<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
DISC, INC.
(Name of Registrant as Specified In Its Charter)
DISC, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11.*
4) Proposed maximum aggregate value of transaction:
*Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Notes:
1
<PAGE> 2
DISC, INC.
372 TURQUOISE STREET
MILPITAS, CA 95035
(408) 934-7000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 6, 1996
The 1996 Annual Meeting of Shareholders of DISC, Inc. (the "Company") will
be held at the Company's facility, 372 Turquoise Street, Milpitas, California,
on Tuesday, August 6, 1996, beginning at 9:30 A.M. local time, for the following
purposes:
1. To elect six (6) directors to serve until the next Annual Meeting of
Shareholders or until their successors are elected and qualified;
2. To increase the authorized number of shares of Preferred Stock of the
Company to 5,000,000.
3. To ratify the appointment of Price Waterhouse LLP as independent
auditors of the Company for the fiscal year ending December 31, 1996;
and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on June 21, 1996, are
entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed proxy as promptly as possible in the postage prepaid
envelope enclosed for that purpose. Any shareholder attending the meeting may
vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
J. Richard Ellis
Milpitas, California President and Chief Executive Officer
July 3, 1996
<PAGE> 3
PROXY STATEMENT
OF
DISC, INC.
This Proxy Statement and the accompanying Notice of Annual Meeting and
Proxy Card are being furnished to the shareholders of DISC, Inc. (the "Company")
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at the 1996 Annual Meeting of Shareholders of the Company (the
"Annual Meeting") to be held at the Company's facility at 372 Turquoise Street,
Milpitas, California 95035, on Tuesday, August 6, 1996 at 9:30 A.M., local time,
and any and all adjournments thereof. These proxy materials are being mailed on
or about July 6, 1996, to all holders of the Company's Common Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, and Series G Preferred Stock ("Preferred Stock") of record as
of June 21, 1996.
PERSONS MAKING THE SOLICITATION
All expenses of the Company in connection with this solicitation will
be borne by the Company. In addition to solicitation by mail, proxies may be
solicited by directors, officers and other employees of the Company by
telephone, telegraph, telefax or telex, in person or otherwise, without
additional compensation. The Company will also request brokerage firms,
nominees, custodians and fiduciaries to forward proxy materials to the
beneficial owners of shares held of record by such persons and will reimburse
such persons and the Company's transfer agent for their reasonable out-of-pocket
expenses in forwarding such material.
VOTING AT THE MEETING
Shareholders of record at the close of business on June 21, 1996, of
the Company's Common Stock, and Preferred Stock are entitled to notice of and to
vote at the Annual Meeting and any adjournment thereof. On that date, 3,044,066,
372,296, 444,444, 500,000, 250,000 and 110,000 shares of Common Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, and Series G Preferred Stock respectively, were outstanding and
entitled to vote. Each share of the Company's Series C, D and E Preferred Stock
is convertible into one share of Common Stock and is entitled to one vote per
share. Each share of the Company's Series F Preferred Stock is convertible into
two shares of Common Stock and is entitled to two votes per share. Each share of
Series G Preferred Stock is convertible into ten shares of Common Stock and is
entitled to ten votes per share.
An automated system administered by the Company's transfer agent will
tabulate votes cast at the Annual Meeting. A majority of the shares entitled to
vote, represented in person or by proxy, will constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes are each included in the determination
of the number of shares present and voting for the purpose of determining
whether a quorum is present, and each is tabulated separately. In determining
whether a proposal has been approved, abstentions are counted as votes against a
proposal and broker non-votes are not counted as votes for or against a proposal
or as votes present and voting on the proposal.
