PROTOSOURCE CORPORATION
2800 28th Street, Suite 170
Santa Monica, California 90405
PROXY STATEMENT AND
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 29, 1999
To the shareholders of Protosource Corporation:
The Annual Meeting of the shareholders of Protosource Corporation (the
"Company") will be held at the Company's Fresno office at 2300 Tulare Street,
Suite 210, Fresno, California 93721 at 10:30 A.M. on June 29, 1999, or at any
adjournment or postponement thereof, for the following purposes:
1. To elect three directors of the Company.
2. To transact such other business as may properly come before the meeting.
Details relating to the above matters are set forth in the attached Proxy
Statement. All shareholders of record of the Company as of the close of business
on May 14, 1999 will be entitled to notice of and to vote at such meeting or at
any adjournment or postponement thereof.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU DO NOT
PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY. A REPLY CARD IS ENCLOSED FOR YOUR CONVENIENCE. THE GIVING OF A
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Raymond J. Meyers
President and Chief Executive Officer
May 18, 1999
<PAGE>
PROXY STATEMENT
PROTOSOURCE CORPORATION
2800 28th Street
Santa Monica, California 90405
Telephone: (310) 314-9801
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 29, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Protosource Corporation (the "Company"), a
California corporation, of no par value Common Stock ("Common Stock") to be
voted at the Annual Meeting of Shareholders of the Company ("Annual Meeting") to
be held at 10:30 AM. on June 29, 1999, or at any adjournment or postponement
thereof. The Company anticipates that this Proxy Statement and the accompanying
form of proxy will be first mailed or given to all shareholders of the Company
on or about May 18, 1999. The shares represented by all proxies that are
properly executed and submitted will be voted at the meeting in accordance with
the instructions indicated thereon. Unless otherwise directed, votes will be
cast for the election of the nominees for directors hereinafter named. The
holders of a majority of the shares represented at the Annual Meeting in person
or by proxy will be required to elect directors and approve any proposed
matters.
Any shareholders giving a proxy may revoke it at any time before it is
exercised by delivering written notice of such revocation to the Company, by
substituting a new proxy executed at a later date, or by requesting, in person,
at the Annual Meeting, that the proxy be returned.
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the materials enclosed herewith and all costs of soliciting
proxies will be paid by the Company. In addition to the solicitation by mail,
proxies may be solicited by officers and regular employees of the Company by
telephone, telegraph or personal interview. Such persons will receive no
compensation for their services other than their regular salaries. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of the
shares held of record by such persons, and the Company may reimburse such
persons for reasonable out of pocket expenses incurred by them in so doing.
VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The close of business on May 14, 1999 has been fixed by the Board of
Directors of the Company as the record date (the "record date") for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. On the record date, there were 1,787,300 shares of Common Stock
outstanding with each share of Common Stock entitling the holder thereof to one
vote. Cumulative voting for directors is not permitted.
A majority of the issued and outstanding shares entitled to vote,
represented at the meeting in person or by proxy, constitutes a quorum at any
shareholders' meeting. Under California law, if you choose, your abstention or
withholding of a vote on any matter will be treated as a "no" vote for
determining whether approval of each proposal has been obtained, provided that
if a quorum is present, abstentions and withholding of a vote will have no
effect on the voting for the election of directors.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
ownership of the Company's Common Stock as May 14, 1999, by (i) each person who
is known by the Company to own of record or beneficially more than 5% of the
Company's Common Stock, (ii) each of the Company's directors and (iii) all
directors and officers of the Company as a group. All shares are owned
beneficially and of record and the stockholders listed in the table have sole
voting and investment powers with respect to the shares of Common Stock. The
addresses of all stockholders listed in the table are in care of the Company.
Amount of Percent of
Name Ownership Class
- ---- --------- ----------
Raymond J. Meyers (1) 36,667 2.0%
Andrew Stathopoulos (2) 5,000 .3%
William Conis -0- 0.0%
All officers and
directors as a
group (3 persons)(1)(2) 41,667 2.3%
(1) Represents stock options to purchase 36,667 shares at $3.75 per share at
any time until October 2001.
(2) Represents stock options to purchase 5,000 shares at $6.00 per share at any
time until November 2003.
PROPOSAL 1: To elect three directors of the Company.
ELECTION OF DIRECTORS
At the Annual Meeting, the shareholders will elect three directors of the
Company. Cumulative voting is not permitted in the election of directors. In the
absence of instructions to the contrary, the person named in the accompanying
proxy will vote in favor of the election of each of the persons named below as
the Company's nominees for directors of the Company. All of the nominees are
presently members of the Board of Directors. Each of the nominees has consented
to be named herein and to serve if elected. It is not anticipated that any
nominee will become unable or unwilling to accept nomination or election, but if
such should occur, the person named in the proxy intends to vote for the
election in his stead of such person as the Board of Directors of the Company
may recommend.
