As filed with the Securities and Exchange Commission on May 14, 1999.
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROTOSOURCE CORPORATION
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(Exact name of Registrant as specified in its charter)
-----------
California 77-0190772
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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2800 28th Street, Suite 170, Santa Monica, CA 90405
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(Address of principal executive offices) (Zip Code)
1999 Executive Officers' Stock Option Plan
-------------------------------------------
(Full title of the plan)
Raymond J. Meyers, Chief Executive Officer
2800 28th Street, Suite 170
Santa Monica, CA 90405
(310) 314-9801
----------------------------------
(Name, address, including zip code,
and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale to public: From time to
time after the Registration Statement becomes effective.
--------------------------------
Exhibit Index Begins at Page II-6
<PAGE>
================================================================================
CALCULATION OF REGISTRATION FEE
================================================================================
Title of Amount to be Proposed Proposed Amount of
Securities Registered(1) Maximum Maximum Registration
to be Offering Aggregate Fee
Registered Price Per Offering
Security(2) Price(2)
- --------------------------------------------------------------------------------
Common Stock, 150,000 Shares $7.375 $1,106,250 $327
no par value
================================================================================
(1) This Registration Statement, pursuant to Rule 416, covers any
additional shares of no par value Common Stock ("shares") which become issuable
under the 1999 Executive Officers' Stock Option Plan ("Plan") set forth herein
by reason of any stock dividend, stock split, recapitalization or any other
similar transaction without receipt of consideration which results in an
increase in the number of shares outstanding.
(2) Estimated solely for the purpose of computing the amount of the
Registration fee under Rule 457 of the Securities Act of 1933, as amended. A
total of 150,000 shares are issuable under the Plan at an offering price per
share based upon the closing price of the Common Stock on the Nasdaq SmallCap
Market on May 6, 1999 of $ 7.375 per share.
ii
<PAGE>
PROTOSOURCE CORPORATION
PART I
Cross Reference Sheet Required by Item 501
Item in Form S-8 Caption In Prospectus
---------------- ---------------------
1. General Plan Information.......... Cover Page; Selling Stockholders;
Description of the Plan;
Tax Consequences
2. Registrant Information and
Employee Plan Annual
Information....................... Available Information
3. Incorporation of Documents
by Reference...................... Incorporation by Reference
4. Description of Securities......... Description of the Plan;
Applicable Securities Laws
Restrictions
5. Interests of Named Experts
and Counsel....................... Legal Matters
6. Indemnification of
Directors and Officers............ SEC Position Regarding Indemnification
7. Exemption from Registration
Claimed........................... Not Applicable
8. Exhibits.......................... Not Applicable (See Part II, Item 8)
9. Undertakings...................... Not Applicable (See Part II, Item 9)
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Pursuant to the requirements of the Note to Part I of Form S-8 and Rule
428(b)(1) of the Rules under the Securities Act of 1933, as amended, the
information required by Part I of Form S-8 is included in the Reoffer Prospectus
which follows. The Reoffer Prospectus together with the documents incorporated
by reference pursuant to Item 3 of Part II of this Registration Statement
constitute the Section 10(a) Prospectus.
iii
<PAGE>
REOFFER PROSPECTUS
The material which follows, up to but not including the page beginning Part
II of this Registration Statement, constitutes a prospectus, prepared on Form
S-3, in accordance with General Instruction C to Form S-8, to be used in
connection with resales of securities acquired under the Registrant's 1999
Executive Officers? Stock Option Plan by affiliates of the Registrant, as
defined in Rule 405 under the Securities Act of 1933, as amended.
iv
<PAGE>
150,000 SHARES OF
COMMON STOCK
PROTOSOURCE CORPORATION
---------------
1999 EXECUTIVE OFFICERS' STOCK OPTION PLAN
---------------
We are offering on behalf of certain of our executive officers up to
150,000 shares of our no par value common stock purchasable by such executive
officers pursuant to common stock options under our 1999 Executive Officers'
Stock Option Plan. As of this date 36,667 options issued under the Plan are
outstanding.
---------------
This prospectus may be used by our non-affiliates as well as persons who
are affiliates to resell the shares. We will not receive any part of the
proceeds of such sales although we will receive the exercise price for the stock
options.
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
No person is authorized to give any information or to make any
representation regarding the securities we are offering and investors should not
rely on any such information. The information provided in the prospectus is as
of this date only.
----------------
The date of this Prospectus is May 14, 1999.
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, including Sections 14(a) and 14(c) relating to proxy
and information statements, and in accordance therewith we file reports and
other information with the Securities and Exchange Commission. Reports and other
information which we file can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street N.W., Washington,
D.C. 20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7
World Trade Center, New York, New York 10048; and 5670 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street N.W., Washington,
D.C. 20549 at prescribed rates. Our common stock is traded on the Nasdaq
SmallCap Market under the symbol "PSCO." Reports, proxy and information
statements may also be inspected at the Nasdaq SmallCap Market offices, 1735 K
Street Northwest, Washington, D.C. 20006 and on the Commission's web site at
www.sec.gov.
We furnish annual reports to our shareholders which include audited
financial statements. We may furnish such other reports as may be authorized,
from time to time, by our Board of Directors.
INCORPORATION BY REFERENCE
Certain documents have been incorporated by reference into this prospectus,
either in whole or in part. We will provide without charge (1) to each person to
whom a prospectus is delivered, upon written or oral request, a copy of any and
all of the information that has been incorporated by reference (not including
exhibits to the information unless such exhibits are specifically incorporated
by reference into the information), and (2) documents and information required
to be delivered to directors pursuant to Rule 428(b). Requests for any
information shall be addressed to us at 2800 28th Street, Suite 170, Santa
Monica, CA 90405, telephone (310) 314-9801.
2
<PAGE>
TABLE OF CONTENTS
-----------------
INTRODUCTION.............................................................. 4
SELLING STOCKHOLDERS...................................................... 4
METHOD OF SALE............................................................ 5
SEC POSITION REGARDING INDEMNIFICATION.................................... 5
DESCRIPTION OF THE PLAN................................................... 5
APPLICABLE SECURITIES LAW RESTRICTIONS.................................... 7
TAX CONSEQUENCES.......................................................... 7
LEGAL MATTERS............................................................. 8
EXPERTS .................................................................. 8
3
<PAGE>
INTRODUCTION
We provide Internet access, Web development, Web hosting and related
services to individuals, public agencies and businesses on a national level. We
operate our own Internet network facilities in Central California and offer
Internet access nationwide through two "backbone" providers with which we have
agreements. As of December 31, 1998, we had approximately 3,700 subscribers for
whom we provided Internet access. We seek to acquire other small Internet
providers in markets with populations less than 500,000. We believe that certain
of these local Internet providers currently doing business in our target markets
may not be able to effectively manage the financial and administrative burdens
imposed by the continuing consumer demand for local Internet services, unless
these providers are integrated into larger, more diversified Internet products
and services companies. We have addressed these kinds of financial and
administrative burdens by (1) expanding our operations nationwide, (2)
developing diversified services similar to our larger competitors, such as
special access packages for business and high speed access, and (3) investing in
automated billing and administrative systems. We believe these resources will
not only allow us to compete effectively with larger access firms entering our
markets, but also will facilitate our efforts to attract small Internet
providers. We may also acquire or enter into partnership or joint venture
agreements with other small computer oriented companies.
