director
</TABLE>
* (1) Options were originally issued with a 48-month vesting period and a ten
(10) year expiration period. Repriced options retained the 48-month vesting
period with a new expiration period of five (5) years.
EMPLOYMENT AGREEMENTS
None of the Company's employees are 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 performances, 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:
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.
15
<PAGE>
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 in 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 three years.
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. In checking with the officers and directors of
the Company, Form 13G was filed for the 10% shareholders.
CONCLUSION
Although the Company is not financially sound, nevertheless, it is imperative
that its employees be competitively remunerated. The Company hopes to achieve
this goal through the plans described above. The Company remains committed to
the 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
16
<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 18, 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. In March of 1997, in
conjunction with the private placement of the Company's Series A Convertible
Preferred Stock, Broadsino pledged to purchase 300,000 shares at $1.00 per
share. A note receivable from Broadsino was established and 300,000 shares
issued. At fiscal year ended 1997, $141,000 had been paid against the note
receivable with $159,000 remaining.
In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock, which closed on March 31, 1997, Mr. Lee purchased
517,407 shares at $1.00 per share. Of this amount Mr. Lee contributed $100,000
in the form of a bridge loan during 1996.
In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock, which closed on March 31, 1997, Mr. Koo purchased
267,069 shares at $1.00 per share.
In conjunction with the private placement of the Company's Series A
Convertible Preferred Stock, which closed on March 31, 1997, Mr. Miao
purchased 150,000 shares at $1.00 per share.
17
<PAGE>
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.
By Order of the Board of Directors
/s/ James T. Koo
_________________________
James T. Koo
President
Dated: May 1, 1998
18
<PAGE>
PHOTONICS CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
May 22, 1998
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 Friday, May 22, 1998 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 CHOICES LIKE
ACCOUNT NUMBER COMMON 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 below WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed below
[_] [_]
Nominees: Robert P. Dilworth, James T. Koo, David S. Lee, John Miao, and
Ki Ching Yeung
To withhold authority to vote for any nominee(s), write such nominees(s) name(s)
below:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposal 2: To reserve an additional 140,000 shares of common stock for issuance
under the Photonics Corporation 1997 Stock Option Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
Proposal 3: To ratify the selection of Meredith, Cardozo & Lanz L.L.P. to serve
as the Company's independent accountants for fiscal 1998.
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
Proposal 4: To transact such other business as may Properly come before the
meeting or any adjournment or postponement thereof.
FOR AGAINST ABSTAIN
[_] [_] [_]
DATED: 1998
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S)
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.