The following table sets forth certain information regarding each
nominee and each executive officer of the Company.
Officer/Director
Name Age Position Since
---- --- -------- -----
Raymond J. Meyers (1) 42 Chief Executive Officer, 1996
Chief Financial Officer
and Director
Andrew Stathopoulos (1) 49 Director 1998
William Conis (1) 52 Director 1998
(1) Nominee for Director
2
<PAGE>
Directors hold office for a period of one year from their election at the
annual meeting of stockholders or until their successors are duly elected and
qualified. Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors. Board members receive $100 per hour for time
expended on behalf of the Company including attendance at Board meetings. The
Company's audit committee is composed of all three members of its Board of
Directors. The Company's compensation committee is composed of Messrs.
Stathopoulos and Conis.
Background
The following is a summary of the business experience, for at least the
last five years, of each executive officer and director of the Company:
Raymond J. Meyers became the Company's Chief Executive Officer in December
1996. From 1985 to 1996, he was employed by Transamerica Corporation holding a
variety of positions, most recently (from 1991 to 1996) as Director of Business
Services for Transamerica Telecommunications. Mr. Meyers graduated from Rutgers
University in 1979, with a Bachelor of Arts degree in Economics.
Andrew Stathopoulos has over 25 years experience in finance, operations,
marketing, mergers and acquisitions, engineering, manufacturing and consulting.
In March 1998, he joined the Bank of New York as a Vice President to launch a
software and hardware vendor management program. He is also currently involved
in the Bank's efforts to meet Year 2000 compliance. From 1996 to 1997, he was
Vice President of Finance for New Alliance Corp., an emerging markets investment
bank specializing in Eastern Europe. He was responsible for financial reporting,
internal audit and controls, mid-office and back-office operations, information
systems, and management reporting. From 1994 to 1996, he was Vice President of
Business Development for Nautical Technology Corp., an independent software
developer for the maritime industry. He was responsible for developing and
implementing a new marketing and sales program, seeking strategic partners and
providing general business advice. Also, from 1994 to 1996, he was Vice
President of Business Development for Interbank of New York, a Greek commercial
bank where he was responsible for identifying and marketing new products and
pursuing new business opportunities. From 1992 to 1994, he was the Vice
President of Finance and Administration for Societe Generale Energie, an oil
trading products firm. He was responsible for establishing financial controls,
accounting and reporting procedures; monitoring cash flow and working capital
requirements; managing human resources administration; and dealing with
auditors, insurers and vendors. From 1989 to 1991, he was a principal of Forest
Development, a privately-held investment and consulting group. From 1985 to
1989, he was the Director of Business Development and Planning for Empire Blue
Cross and Blue Shield, a leading health insurer. From 1977 to 1985, he was
Director of Assets Management for Ogden Corporation, a diversified conglomerate.
From 1973 to 1977, he held positions in finance, planning and engineering for
International Paper, a leading manufacturer of paper and wood products. Mr.
Stathopoulos holds a BS degree in Industrial Engineering and an MBA degree in
Finance and International Business, both from Columbia University.
William Conis has been Vice President--Eastern Region of Hitachi Data
Systems since July 1997, and was Hitachi's New York-based District Manager from
July 1995 to July 1997. From 1984 to July 1995, Mr. Conis was a senior
consultant for the Kappa Group. He earned a Bachelor's degree and Master's
degree in Electrical Engineering from New York University in 1968 and 1971,
respectively.
3
<PAGE>
EXECUTIVE COMPENSATION
None of the Company's executive officers or directors currently receive
compensation in excess of $100,000 per year except Mr. Meyers, the Company's
Chief Executive Officer, who receives a salary of $140,000 per year pursuant to
an Employment Agreement which expires on June 30, 1999. The Employment Agreement
also provides for (i) a cash bonus to Mr. Meyers of up to 20% of his salary
based upon certain increases in the Company's revenues and (ii) the issuance of
10,000 stock options exercisable at $6.00 per share for each increase of 3,500
in the number of the Company's Internet access subscribers. In connection with
his employment, Mr. Meyers was also granted options to purchase 36,667 shares of
Common Stock vesting over a three year period at $3.75 per share exercisable at
any time until October 2001. Other than Mr. Meyers, no executive officer or
director received compensation in excess of $100,000 for the calendar years
ended December 31, 1998 or 1997. Compensation for all officers and directors as
a group for the calendar year ended December 31, 1998, aggregated $158,753.