Our executive offices are located at 2800 28th Street, Suite 170, Santa
Monica, California 90405, and our telephone number is (310) 314-9801.
SELLING STOCKHOLDERS
This prospectus covers possible sales by executive officers of shares
they acquire through exercise of stock options ("options") granted under the
1999 Executive Officers' Stock Option Plan ("Plan"). Raymond J. Meyers is
currently the only individual who may be a selling stockholder. The table below
indicates the number of shares of common stock currently owned by Mr. Meyers and
the number of shares offered for sale. The number of shares offered for sale may
be updated in supplements to this prospectus, which will be filed with the
Securities and Exchange Commission in accordance with Rule 424(b) under the
Securities Act of 1933, as amended. Mr. Meyers address is in care of ProtoSource
at 2800 28th Street, Suite 170, Santa Monica, California 90405.
4
<PAGE>
Number of
Name of Selling Shareholdings Shares Offered
Stockholder Number(1) Percent(1) For Sale
----------- --------- ---------- --------
Raymond J. Meyers(2) 36,667 2.0 36,667
- ----------
(1) Includes all stock options exercisable within 60 days from the date hereof,
including stock options issued under the Plan.
(2) Under an employment agreement with us, Mr. Meyers was granted stock options
exercisable at $3.75 per share, of which 36,667 options have vested and
additional options will vest under the Plan based upon performance
criteria. The prospectus covers all 150,000 options in the Plan.
METHOD OF SALE
Sales of the shares offered by this prospectus will be made on the Nasdaq
SmallCap Market, where our common stock is listed for trading, in other markets
where our common stock may be traded or in negotiated transactions. Sales will
be at prices current when the sales take place and will generally involve
payment of customary brokers' commissions. There is no present plan of
distribution.
SEC POSITION REGARDING INDEMNIFICATION
Our Articles of Incorporation and Bylaws provide for indemnification of
officers and directors, among other things, in instances in which they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
our best interests and in which, with respect to criminal proceedings, they had
no reasonable cause to believe their conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to our directors, officers or persons
controlling us under the provisions described above, we have been informed that
in the opinion of the Securities and Exchange Commission, indemnification is
against public policy as expressed in that Act and is therefore unenforceable.
DESCRIPTION OF THE PLAN
In May 1999, our Board of Directors approved the Plan for the benefit of
our executive officers. We believe that the Plan provides an incentive to
individuals to act as executive officers and to maintain a continued interest in
our operations. All options were issued under Section 422A of the Internal
Revenue Code, and include qualified and non-qualified stock options.
5
<PAGE>
The terms of the Plan provide that we are authorized to grant options to
purchase shares of common stock to our executive officers upon the majority
consent of our Board of Directors. Any executive officer is eligible to receive
options under the Plan. The option price to be paid by optionees for shares
under qualified stock options must not be less than the fair market value of the
options shares as reported by the Nasdaq SmallCap Market on the date of the
grant. The option price for nonqualified stock options must not be less than 85%
of such fair market value. Options must be exercised within six years following
the date of grant and the optionee must exercise options during service to us or
within three months of termination of such service (12 months in the event of
death on disability). [Ray to advise] The Board of Directors may extend the
termination date of an option granted under the Plan.
A total of 150,000 shares of our authorized but unissued common stock have
been reserved for issuance pursuant to the Plan of which 36,667 options are
currently outstanding, exercisable at $3.75 per share.
Options under the Plan may not be transferred, except by will or by the
laws of intestate succession. The number of shares and price per share of the
options under the Plan will be proportionately adjusted to reflect forward and
reverse stock splits. The holder of an option under the Plan has none of the
rights of a shareholder until shares are issued.
The Plan is administered by the Board of Directors which has the power to
interpret the Plan, determine which persons are to be granted options and the
amount of such options. The provisions of the Federal Employee Retirement Income
Security Act of 1974 do not apply to the Plan. Shares issuable upon exercise of
options will not be purchased in open market transactions but will be issued by
us from authorized shares. Payment for shares must be made by optionees in cash
from their own funds. No payroll deductions or other installment plans have been
established. No reports will be made to optionees under the Plan except in the
form of updated information for the prospectus. There are no assets administered
under the Plan, and, accordingly, no investment information is furnished
herewith.
Shares issuable under the Plan may be sold in the open market, without
restrictions, as free trading securities. No options may be assigned,
transferred, hypothecated or pledged by the option holder. No person may create
a lien on any securities under the Plan, except by operation of law. However,
there are no restrictions on the resale of the shares underlying the options.
The Plan will remain in effect until May, 2009 but may be terminated or
extended by our Board of Directors. Additional information concerning the Plan
and its administrators may be obtained from us at the address and telephone
number indicated under "Incorporation by Reference" above.
6
<PAGE>
APPLICABLE SECURITIES LAW RESTRICTIONS
If the optionee is deemed to be an "affiliate" (as that term is defined
under the Securities Act of 1933, as amended), the resale of the shares
purchased upon exercise of options covered hereby will be subject to certain
restrictions and requirements. Our legal counsel may be called upon to discuss
these applicable restrictions and requirements with any optionee who may be
deemed to be an affiliate, prior to exercising an option.
In addition to the requirements imposed by the Securities Act of 1933, the
antifraud provisions of the Securities Exchange Act of 1934 and the rules
thereunder (including Rule 10b-5) are applicable to any sale of shares acquired
pursuant to options.
Up to 150,000 shares may be issued under the Plan. We have authorized
10,000,000 shares of common stock, of which 1,772,188 shares were outstanding as
of February 28, 1999. Common shares outstanding and those to be issued upon
exercise of options are fully paid and nonassessable, and each share of stock is
entitled to one vote at all shareholders' meetings. All shares are equal to each
other with respect to lien rights, liquidation rights and dividend rights. There
are no preemptive rights to purchase additional shares by virtue of the fact
that a person is a shareholder of the Company. Shareholders have the right to
cumulate their votes for the election of directors.
Our directors must comply with certain reporting requirements and resale
restrictions pursuant to Sections 16(a) and 16(b) of the Securities Exchange Act
of 1934 and the rules thereunder upon the receipt or disposition of any options.