REVOCABILITY OF PROXY
A proxy may be revoked by a shareholder prior to the voting at the
Annual Meeting by written notice to the Secretary of the Company, by submission
of another proxy bearing a later date or by voting in person at the Annual
Meeting. Such notice or later proxy will not affect a vote on any matter taken
prior to the receipt thereof by the Company. The mere presence at the Annual
Meeting of the shareholder who has appointed a proxy will not revoke the prior
appointment. If not revoked, the proxy will be voted at the Annual Meeting in
accordance with the instructions indicated on the Proxy Card by the shareholder
or, if no instructions are indicated, will be voted "FOR" the slate of directors
described herein, "FOR" the increase in the authorized number of shares of
Preferred Stock of the Company to 5,000,000, "FOR" the appointment of Price
Waterhouse LLP as independent auditors of
<PAGE> 4
the Company, and as to any other matter that may be properly brought before the
Annual Meeting, in accordance with the judgment of the proxy holder.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock of the Company as of June 21, 1996, as to
(a) all directors, (b) the named executive officers identified in the Summary
Compensation Table located at page 7, all directors and executive officers as a
group, and (c) each person known to the Company to be the beneficial owner of
more than 5% of the Company's voting securities. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares subject to options or warrants currently exercisable, or
exercisable within the 60-day period ending August 31, 1996, are deemed
outstanding for computing the percentage ownership of the person or entity
holding such options or warrants but are not deemed outstanding for computing
the percentage of any other person. Each share of the Company's Series C, Series
D and Series E Preferred Stock is convertible into one share of Common Stock and
is entitled to one vote per share. Each share of the Company's Series F
Preferred Stock is convertible into two shares of Common Stock and is entitled
to two votes per share. Each share of Series G Preferred Stock is convertible
into ten shares of Common Stock and is entitled to ten votes per shares. Because
the Company's outstanding Preferred Stock votes together with and has the same
rights to cumulative voting as the Common Stock, the number of shares held by
such owner includes all shares of Common Stock and Preferred Stock on an as-if
converted basis, and "Percentage of Class" represents the total Common and
Preferred Stock, on an as-if converted basis, of the Company issued and
outstanding as of June 21, 1996. Except as otherwise indicated, the Company
believes, based on information furnished by such owners, that the beneficial
owners of the Common Stock and Preferred Stock have sole investment and voting
power with respect to such shares, subject to applicable community property
laws. The information as to each person or entity has been furnished by such
person or entity.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- ----------
<S> <C> <C>
MK Global Ventures 773,744 (1) 13.0%
2471 E. Bayshore Road
Palo Alto, CA 94303
MK Global Ventures II 817,025 (2) 13.4%
2471 E. Bayshore Road
Palo Alto, CA 94303
MK GVD FUND 2,662,833 (3) 41.3%
2471 E. Bayshore Road
Palo Alto, CA 94303
J.F. Shea Co, Inc. 509,682 (4) 8.4%
655 Brea Canyon Road
Walnut, CA 91789
Michael D. Kaufman 4,284,019 (5)(8) 64.7%
2471 E. Bayshore Road
Palo Alto, CA 94303
Frank T. Connors 199,225 (6) 3.2%
J. Richard Ellis 52,083 (7) *
F. Rigdon Currie 30,417 (8) *
Arch J. McGill 30,417 (8) *
Michael A. McManus, Jr. 30,417 (8) *
Wayne F. Augsburger 42,396 (9) *
Henry Madrid 35,550 (10) *
Directors and Executive 4,704,524 (11) 66.7%
Officers as a group
(10 persons)
</TABLE>
- -----------------------
* Less than 1%
2
<PAGE> 5
(1) Includes 759,093 shares of the Company's Common Stock and 10,465 shares
of the Company's Series C Preferred Stock. Also includes warrants for
4,186 shares of Common Stock exercisable during the 60-day period
ending August 31, 1996.
(2) Includes 310,462 shares of the Company's Common Stock and 361,831
shares of the Company's Series C Preferred Stock. Also includes
warrants for 144,732 shares of Common Stock exercisable during the
60-day period ending August 31, 1996.
(3) Includes 333,333 shares, or 75%, of the Company's Series D Preferred
Stock, and 375,000 shares, or 75%, of the Company's Series E Preferred
Stock, 250,000 shares, or 100%, of the Company's Series F Preferred
Stock and 97,500 shares, or 89%, of the Company's Series G Preferred
Stock. Shares of Series C, D and E Preferred Stock are convertible into
Common Stock on a one to one basis and Series F and G Preferred Stock
are convertible on a two to one and ten to one basis, respectively, at
the option of the holder. Also includes warrants for 479,500 shares of
Common Stock exercisable during the 60-day period ending August 31,
1996.
(4) Includes 33,571 shares of the Company's Common Stock, 111,111 shares,
or 25% of the Company's Series D Preferred Stock and 125,000 shares or
25% of the Company's Series E Preferred Stock and 12,500 shares, or
11%, of the Company's Series G Preferred Stock. Shares of Series D and
E Preferred Stock are convertible into Common Stock on a one to one
basis, and shares of Series G Preferred Stock are convertible into
Common Stock on a ten to one basis, respectively, at the option of the
holder. Also includes warrants for 115,000 shares of Common Stock
exercisable during the 60-day period ending August 31, 1996.