The following table discloses certain compensation paid to the
Company's Chief Executive Officer for the calendar years ended December 31, 1998
and 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and
Other
Principal Other Restricted All
Other Annual Stock Options/ LTIP Other
Position Year Salary($) Bonus($) Compensation($) Award(s)($) SARS(#) Payouts($) Compensation($)
- -------- ---- --------- -------- --------------- ----------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond J. 1998 $140,003 -0- -0- -0- -0- -0- -0-
Meyers 1997 $130,000 -0- -0- -0- 36,667 -0- -0-
</TABLE>
Option Grants in Last Year and Stock Option Grant
The following table provides information on option grants during the year
ended December 31, 1998, to the named executive officers:
Individual Grants
% of Total Options
Granted to
Options Employees
Name Granted in Year Exercise Price Expiration Date
---- ------- ------- -------------- ---------------
Raymond J. Meyers -0- 0% -- --
4
<PAGE>
Aggregate Option Exercise of Last Fiscal year and Fiscal Year-End Option
Values
The following table provides information on the value of the named
executive officers' unexercised options at December 31, 1998. No shares of
Common Stock were acquired upon exercise of options during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
Value of
Number of Unexercised Unexercised In-The-Money
Options at Year End (1) Options at Year End (1)
Name Exercisable Unexercisable Exercisable Unexercisable
---- ---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Raymond J. Meyers 26,666 10,001 $66,665 $25,003
</TABLE>
(1) The closing price of the Common Stock on December 31, 1998, as reported by
on the Nasdaq SmallCap Market was $6.25.
1995 Stock Option Plan
In November 1994, the Company adopted a stock option plan (the "Plan")
which provides for the grant of options intended to qualify as "incentive stock
options" and "nonqualified stock options" within the meaning of Section 422 of
the United States Internal Revenue Code of 1986 (the "Code"). Incentive stock
options are issuable only to eligible officers, directors, key employees and
consultants of the Company.
The Plan is administered by the Board of Directors and terminates in
November 2004. At December 31, 1998, the Company had reserved 150,000 shares of
Common Stock for issuance under the Plan. Under the Plan, the Board of Directors
determines which individuals shall receive options, the time period during which
the options may be partially or fully exercised, the number of shares of Common
Stock that may be purchased under each option and the option price.
The per share exercise price of the Common Stock may not be less than the
fair market value of the Common Stock on the date the option is granted. No
person who owns, directly or indirectly, at the time of the granting of an
incentive stock option, more than 10% of the total combined voting power of all
classes of stock of the Company is eligible to receive incentive stock options
under the Plan unless the option price is at least 110% of the fair market value
of the Common Stock subject to the option on the date of grant.
No options may be transferred by an optionee other than by will or the laws
of descent and distribution, and during the lifetime of an optionee, the option
may only be exercisable by the optionee. Options may be exercised only if the
option holder remains continuously associated with the Company from the date of
grant to the date of exercise. Options under the Plan must be granted within
five years from the effective date of the Plan and the exercise date of an
option cannot be later than ten years from the date of grant. Any options that
expire unexercised or that terminate upon an optionee's ceasing to be employed
by the Company become available once again for issuance. Shares issued upon
exercise of an option will rank equally with other shares then outstanding.
As of the date of this Proxy, 50,500 options have been granted under the
Plan.
5
<PAGE>
CERTAIN TRANSACTIONS
Management of the Company believes that the transactions described below
were no less fair than the terms of transactions which the Company might
otherwise have entered into with third party nonaffiliated entities. All related
party transactions must be approved by a majority of the disinterested members
of the Company's Board of Directors.
In November 1994, the Company issued 857,140 shares of its Convertible
Preferred Stock to five of the Company's then officers and directors, (and
42,860 to another individual not otherwise affiliated with the Company) each
share of which was convertible for no additional consideration into one share of
Common Stock for each fifteen shares of Preferred Stock. All 900,000 shares of
Convertible Preferred Stock were canceled and returned to the Company by the
five holders in connection with the Divestiture Agreement described below.
In October 1996, the Company issued 146,666 Common Stock purchase warrants
to the Kriegsman Group ("KG") for consulting services. Steven A. Kriegsman who
subsequently became a director of the Company is the President and controlling
stockholder of KG. KG assigned 35,666 of such warrants to Andy Chu, the
Company's President and a director. KG also assigned 3,333 of the 10,000 Stock
Options it received from the SSC Principals to Mr. Chu to provide him with an
equity stake in the Company. KG believed that the Company's success and
therefore the economic success of its investment in the Company depended in part
upon the participation of Mr. Chu as the Company's then President.
In October 1996, the Company issued 146,667 Common Stock purchase warrants
to Andrew, Alexander, Wise & Company, Inc. ("AAWC") as compensation for it
assisting the Company in the private placement of 400,000 shares of the
Company's Common Stock to a group of investors for $3.75 per share. AAWC
subsequently assigned 56,667 of such warrants to Howard P. Silverman, a former
director of the Company, for his assistance to AAWC in connection with the
private placement. At the time the subject Warrants were assigned, Mr. Silverman
was not a director of the Company. The Company also paid to AAWC a cash
commission of 10% of the gross proceeds raised ($150,000) and a nonaccountable
expense allowance of 3% of such gross proceeds ($45,000). In June 1997, AAWC and
Mr. Silverman returned 106,667 warrants to the Company without consideration.