TAX CONSEQUENCES
If an option is exercised and if the optionee does not dispose of the
shares acquired pursuant to the exercise within two years of the date of the
granting of the option nor within one year from the transfer of the shares
pursuant to exercise of the options, then there will not be any federal income
tax consequences to us from either the exercise of the option or the receipt of
the proceeds with respect to the exercise of the option. In such circumstances,
the optionee would not be required to recognize any taxable income upon the
exercise of the option.
Furthermore, the sale of the shares received pursuant to the exercise of
the option would result in long-term capital gain or long-term capital loss to
the optionee based on the difference between the amount received with respect to
such sale and the amount paid upon the exercise of the option.
7
<PAGE>
If an optionee exercised an option and sold the shares acquired pursuant to
such exercise either within two years from the date of the granting of the
option or within one year from the date of the transfer of such shares to him
pursuant to his exercise of the option, then in general we would be entitled to
a deduction for federal income tax purposes equal to lessor of: (1) the fair
market value of the stock on the date of exercise over the option price of the
stock; or (2) the amount realized on disposition over the adjusted basis of the
stock. The optionee would recognize income equal to the amount of our deduction.
Our deduction would be allowed, and the optionee's income would be taxable, in
the year the optionee disposed of the shares. However, if the disposition occurs
within two years of the date of the grant and the disposition is a sale or
exchange with respect to which a loss, if sustained, would be recognized
(generally any disposition other than to a related party), then the optionee's
income and our deduction would not exceed the excess (if any) of the amount
realized on such sale or exchange over the adjusted basis of such shares. We
expect that optionees will be required to exercise their options within five
years from the date of grant although optionees may hold the shares issuable
upon exercise of the options indefinitely.
For options exercised after 1987, an individual generally must include in
alternative minimum taxable income the amount by which the option price paid is
exceeded by the fair market value at the time the individual's rights to the
shares are freely transferable or are not subject to a substantial risk of
forfeiture. The alternative minimum tax is payable only if the alternative
minimum tax exceeds the regular income tax liability.
The provision of Section 401(a) of the Code, relating to "qualified"
pension, profit sharing and stock bonus plans, do not apply to the options or
underlying shares covered hereby.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed on
for us by Gary A. Agron, 5445 DTC Parkway, Suite 520, Englewood, Colorado 80111.
EXPERTS
Our financial statements incorporated by reference to our Annual Report on
Form 10-KSB covering the years ended December 31, 1997 and 1998, were audited by
Angell & Deering, independent certified public accountants, as indicated in
their report with respect thereto, and are incorporated herein by reference.
8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 3. Incorporation of Documents by Reference
The Registrant hereby incorporates by reference in this Registration
Statement the following documents previously filed with the Securities and
Exchange Commission:
(a) The Registrant's definitive Prospectus dated May 13, 1998, included in
the Registrant's Registration Statement on Form SB-2, file no. 333-40743
under the Securities Act of 1933 (the "Act"), which includes the
Registrant's audited financial statements for the years ended December 31,
1997 and 1996.
(b) The Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
(c) The Registrant's quarterly reports on Form 10-QSB for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998, filed pursuant
to Section 13(a) of the Securities Exchange Act of 1934.
(d) The description of the Registrant's common stock contained in the
Registrant's Registration Statement on Form SB-2 under the Act, file no.
333-40743, including any amendments or reports filed for the purpose of
updating such description.
(e) All other reports and subsequent reports filed pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934.
All reports and definitive proxy or information statements filed by the
Registrant pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 after the date of this Registration Statement and prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold at the time of such amendment will be deemed to be incorporated by
reference into this Registration Statement and to be a part hereof from the date
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Registration Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
II-1
<PAGE>
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
Item 6. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation provide that liability of
directors to the Registrant for monetary damages is eliminated to the full
extent provided by California law. Under California law, a director is not
personally liable to the Registrant or its shareholders for monetary damages for
breach of fiduciary duty as a director except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its shareholders ; (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; (iii) for authorizing the unlawful payment of a
dividend or other distribution on the Registrant's capital stock or the unlawful
purchases of its capital stock; or (iv) for any transaction from which the
director derived any improper personal benefit.
The effect of this provision in the Articles of Incorporation is to
eliminate the rights of the Registrant and its shareholders (through
shareholders' derivative suits on behalf of the Registrant) to recover monetary
damages from a director for breach of the fiduciary duty of care as a director
(including any breach resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i) through (iv) above. This
provision does not limit or eliminate the rights of any securityholder to seek
non-monetary relief, such as an injunction or rescission, in the event of a
breach of a director's duty of care or any liability for violation of the
federal securities laws.
Insofar as indemnification for liabilities arising under the 1993 Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
Item 7. Exemption from Registration Claimed
Not applicable.
II-2
<PAGE>
Item 8. Exhibits
The following is a list of Exhibits filed as part of the Registration
Statement:
4.01 1999 Executive Officers' Stock Option Plan.
4.02 Form of Incentive Stock Option Agreement under the 1999
Executive Officers' Stock Option Plan
4.03 Form of Non-Statutory Stock Option Agreement under the 1999
Executive Officers' Stock Option Plan
5.01 Opinion of Gary A. Agron
23.01 Consent of Angell & Deering, independent certified public
accountants
Item 9. Undertakings
The Registrant hereby undertakes (1) to file, during any period in which
offers or sales are being made, a post-effective amendment to this Registration
Statement; to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (2) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
Registration Statement; (3) that, for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and (4) to remove from registration by means
of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the Plan.
The Registrant hereby undertakes to deliver or cause to be delivered with
the prospectus to each person to whom the prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Monica, California, on this 10th day of May,
1999
PROTOSOURCE CORPORATION.
By: /s/ Raymond J. Meyers
----------------------------
Raymond J. Meyers
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Raymond J. Meyers President, Chief Executive Officer, May 10, 1999
- ------------------------ Chief Financial Officer (Principal
Raymond J. Meyers Accounting Officer) and Director
/s/ Andrew Stathopoulos Director May 10, 1999
- ------------------------
Andrew Stathopoulos
/s/ William Conis Director May 10, 1999
- ------------------------
William Conis
II-5
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit Page No.
----------- ------- --------
4.01 1999 Executive Officers' Stock Option Plan.
4.02 Form of Incentive Stock Option Agreement
under the 1999 Executive Officers' Stock
Option Plan
4.03 Form of Non-Statutory Stock Option
Agreement under the 1999 Executive Officers'
Stock Option Plan
5.01 Opinion of Gary A. Agron
23.01 Consent of Angell & Deering, independent
certified public accountants
II-6
Exhibit 4.01
PROTOSOURCE CORPORATION
1999 EXECUTIVE OFFICERS' STOCK OPTION PLAN
Article I. Establishment and Purpose
------------------------------------
1.1 Establishment. ProtoSource Corporation, a California corporation (the
"Company"), hereby establishes a stock option plan for executive officers who
provide services to the Company, as described herein, which shall be known as
the 1999 Executive Officers Stock Option Plan (the "Plan"). It is intended that
certain of the options issued under the Plan to Officers of the Company shall
constitute "Incentive Stock Options" within the meaning of section 422A of the
Internal Revenue Code ("Code"), and that other options issued under the Plan
shall constitute "Nonstatutory Options" under the Code. The Board of Directors
of the Company (the "Board") shall determine which options are to be Incentive
Stock Options and which are to be Nonstatutory Options and shall enter into
option agreements with recipients accordingly.
