PROTOSOURCE CORP
DEF 14A, 1999-05-18
COMPUTER INTEGRATED SYSTEMS DESIGN
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                             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. _____



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