In January 1997, the Company sold the remaining assets of the Classic Line
to SSC Technologies, Inc. ("SSC") for $770,850 evidenced by a promissory note
bearing interest at 10% per annum payable in January 2007, and the assumption by
SSC of all the liabilities of the Classic Line and certain other liabilities,
aggregating approximately $500,000. Under the terms of the asset sales agreement
(the "Divestiture Agreement"), the Company acquired 25% of the outstanding
Common Stock of SSC for $500,000 in cash (less $200,000 of liabilities which
were paid by the Company and deducted from the $500,000) and the remaining 75%
of the outstanding Common Stock was issued to other stockholders including
Charles T. Howard, David L. Green, Ding Yang and Steven L. Wilson who were
previously officers and directors of the Company. As part of the Divestiture
Agreement, the SSC Principals also (i) canceled 900,000 shares of Convertible
Preferred Stock held by them which were previously exercisable into shares of
Common Stock on a fifteen for one basis, (ii) agreed to refrain from the sale of
an aggregate of 30,300 shares of Common Stock owned by them until October 1999,
except with the prior written consent of AAWC, (iii) agreed to sublease office
space from the Company at a monthly rental of $12,000 through February 28, 1998,
(iv) granted to Steven A. Kriegsman, then a director of the Company, an option
to purchase up to 10,000 shares of Common Stock held by the SSC Principals at
any time until October 2001, and (v) personally guaranteed ,on a joint and
several basis, the $770,850 promissory note and all other obligations of SSC to
the Company.
6
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Angell & Deering, Certified Public Accountants, Denver, Colorado, conducted
the audit of the Company's financial statements for the year ended December 31,
1998. It is the Company's understanding that this firm is obligated to maintain
audit independence as prescribed by the accounting profession and certain
requirements of the Securities and Exchange Commission. As a result, the
directors of the Company do not specifically approve, in advance, non-audit
services provided by the firm, nor do they consider the effect, if any, of such
services on audit independence.
PROPOSALS OF SHAREHOLDERS FOR PRESENTATION
AT NEXT ANNUAL MEETING OF SHAREHOLDERS
Any shareholders of record of the Company who desires to submit a proper
proposal for inclusion in the proxy materials relating to the next annual
meeting of shareholders must do so in writing and it must be received at the
Company's principal executive offices prior to the Company's fiscal year end.
The proponent must be a record or beneficial shareholder entitled to vote at the
next annual meeting of shareholders on the proposal and must continue to own the
securities through the date on which the meeting is held.
OTHER BUSINESS
Management of the Company is not aware of any other matters which are to be
presented to the Annual Meeting, nor has it been advised that other persons will
present any such matters. However, if other matters properly come before the
meeting, the individual named in the accompanying proxy shall vote on such
matters in accordance with his best judgment.
The above notice and Proxy Statement are sent by order of the Board of
Directors.
Raymond J. Meyers
President and Chief Executive Officer
May 18, 1999
7
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
PROTOSOURCE CORPORATION
TO BE HELD JUNE 29, 1999
The undersigned hereby appoints Raymond J. Meyers as the lawful agent and Proxy
of the undersigned (with all the powers the undersigned would possess if
personally present, including full power of substitution), and hereby authorizes
him to represent and to vote, as designated below, all the shares of Common
Stock of Protosource Corporation held of record by the undersigned on May 14,
1999, at the Annual Meeting of Shareholders to be held June 29, 1999, or any
adjournment or postponement thereof.
1. ELECTION OF DIRECTORS
_____ FOR the election as a director of all nominees listed below
(except as marked to the contrary below).
_____ WITHHOLD AUTHORITY to vote for all nominees listed below.
NOMINEES: Raymond J. Meyers, Andrew Stathopoulos and William Conis
INSTRUCTION: To withhold authority to vote for individual nominees, write their
names in the space provided below.
- --------------------------------------------------------------------------------
2. In his discretion, the Proxy is authorized to vote upon any matters which
may properly come before the Annual Meeting, or any adjournment or
postponement thereof.
It is understood that when properly executed, this proxy will be voted in
the manner directed herein by the undersigned shareholder. WHERE NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER THE PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS NAMED IN ITEM 1 ABOVE.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said Proxy may do by virtue hereof.
<PAGE>
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: Signature
----------------------- ---------------------------
PLEASE MARK, SIGN, DATE
AND RETURN THE PROXY
CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
-------------------------------------
Signature, if held jointly
PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OF
SHAREHOLDERS. _____