1.2 Purpose. The purpose of this Plan is to enhance the Company's
stockholder value and financial performance by attracting, retaining and
motivating the Company's officers, directors, and consultants and to encourage
stock ownership by such individuals by providing them with a means to acquire a
proprietary interest in the Company's success through stock ownership.
Article II. Definitions
-----------------------
2.1 Definitions. Whenever used herein, the following capitalized terms
shall have the meanings set forth below, unless the context clearly requires
otherwise.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee provided for by Article IV hereof.
(d) "Company" means ProtoSource Corporation, a California corporation.
(e) "Consultant" means any person or entity, including an officer or
director of the Company who provides services to the Company and shall
include a Nonemployee Director, as defined below.
(f) "Date of Exercise" means the date the Company receives notice, by an
Optionee, of the exercise of an Option pursuant to section 8.1 of the Plan.
Such notice shall indicate the number of shares of Stock the Optionee
intends to exercise.
(g) "Employee" means any person, including an officer or director of the
Company who is employed by the Company.
<PAGE>
(h) "Fair Market Value" means the fair market value of Stock upon which an
Option is granted under this Plan.
(i) "Incentive Stock Option" means an Option granted under this Plan which
is intended to qualify as an "incentive stock option" within the meaning of
section 422A of the Code.
(j) "Nonemployee Director" means a member of the Board who is not an
employee of the Company at the time an Option is granted hereunder.
(k) "Nonstatutory Option" means an Option granted under the Plan which is
not intended to qualify as an Incentive Stock Option within the meaning of
section 422A of the Code. Nonstatutory Options may be granted at such times
and subject to such restrictions as the Board shall determine without
conforming to the statutory rules of section 422A of the Code applicable to
Incentive Stock Options.
(l) "Option" means the right, granted under the Plan, to purchase Stock of
the Company at the option price for a specified period of time. For
purposes of this Plan, an Option may be either an Incentive Stock Option or
a Nonstatutory Option.
(m) "Optionee" means an Officer, Director or Consultant holding an Option
under the Plan.
(n) "Parent Corporation" shall have the meaning set forth in section 425(e)
of the Code with the Company being treated as the employer corporation for
purposes of this definition.
(o) "Significant Shareholder" means an individual who, within the meaning
of section 422A(b)(6) of the Code, owns securities possessing more than ten
percent of the total combined voting power of all classes of securities of
the Company. In determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning securities owned by
certain relatives of the individual and certain securities owned by
corporations in which the individual is a shareholder; partnerships in
which the individual is a partner; and estates or trusts of which the
individual is a beneficiary, all as provided in section 425(d) of the Code.
(p) "Stock" means the no par value common stock of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context, any
masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
2
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Article III. Eligibility and Participation
------------------------------------------
3.1 Eligibility and Participation. All Officers and Directors are eligible
to participate in this Plan and receive Incentive Stock Options and/or
Nonstatutory Options hereunder. All Consultants are eligible to participate in
this Plan and receive Nonstatutory Options hereunder. Optionees in the Plan
shall be selected by the Board from among those Officers, Directors and
Consultants who, in the opinion of the Board, are in a position to contribute
materially to the Company's continued growth and development and to its
long-term financial success.
Article IV. Administration
--------------------------
4.1 Administration. The Board shall be responsible for administering the
Plan.
The Board is authorized to interpret the Plan; to prescribe, amend, and
rescind rules and regulations relating to the Plan; to provide for conditions
and assurances deemed necessary or advisable to protect the interests of the
Company; and to make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations or other actions made or
taken by the Board, pursuant to the provisions of this Plan, shall be final and
binding and conclusive for all purposes and upon all persons.
The Plan shall be administered by the standing Compensation Committee of
the Board (the "Committee") which is an executive committee of the Board, and
consists of not less than three (3) members of the Board, at least two of whom
are not executive officers or salaried employees of the Company or the Board of
Directors. The members of the Committee may be directors who are eligible to
receive Options under the Plan, but Options may be granted to such persons only
by action of the full Board and not by action of the Committee. The Committee
shall have full power and authority, subject to the limitations of the Plan and
any limitations imposed by the Board, to construe, interpret and administer the
Plan and to make determinations which shall be final, conclusive and binding
upon all persons, including, without limitation, the Company, the stockholders,
the directors and any persons having any interests in any Options which may be
granted under the Plan, and, by resolution or resolution providing for the
creation and issuance of any such Option, to fix the terms upon which, the time
or times at or within which, and the price or prices at which any Stock may be
purchased from the Company upon the exercise of Options, which terms, time or
times and price or prices shall, in every case, be set forth or incorporated by
reference in the instrument or instruments evidencing such Option, and shall be
consistent with the provisions of the Plan.
The Board may from time to time remove members from or add members to, the
Committee. The Board may terminate the Committee at any time. Vacancies on the
Committee, howsoever caused, shall be filled by the Board. The Committee shall
select one of its members as Chairman, and shall hold meetings at such times and
places as the Chairman may determine. A majority of the Committee at which a
quorum is present, or acts reduced to or approved in writing by all of the
3
<PAGE>
members of the Committee, shall be the valid acts of the Committee. A quorum
shall consist of two-thirds (2/3) of the members of the Committee.
Where the Committee has been created by the Board, references herein to
actions to be taken by the Board shall be deemed to refer to the Committee as
well, except where limited by the Plan or the Board.
The Board shall have all of the enumerated powers of the Committee but
shall not be limited to such powers. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted under it.
4.2 Special Provisions for Grants to Officers or Directors. Rule 16b-3
under the Securities and Exchange Act of 1934 (the "Act") provides that the
grant of a stock option to a director or officer of a company subject to the Act
will be exempt from the provisions of section 16(b) of the Act if the conditions
set forth in said Rule are satisfied. Unless otherwise specified by the Board,
grants of Options hereunder to individuals who are officers or directors of the
Company shall be made in a manner that satisfies the conditions of said Rule.
Article V. Stock Subject to the Plan
------------------------------------
5.1 Number. The total number of shares of Stock hereby made available and
reserved for issuance under the Plan shall be 150,000. The aggregate number of
shares of Stock available under this Plan shall be subject to adjustment as
provided in section 5.3. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 Unused Stock. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification or other similar corporate change, the
aggregate number of shares of Stock set forth in section 5.1 shall be
appropriately adjusted by the Board to reflect such change. The Board's
determination shall be conclusive; provided, however, that fractional shares
shall be rounded to the nearest whole share. In any such case, the number and
kind of shares of Stock that are subject to any Option (including any Option
outstanding after termination of employment) and the Option price per share
shall be proportionately and appropriately adjusted without any change in the
aggregate Option price to be paid therefor upon exercise of the Option.