(5) Includes 759,093 shares of Common Stock owned by MK Global Ventures,
310,462 shares of Common Stock owned by MK Global Ventures II, 10,465
shares of Series C Preferred Stock owned by MK Global Ventures, 361,831
shares of Series C Preferred Stock owned by MK Global Ventures II, and
333,333 shares of Series D Preferred Stock, 375,000 shares of Series E
Preferred Stock, 250,000 shares of Series F Preferred Stock and 97,500
shares of Series G Preferred Stock owned by MK GVD FUND. Also includes
warrants for 4,186 shares of Common Stock held by MK Global Ventures,
warrants for 144,732 shares of Common Stock held by MK Global Ventures
II and warrants for 479,500 shares of Common Stock held by MK GVD FUND,
all of which are exercisable during the 60-day period ending August 31,
1996. Mr. Kaufman, a director of the Company, is a general partner of
these funds and may be deemed to have voting and investment power with
respect to such shares. Mr. Kaufman disclaims beneficial ownership of
all shares of Common Stock and Preferred Stock so owned except to the
extent of his pecuniary interest therein; however, the aggregate voting
power represented by Mr. Kaufman's beneficial ownership of all such
Common Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock is indicated in the appropriate column.
(6) Includes 190,755 shares issuable upon exercise of stock options during
the 60-day period ending August 31, 1996.
(7) Includes 52,083 shares issuable upon exercise of stock options during
the 60-day period ending August 31, 1996.
(8) Includes 30,417 shares issuable upon exercise of stock options during
the 60-day period ending August 31, 1996.
(9) Includes 42,396 shares issuable upon exercise of stock options during
the 60-day period ending August 31, 1996.
(10) Includes 35,550 shares issuable upon exercise of stock options during
the 60-day period ending August 31, 1996.
(11) Includes 1,092,119 shares issuable upon exercise of stock options and
warrants during the 60-day period ending August 31, 1996.
3
<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the meeting. If any
Management nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. The Company is
not aware of any nominee who will be unable or will decline to serve as a
director. The term of office for each person elected as a director will continue
until the next Annual Meeting of Shareholders or until his successor has been
elected and qualified. Election of the six nominees to the Board of Directors
will require the affirmative vote of the holders of a majority of the
outstanding share of Common Stock and Preferred Stock, voting together, present
or represented at the Annual Meeting and entitled to vote thereat.
In accordance with California law, each shareholder may cumulate his or
her votes and give any one nominee a number of votes equal to the number of
directors to be elected multiplied by the number of shares which the shareholder
is entitled to vote at the meeting or to distribute the votes on the same
principle among as many candidates as the shareholder may elect, if (i) the name
of the candidate for whom such votes are cast has been properly placed in
nomination prior to the voting, and (ii) a shareholder has given notice at the
meeting prior to voting of that shareholder's intention to cumulate his or her
votes. If any one shareholder has given such notice, all shareholders may
cumulate their votes for candidates who have properly been placed in nomination.
The Board of Directors is soliciting discretionary authority to
cumulate votes represented by proxies and (unless authority to do so is
withheld) to distribute the total of such votes among the nominees in such
numbers as may be determined by the named proxies, because in the event
nominations are made in opposition to the nominees of the Board of Directors, it
is the intention of the persons named in the enclosed proxy to cumulate votes
represented by proxies for individual nominees in accordance with their best
judgment in order to assure the election of as many of the nominees to the Board
of Directors as possible.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES LISTED BELOW.
The names of the nominees and certain information about them are set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- --------------
<S> <C> <C>
J. Richard Ellis 51 Chairman of the Board, President and
Chief Operating Officer
Frank T. Connors 62 Director and Secretary
Michael D. Kaufman 55 Director
F. Rigdon Currie 65 Director
Arch J. McGill 65 Director
Michael A. McManus, Jr. 53 Director
</TABLE>
4
<PAGE> 7
FRANK T. CONNORS, has been Secretary of the Company since May 1990, and
was Chairman of the Board of Directors of the Company from June 1988 to May
1996, and Chief Executive Officer of the Company from May 1990 to December 1994.
Since October 1994, Mr. Connors has been Executive Vice President and Vice
Chairman of the Board of Directors of STM Wireless, Inc., a publicly held
manufacturer of satellite communication networks.
J. RICHARD ELLIS, joined the Company as President and Chief Operating
Officer in July 1994 and was appointed to the Board of Directors on July 13,
1994. From November 1993 to June 1994, Mr. Ellis worked as an independent
management consultant. From June 1991 to October 1993, Mr. Ellis was employed by
Cygnet Systems Inc. ("Cygnet"), a manufacturer of optical disk library units, as
President and Chief Executive Officer. From December 1988 to May 1991 Mr. Ellis
was employed by Cygnet as Vice President of Operations and then as Chief
Operating Officer. In June 1993, Cygnet filed a voluntary petition of bankruptcy
under Chapter 11 of the federal bankruptcy law. The plan of reorganization was
approved and the bankruptcy proceedings terminated in October 1993.