4
<PAGE>
Article VI. Duration of the Plan
--------------------------------
6.1 Duration of the Plan. The Plan shall be in effect until May 2009 unless
extended by the Company's shareholders. Any Options outstanding at the end of
said period shall remain in effect in accordance with their terms. The Plan
shall terminate before the end of said period, if all Stock subject to it has
been purchased pursuant to the exercise of Options granted under the Plan.
Article VII. Terms of Stock Options
-----------------------------------
7.1 Grant of Options. Subject to section 5.1, Options may be granted to
Officers, Directors or Consultants at any time and from time to time as
determined by the Board; provided, however, that Consultants may receive only
Nonstatutory Options, and may not receive Incentive Stock Options. The Board
shall have complete discretion in determining the number of Options granted to
each Optionee. In making such determinations, the Board may take into account
the nature of services rendered by such Officers, Directors or Consultants,
their present and potential contributions to the Company, and such other factors
as the Board in its discretion shall deem relevant. The Board also shall
determine whether an Option is to be an Incentive Stock Option or a Nonstatutory
Option.
In the case of Incentive Stock Options the total Fair Market Value
(determined at the date of grant) of shares of Stock 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 under which incentive
stock options may be granted (and all such plans of any Parent Corporations and
any subsidiary corporations of the Company) shall not exceed $100,000.
(Hereinafter, this requirement is sometimes referred to as the "$100,000
Limitation.")
Nothing in this Article VII shall be deemed to prevent the grant of Options
permitting exercise in excess of the maximums established by the preceding
paragraph where such excess amount is treated as a Nonstatutory Option.
The Board is expressly given the authority to issue amended or replacement
Options with respect to shares of Stock subject to an Option previously granted
hereunder. An amended Option amends the terms of an Option previously granted
(including an extension of the terms of such Option) and thereby supersedes the
previous Option. A replacement Option is similar to a new Option granted
hereunder except that it provides that it shall be forfeited to the extent that
a previously granted Option is exercised, or except that its issuance is
conditioned upon the termination of a previously granted Option.
7.2 No Tandem Options. Where an Option granted under the Plan is intended
to be an Incentive Stock Option, the Option shall not contain terms pursuant to
which the exercise of the Option would affect the Optionee's right to exercise
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<PAGE>
another Option, or vice versa, such that the Option intended to be an Incentive
Stock Option would be deemed a tandem stock option within the meaning of the
regulations under section 422A of the Code.
7.3 Option Agreement; Terms and Conditions to Apply Unless Otherwise
Specified. As determined by the Board on the date of grant, each Option shall be
evidenced by an Option agreement (the "Option Agreement") that includes the
nontransferability provisions required by section 10.2 hereof and specifies:
whether the Option is an Incentive Stock Option or a Nonstatutory Option; the
Option price; the term (duration) of the Option; the number of shares of Stock
to which the Option applies; any vesting or exercisability restrictions which
the Board may impose; in the case of an Incentive Stock Option, a provision
implementing the $100,000 Limitation; and any other terms or conditions which
the Board may impose. All such terms and conditions shall be determined by the
Board at the time of grant of the Option.
If not otherwise specified by the Board or by a written agreement between
the Company and the Optionee, the following terms and conditions shall apply to
Options granted under the Plan:
(a) Term. The Option shall be exercisable to purchase Stock for a period of
six years from the date of grant, as evidenced by the execution date of the
Option Agreement.
(b) Exercise of Option. An Optionee may exercise his Option at any time and
from time to time.
The Board may specify terms and conditions other than those set forth
above, in its discretion with respect to options not already granted under the
Plan.
All Option Agreements shall incorporate the provisions of the Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 Option Price. No Incentive Stock Option granted pursuant to this Plan
shall have an Option price that is less than the Fair Market Value of the Stock
on the date the Option is granted. Incentive Stock Options granted to
Significant Stockholders shall have an Option price of not less than 110 percent
of the Fair Market Value of the Stock on the date of grant. The Option price for
Nonstatutory Options shall be established by the Board and shall not be less
than 100 percent of the Fair Market Value of the Stock on the date of grant.
7.5 Term of Options. Each Option shall expire at such time as the Board
shall determine, provided, however, that no Option shall be exercisable later
than ten years from the date of its grant.
6
<PAGE>
7.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 Payment. Payment for all shares of Stock shall be made at the time that
an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash or
certified funds, or (ii) if acceptable to the Board, in Stock or in some other
form; provided, however, in the case of an Incentive Stock Option, that said
other form of payment does not prevent the Option from qualifying for treatment
as an Incentive Stock Option within the meaning of the Code.
Article VIII. Written Notice, Issuance of
Stock Certificates, Stockholder Privileges
------------------------------------------
8.1 Written Notice. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
8.3 Privileges of a Stockholder. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such stock.
Article IX. Termination of Employment or Services
-------------------------------------------------
Except as otherwise expressly specified by the Board for Nonstatutory
Options, all Options granted under this Plan shall be subject to the following
termination provisions:
9.1 Death. If an Optionee's employment in the case of an Officer, or
provision of services as a Director, terminates by reason of death, the Option
may thereafter be exercised at any time prior to the expiration date of the
Option or within 12 months after the date of such death, whichever period is the
shorter, by the person or persons entitled to do so under the Optionee's will
or, if the Optionee shall fail to make a testamentary disposition of an Option
or shall die intestate, the Optionee's legal representative or representatives.
The Option shall be exercisable only to the extent that such Option was
exercisable as of the date of Optionee's death.
9.2 Termination Other Than For Cause or Due to Death. In the event of an
Optionee's termination of employment, in the case of an Officer, or termination
of the provision of services as a Director, other than by reason of death, the
Optionee may exercise such portion of his Option as was exercisable by him at
the date of such termination (the "Termination Date") at any time within three
(3) months of the Termination Date; provided, however, that where the Optionee
is an Officer, and is terminated due to disability within the meaning of Code
section 422A, he may exercise such portion of his Option as was exercisable by
7
<PAGE>
him on his Termination Date within one year of his Termination Date. In any
event, the Option cannot be exercised after the expiration of the term of the
Option. Options not exercised within the applicable period specified above shall
terminate.
In the case of an Officer, a change of duties or position within the
Company, shall not be considered a termination of employment for purposes of
this Plan. The Option Agreements may contain such provisions as the Board shall
approve with reference to the effect of approved leaves of absence upon
termination of employment.
9.3 Termination for Cause. In the event of an Optionee's termination of
employment for cause, any Option or Options held by him under the Plan, to the
extent not exercised before such termination, shall forthwith terminate.
Article X. Rights of Optionees
------------------------------
10.1 Service. Nothing in this Plan shall interfere with or limit in any way
the right of the Company to terminate any employee's employment, at any time,
nor confer upon any Officer or Director any right to continue in the employ of
the Company to provide services to the Company.
10.2 Nontransferability. Except as otherwise specified by the Board for
Nonstatutory Options, Options granted under this Plan shall be nontransferable
by the Optionee, other than by will or the laws of descent and distribution, and
shall be exercisable during the Optionee's lifetime only by the Optionee.
Article XI. Optionee-Officer's
Transfer or Leave of Absence
----------------------------
11.1 Optionee's Transfer or Leave of Absence. For Plan purposes:
(a) A transfer of an Optionee who is an Officer within the Company, or
(b) a leave of absence for such an Optionee (i) which is duly authorized in
writing by the Company, and (ii) if the Optionee holds an Incentive Stock
Option, which qualifies under the applicable regulations under the Code
which apply in the case of Incentive Stock Options, shall not be deemed a
termination of employment. However, under no circumstances may an Optionee
exercise an Option during any leave of absence, unless authorized by the
Board.
8
<PAGE>
Article XII. Amendment, Modification
and Termination of the Plan
---------------------------
12.1 Amendment, Modification, and Termination of the Plan. The Board may at
any time terminate, and from time to time may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
stockholders, may:
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in Article V;
(b) change the class of Officers or Directors eligible to receive Options;
No amendment, modification or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
Article XIII. Acquisition, Merger and Liquidation
-------------------------------------------------
13.1 Acquisition. In the event that an Acquisition occurs with respect to
the Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of Acquisition, whether or
not such Options are then exercisable, in return for payment to the Optionees of
an amount equal to a reasonable estimate of an amount (hereinafter the "Spread")
equal to the difference between the net amount per share of Stock payable in the
Acquisition, or as a result of the Acquisition, less the exercise price of the
Option. In estimating the Spread, appropriate adjustments to give effect to the
existence of the Options shall be made, such as deeming the Options to have been
exercised, with the Company receiving the exercise price payable thereunder, and
treating the shares receivable upon exercise of the Options as being outstanding
in determining the net amount per share. For purposes of this section, an
"Acquisition" shall mean any transaction in which substantially all of the
Company's assets are acquired or in which a controlling amount of the Company's
outstanding shares are acquired, in each case by a single person or entity or an
affiliated group of persons and/or entities. For purposes of this section a
controlling amount shall mean more than 50% of the issued and outstanding shares
of stock of the Company. The Company shall have such an option regardless of how
the Acquisition is effectuated, whether by direct purchase, through a merger or
similar corporate transaction, or otherwise. In cases where the acquisition
consists of the acquisition of assets of the Company, the net amount per share
shall be calculated on the basis of the net amount receivable with respect to
shares upon a distribution and liquidation by the Company after giving effect to
expenses and charges, including but not limited to taxes, payable by the Company
before the liquidation can be completed.
Where the Company does not exercise its option under this section 13.1, the
remaining provisions of this Article XIII shall apply, to the extent applicable.
13.2 Merger or Consolidation. Subject to any required action by the
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled in such merger or consolidation.
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<PAGE>
13.3 Other Transactions. A dissolution or a liquidation of the Company or a
merger and consolidation in which the Company is not the surviving corporation
shall cause every Option outstanding hereunder to terminate as of the effective
date of such dissolution, liquidation, merger or consolidation. However, the
Optionee either (i) shall be offered a firm commitment whereby the resulting or
surviving corporation in a merger or consolidation will tender to the Optionee
an option (the "Substitute Option") to purchase its shares on terms and
conditions both as to number of shares and otherwise, which will substantially
preserve to the Optionee the rights and benefits of the Option outstanding
hereunder granted by the Company, or (ii) shall have the right immediately prior
to such dissolution, liquidation, merger, or consolidation to exercise any
unexercised Options whether or not then exercisable, subject to the provisions
of this Plan. The Board shall have absolute and uncontrolled discretion to
determine whether the Optionee has been offered a firm commitment and whether
the tendered Substitute Option will substantially preserve to the Optionee the
rights and benefits of the Option outstanding hereunder. In any event, any
Substitute Option for an Incentive Stock Option shall comply with the
requirements of Code section 425(a).
Article XIV. Securities Registration
------------------------------------
14.1 Securities Registration. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualification of such Options or
Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that the Optionee is
acquiring such shares for his own account for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof, (b) that
before any transfer in connection with the resale of such shares, the Optionee
will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing.
Article XV. Tax Withholding
---------------------------
15.1 Tax Withholding. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements.
10
<PAGE>
Article XVI. Indemnification
----------------------------
16.1 Indemnification. To the extent permitted by law, each person who is or
shall have been a member of the Board shall be indemnified and held harmless by
the Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof, with
the Company's approval, or paid by him in satisfaction of judgment in any such
action, suit or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
Article XVII. Requirements of Law
---------------------------------
17.1 Requirements of Law. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the state of
California.
Article XVIII. Effective Date of Plan
-------------------------------------
18.1 Effective Date. The Plan shall be effective on May 3, 1999.
Article XIX. Compliance with Code
---------------------------------
19.1 Compliance with Code. Incentive Stock Options granted hereunder are
intended to qualify as Incentive Stock Options under Code section 422A. If any
provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as Incentive Stock Options under
the Code.
11
<PAGE>
Article XX. No Obligation to Exercise Option
--------------------------------------------
20.1 No Obligation to Exercise. The granting of an Option shall impose no
obligation upon the holder thereof to exercise such Option.
Dated at Santa Monica, California, May __, 1999.
PROTOSOURCE CORPORATION
By
-------------------------------------------
Raymond J. Meyers, Chief Executive Officer
OR
---------------------------------------------
Andrew N. Stathopoulos, Director
12
<PAGE>
PROTOSOURCE CORPORATION
NOTICE OF EXERCISE OF STOCK OPTION ISSUED
UNDER THE 1999 EXECUTIVE OFFICERS' STOCK OPTION PLAN
To: Compensation Committee
ProtoSource Corporation
2800 28th Street, Suite 170
Santa Monica, California 90405
I hereby exercise my Option dated __________ to purchase __________ shares
of the no par value common stock of the Company at the option exercise price of
$____ per share. Enclosed is a certified or cashier's check in the total amount
of $________ , or payment in such other form as the Company has specified. I
represent to you that I am acquiring said shares for investment purposes and not
with a view to any distribution thereof. I understand that my stock certificate
may bear an appropriate legend restricting the transfer of my shares and that a
stock transfer order may be placed with the Company's transfer agent with
respect to such shares.