MICHAEL D. KAUFMAN, became a director of the Company in December 1988.
Since October 1987, he has been the Managing General Partner of each of MK
Global Ventures and MK Global Ventures II, Palo Alto, California, venture
capital firms specializing in early-stage and start-up financing of high
technology companies. From August 1981 until October 1987, Mr. Kaufman was
General Partner and Special Limited Partner of Oak Investment Partners I, II,
and III, venture capital firms, which also focused on the formation of high
technology companies. Mr. Kaufman also serves on the Boards of Directors of
Davox Corp., a telecommunications company, Document Technologies, Inc., which
develops and sells high resolution document image processing subsystems,
Hypermedia Communications, Inc., which publishes Newmedia magazine, a periodical
dedicated to interactive multimedia technology, and Proxim, Inc., a wireless
communications company.
F. RIGDON CURRIE, became a director of the Company in December 1988.
Since February 1988, he has been Special Limited Partner of MK GVS FUND, MK
Global Ventures II, and MK GVD FUND. Mr. Currie also serves on the Boards of
Directors of Document Technologies, Inc. and Wonderware Corporation, a supplier
of software for process control and industrial automation applications.
ARCH J. MCGILL, became a director of the Company in August 1993. Since
October 1985, he has been President of Chardonnay, Inc., a venture capital
investment and executive business advisory services company. From March 1983 to
October 1985, Mr. McGill was President and Chief Executive Officer of Rothchild
Ventures, Inc., a venture capital fund. From January 1981 to March 1983, Mr.
McGill was President of AIS/American Bell, a subsidiary of AT&T. Mr. McGill also
serves on the Boards of Directors of Apertus Technologies, Inc., a data
networking company, and Employee Benefit Plans, Inc., a managed health-care
company.
MICHAEL A. MCMANUS, JR., became a director of the Company in August
1993. Since November 1991, he has been President and Chief Executive officer of
New York Bancorp, Inc., the holding company for Home Federal Savings Bank. From
July 1990 to October 1991, Mr. McManus was President and Chief Executive officer
of Jencor Pharmaceuticals, Inc., a pharmaceutical company. From July 1986 to
July 1990, Mr. McManus was Vice President, Business Planning & Development for
the Consumer Division of Pfizer, Inc., a health-care company. Mr. McManus also
serves on the Board of Directors of New York Bancorp, Inc.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings
during 1995 with 100% attendance at each meeting. The Board of Directors has a
Compensation Committee and an Audit Committee. The functions of the Compensation
Committee include advising the Company on salaries and incentive compensation
for employees of, and consultants to, the Company. The Compensation Committee,
which consists of Messrs. Connors, McManus and Currie, held one meeting during
1995. The Audit Committee is responsible for recommending to the Board of
Directors the appointment of the Company's outside auditors, examining the
results of audits and reviewing internal accounting controls. The Audit
Committee, which consists of Messrs. Kaufman and McGill, held one meeting during
1995, with 100% attendance.
5
<PAGE> 8
OTHER EXECUTIVE OFFICERS
HENRY MADRID, 39, joined the Company as Vice President of Finance and
Chief Financial Officer in January 1990. From July 1987 to December 1989, Mr.
Madrid was employed by Zentec Corporation, a manufacturer of computer terminals,
as Controller and later Vice President, Finance. From August 1979 to May 1987,
Mr. Madrid was employed by Price Waterhouse, San Jose, California, in various
positions, the last of which was as manager in the Audit Department. Mr. Madrid
is a Certified Public Accountant.
WAYNE F. AUGSBURGER, 47, joined the Company in May 1993 as Vice
President of Sales and Marketing. From November 1987 to May 1993, Mr. Augsburger
was employed by Cygnet Systems Inc. in various positions, the last of which was
Vice President of Sales and Marketing. In June 1993, Cygnet filed a voluntary
petition of bankruptcy under Chapter 11 of the federal bankruptcy law. The plan
of reorganization was approved and the bankruptcy proceedings terminated in
October 1993.
WILLIAM F. TOTH, 38, joined the Company in June 1996 as Vice President
of Manufacturing. From July 1994 to May 1996, Mr. Toth owned and operated a
residential property management business. From August 1992 to July 1994, Mr.
Toth served as Vice President of Manufacturing of the Company. From March 1984
to April 1992, Mr. Toth was employed by Doelz Networks, Inc., a manufacturer of
fast packet networking equipment in various positions in Manufacturing and
Finance, including Vice President of Manufacturing and Customer Support.