I request that my shares be issued in my name as follows:
-----------------------------------------
(Print your name in the form in which you
wish to have the shares registered)
-----------------------------------------
(Social Security Number)
-----------------------------------------
(Street and Number)
-----------------------------------------
(City) (State) (Zip Code)
Dated: , 19 .
---------- ----
Signature:
----------------------------------
Exhibit 4.02
PROTOSOURCE CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE 1999 EXECUTIVE OFFICERS' STOCK OPTION PLAN
Between:
PROTOSOURCE CORPORATION (the "Company") and
- --------------------------------------------
(the "Employee"), dated .
-------------------
The Company hereby grants to the Employee an option (the "Option") to
purchase __________ shares of the Company's no par value common stock ("Stock")
under the ProtoSource Corporation 1999 Executive Officers' Stock Option Plan
(the "Plan") upon the following terms and conditions:
1. Purchase Price. The purchase price of the Stock shall be _____ per
share, which is not less than the fair market value of the Stock on the date of
this Agreement.
2. Incentive Stock Option. The Option shall be an Incentive Stock Option,
as defined in the Plan.
3. Period of Exercise. The Option will expire six years from the date of
this Agreement. The Option may be exercised at any time as provided in Section
6, dealing with termination of employment.
Where the Employee holds (whether under this Option alone or under this
Option in conjunction with other incentive stock options) incentive stock
options upon shares of the Company's common stock having an aggregate fair
market value (determined at the time of grant of each option) exceeding
$100,000, the $100,000 Limitation set forth in Section 4 below may impose
additional limitations upon the exercisability of this Option and any other
incentive stock options granted to the Employee. Such limitations are in
addition to, and not in lieu of, the limitations set forth in this Section 3.
4. $100,000 Limitation. Notwithstanding anything to the contrary contained
herein, the total fair market value (determined as of the date of grant of an
option) of shares of stock with respect to which this Option (and any other
incentive stock options granted by the Company) shall become exercisable for the
first time during any calendar year shall not exceed $100,000. (Hereinafter this
limitation is sometimes referred to as the "$100,000 Limitation.") If in any
calendar year shares of stock having a fair market value of more than $100,000
first would become exercisable, but for the limitations of this section, this
Option shall be exercisable in such calendar year only for shares having a fair
market value not exceeding $100,000. (Hereinafter, shares with respect to which
this Option is not exercisable in a calendar year due to the $100,000 Limitation
are referred to as "Excess Shares.")
<PAGE>
This Option shall become exercisable with respect to Excess Shares from a
calendar year in the next succeeding calendar year (subject to any other
restrictions on exercise which may be contained herein), provided that the
$100,000 limitation shall also be applied to such succeeding calendar year.
Subject to the term of this Option, such carryovers of Excess Shares shall be
made to succeeding calendar years, including carryovers of any Excess Shares
from previous calendar years, without limitation.
If as of the date of this Agreement the Employee already holds incentive
stock options granted by the Company (hereinafter any such incentive stock
options are referred to as "Prior Options"), and the fair market value
(determined as the date of grant of each option) of the shares subject to this
Option and the Prior Options held by the Employee is such that the $100,000
Limitation must be imposed, the $100,000 Limitation shall be applied as follows
unless a special provision is made on Exhibit A attached hereto. If no special
provision is made on Exhibit A, the $100,000 Limitation shall be applied by
giving priority to options which first become exercisable during a calendar year
under the Prior Options. Thus, in applying the $100,000 Limitation under this
Option, the fair market value (determined as of the date of grant) of the shares
of stock with respect to which options first become exercisable under the Prior
Options during the calendar year shall first be determined. Only the balance
remaining for the calendar year of the $100,000 Limitation, if any, may be
exercisable under this Option for the calendar year, with any excess to be
carried over as provided in the preceding paragraph, but with such carryover
also to be subject to the provisions of this paragraph.
Employee acknowledges that it is possible that he or she may be granted
incentive stock options by the Company after the date of this Agreement.
(Hereinafter such options are referred to as "Subsequent Options.") If the
exercise price of a Subsequent Option is less than the exercise price of this
Option, and if permitted under the regulations and decisions applicable to the
$100,000 Limitation, Employee agrees that the Company may reduce the number of
shares of stock for which this Option is exercisable in specified calendar
years, so that all or part of the $100,000 limitation for said calendar years
may be applied to such Subsequent Option, permitting earlier exercise of such
Subsequent Option than would otherwise be possible. Where such reductions are
made, Employee agrees to enter into any appropriate documentation to implement
such reductions.
Employee further acknowledges that, as provided in the Plan, in certain
circumstances connected with a dissolution or liquidation of the Company, or a
merger, consolidation or other form of reorganization in which the Company is
not the surviving corporation, the imposition of the $100,000 Limitation may
result in the termination of all or part of this Option or other incentive stock
options.
5. Transferability. This Option is not transferable except by will or the
laws of descent and distribution and may be exercised during the lifetime of the
Employee only by him or her.
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<PAGE>
6. Termination of Employment. In the event that employment of the Employee
with the Company is terminated, the Option may be exercised (to the extent
exercisable at the date of his termination) by the Employee within three months
after the date of termination; provided, however, that:
(a) If the Employee's employment is terminated because he is disabled
within the meaning of Internal Revenue Code section 422A, the Employee
shall have one year rather than three months to exercise the Option (to the
extent exercisable at the date of his termination).
(b) If the Employee dies, the Option may be exercised (to the extent
exercisable by the Employee at the date of his death) by his legal
representative or by a person who acquired the right to exercise such
option by bequest or inheritance or by reason of the death of the Employee,
but the Option must be exercised within one year after the date of the
Employee's death.
(c) If the Employee's employment is terminated for cause, this Option shall
terminate immediately.
(d) In no event (including death of the Employee) may this Option be
exercised more than six years from the date hereof.
7. No Guarantee of Employment. This Agreement shall in no way restrict the
right of the Company to terminate Employee's employment at any time.
8. Investment Representation; Legend. The Employee (and any other
transferee under paragraph 5 hereof) represents and agrees that all shares of
Stock purchased by him under this Agreement will be purchased for investment
purposes only and not with a view to distribution or resale. The Company may
require that an appropriate legend be inscribed on the face of any certificate
issued under this Agreement, indicating that transfer of the Stock is
restricted, and may place an appropriate stop transfer order with the Company's
transfer agent with respect to the Stock.
9. Method of Exercise. The Option may be exercised, subject to the terms
and conditions of this Agreement, by written notice to the Company. The notice
shall be in the form attached to this Agreement and will be accompanied by
payment (in such form as the Company may specify) of the full purchase price of
the Stock to be issued, and in the event of an exercise under the terms of
paragraphs 6(a) or 6(b) hereof, appropriate proof of the right to exercise the
Option. The Company will issue and deliver certificates representing the number
of shares purchased under the Option, registered in the name of the Employee (or
other purchaser under paragraph 6 hereof) as soon as practicable after receipt
of the notice.
3
<PAGE>
10. Withholding. In any case where withholding is required or advisable
under federal, state or local law in connection with any exercise by Employee
hereunder, the Company is authorized to withhold appropriate amounts from
amounts payable to Employee, or may require Employee to remit to the Company an
amount equal to such appropriate amounts.
11. Incorporation of Plan. This Agreement is made pursuant to the
provisions of the Plan, which Plan is incorporated by reference herein. Terms
used herein shall have the meaning employed in the Plan, unless the context
clearly requires otherwise. In the event of a conflict between the provisions of
the Plan and the provisions of this Agreement, the provisions of the Plan shall
govern.
PROTOSOURCE CORPORATION
By
-------------------------------------------
Raymond J. Meyers, Chief Executive Officer
ACCEPTED:
- -------------------------- OR
Employee
-------------------------------------------
Andrew N. Stathopoulos, Director
4
Exhibit 4.03
PROTOSOURCE CORPORATION
NON-STATUTORY STOCK OPTION AGREEMENT
UNDER THE 1999 EXECUTIVE OFFICERS' STOCK OPTION PLAN
Between:
PROTOSOURCE CORPORATION (the "Company") and
(the "Executive Officer") dated .
The Company hereby grants to the Executive Officer of the Company named
below an option (the "Option") to purchase __________ shares of the Company's
common stock under the ProtoSource Corporation 1999 Executive Officer' Stock
Option Plan (the "Plan") upon the following terms and conditions:
1. Purchase Price. The purchase price of the Stock shall be __________ per
share, which is not less than the fair market value of the Stock on the date of
this Agreement.
2. Non-Statutory Option. The Option shall be a Non-Statutory Option, as
defined in the Plan.
3. Period of Exercise. Unless otherwise agreed to in writing, the Option
will expire six years from the date of this Agreement. The Option may be
exercised only while the Executive Officer is actively providing services to the
Company and as provided in Section 5, dealing with termination of services.
4. Unless otherwise agreed to in writing, the Option may be exercised at
any time.
5. Transferability. This Option is not transferable except by will or the
laws of descent and distribution and may be exercised during the lifetime of the
Executive Officer only by him.
6. Termination of Services. In the event of a termination in the providing
of services by the Executive Officer, the Option may be exercised (to the extent
exercisable at the date of his termination) by the Executive Officer within
three months after the date of such termination; provided, however, that:
(a) If the Executive Officer's employment is terminated because he is
disabled within the meaning of Internal Revenue Code section 422A, he shall
have one year rather than three months to exercise the Option (to the
extent exercisable at the date of his termination).
<PAGE>
(b) If the Executive Officer dies, the Option may be exercised (to the
extent exercisable by the Executive Officer at the date of his death) by
his legal representative or by a person who acquired the right to exercise
such option by bequest or inheritance or by reason of the death of the
Executive Officer, but the Option must be exercised within one year after
the date of the Executive Officer's death.
(c) If the Executive Officer's employment is terminated for cause, this
Option shall terminate immediately.
(d) In no event (including death of the Executive Officer) may this Option
be exercised more than six years from the date hereof.
7. No Guarantee of Services. This Agreement shall in no way restrict the
right of the Company or any Subsidiary Corporation to terminate the Executive
Officer's employment at any time.
8. Investment Representation; Legend. The Executive Officer (or any other
transferee under paragraph 5(c) hereof) represents and agrees that all shares of
Stock purchased by him under this Agreement will be purchased for investment
purposes only and not with a view to distribution or resale. The Company may
require that an appropriate legend be inscribed on the face of any certificate
issued under this Agreement, indicating that transfer of the Stock is
restricted, and may place an appropriate stop transfer order with the Company's
transfer agent with respect to the Stock.
9. Method of Exercise. The Option may be exercised, subject to the terms
and conditions of this Agreement, by written notice to the Company. The notice
shall be in the form attached to this Agreement and will be accompanied by
payment (in such form as the Company may specify) of the full purchase price of
the Stock to be issued. The Company will issue and deliver certificates
representing the number of shares purchased under the Option, registered in the
name of the Executive Officer (or other purchaser under paragraph 5 hereof) as
soon as practicable after receipt of the notice.
10. Incorporation of Plan. This Agreement is made pursuant to the
provisions of the Plan, which Plan is incorporated by reference herein. Terms
2
<PAGE>
used herein shall have the meaning employed in the Plan, unless the context
clearly requires otherwise. In the event of a conflict between the provisions of
the Plan and the provisions of this Agreement, the provisions of the Plan shall
govern.
PROTOSOURCE CORPORATION
By
---------------------------------------------
Raymond J. Meyers, Chief Executive Officer
ACCEPTED:
OR
- -----------------------------
Executive Officer
--------------------------------------------
Andrew N. Stathopoulos, Director
3
Exhibit 5.01
Legal Opinion of Gary A. Agron
May 6, 1999
ProtoSource Corporation
2800 28th Street, Suite 170
Santa Monica, CA 90405
Gentlemen:
We have assisted in the preparation and filing by ProtoSource Corporation
(the "Company") of a Registration Statement on Form S-8 (the "Registration
Statement") with the Securities and Exchange Commission relating to 150,000
shares of no par value Common Stock (the "Option Shares") of the Company
issuable upon exercise of options granted under the Company's 1999 Executive
Officers' Stock Option Plan. (The "Option").
We have examined such records and documents and have made such examination
of laws as we considered necessary to form a basis for the opinions set forth
herein. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with the originals of all documents submitted to us as copies
thereof.
Based upon and subject to the foregoing, we are of the opinion that the
Option Shares have been duly authorized and reserved for issuance and such
Option Shares, when issued in accordance with the terms of the Option against
payment therefor, will be duly and validly issued, fully paid and nonassessable.
The foregoing assumes that all requisite steps will be taken to comply with
the requirements of the Securities Act of 1933, as amended, and applicable state
laws relating to the offer and sales of securities.
<PAGE>
We consent to the filing of a copy of this opinion in the Registration
Statement and the use of our opinion in connection herewith.
Very truly yours,
/s/ Gary A. Agron
--------------------------------------
Gary A. Agron
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in the Registration Statement on Form S-8 for the
1999 Executive Officers' Stock Option Plan of ProtoSource Corporation
("Registration Statement") of our report dated February 18, 1999, which appears
on page F-2 of ProtoSource Corporation's Annual Report on Form 10-KSB for the
year ended December 31, 1998, and of our report dated February 13, 1998, except
for Note 6 as to which the date is April 7, 1998 which appears on page F-1 of
ProtoSource Corporation's definitive prospectus dated May 13, 1998.
ANGELL & DEERING
Certified Public Accountants
Denver, Colorado
May 10, 1999