RONALD F. REYNOLDS, 58, joined the Company in February 1996, as Vice
President of Sales. From March 1995 to February 1996, Mr. Reynolds was an
independent consultant for start-up companies. From December 1992 to February
1995, Mr. Reynolds served as Vice President of Sales for the Lago Division of
Storage Tek, a manufacturer of storage products for the Unix marketplace. From
January 1988 to November 1992, Mr. Reynolds was Chief Executive Officer of
Century Financial, a leasing and consulting company for computer related
products.
There are no family relationships between any director, executive
officer or person nominated or chosen by the Company to become a director or
executive officer.
Based upon its review of the copies of reporting forms furnished to the
Company, the Company believes that all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934 applicable to its directors, officers,
and any persons holding ten percent or more of the Company's Common Stock with
respect to the Company's fiscal year ended December 31, 1995, were satisfied.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during fiscal years 1995, 1994, and 1993 for the
person who was Chief Executive Officer during all of fiscal year 1995, and
compensation paid by the Company for services rendered during fiscal years 1995,
1994, and 1993 for the other executive officers of the Company who received
salary and bonus compensation which exceeded $100,000 in fiscal year 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Securities
Name and Underlying All Other
Principal Position Year Salary ($) Options (1) Compensation ($)
------------------ ---- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
J. Richard Ellis 1995 152,000 -- 1,000(2)
President and Chief 1994 58,000(3) 100,000 500(2)
Executive Officer 1993 -- -- --
Wayne F. Augsburger 1995 113,000 -- 1,000(2)
Vice President-Sales 1994 121,000 -- 1,000(2)
and Marketing 1993 70,000 55,000 1,000(2)
Henry Madrid 1995 111,000 -- 1,000(2)
Vice President-Finance 1994 99,000 -- 1,000(2)
1993 86,000 14,000 1,000(2)
</TABLE>
(1) Options are awarded pursuant to the Company's Stock Plan, which is
administered by the Board of Directors. The Board of Directors
determines the eligibility of employees and consultants, the number of
shares to be granted and the terms of such grants.
(2) The amounts shown represent life insurance premiums paid by the
Company.
(3) Mr. Ellis joined the Company as President and Chief Operating Officer
in July, 1994 and became Chief Executive Officer of the Company
effective January 1, 1995.
OPTION GRANTS
No options were granted to named executive officers during Fiscal 1995.
7
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on the value of unexercised
in-the-money options held by the named executive officers as of December 31,
1995.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Unexercised In-the-Money
Acquired on Value Options at Options at
Exercise (#) Realized ($) December 31, 1995 December 31, 1995 (1)
------------ ------------ ----------------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Richard Ellis -- -- 35,417 64,583 $ -- $ --
Wayne F. Augsburger -- -- 33,229 21,771 29,000 19,000
Henry Madrid 16,777 95,000 33,217 4,667 144,000 4,000
</TABLE>
(1) Market value of underlying securities at year-end minus the exercise
price of "in-the-money" options. The closing sale price for the
Company's Common Stock as of December 31, 1995 on the NASDAQ Small Cap
Market System was $6 1/8.
COMPENSATION OF DIRECTORS
Pursuant to the Company's 1995 Stock Option Plan for Non-Employee
Directors, each non-employee director receives an initial grant of options to
purchase 25,000 shares of the Company's Common Stock upon commencement of
service as a director. In addition to such initial grant of 25,000 options, each
non-employee director is granted an option to purchase 5,000 shares of the
Company's Common Stock during each year of service as a director commencing with
fiscal year 1995.
CERTAIN TRANSACTIONS
On March 29, 1995, the Company entered into an agreement with MK Global
Ventures and MK Global Ventures II whereby MK Global Ventures and MK Global
Ventures II agreed to not exercise their redemption rights with respect to the
shares of Series C Preferred Stock held by such shareholders, and agreed to
consent to an amendment of the Company's Amended and Restated Articles of
Incorporation deleting such rights, in exchange for warrants to purchase an
aggregate of 148,918 shares of Common Stock, which warrants are exercisable at
any prior five (5) years following the date of issuance at an exercise price of
$5.50 per share. Michael D. Kaufman, a director of the Company, is a general
partner of both MK Global Ventures and MK Global Ventures II. MK Global Ventures
and MK Global Ventures II, each hold more than 5% of the voting stock of the
Company.
On March 31, 1995, the Company entered into a Series E Preferred Stock
Purchase Agreement with MK GVD FUND whereby MK GVD FUND agreed to purchase a
minimum of 375,000 shares of Series E Preferred Stock at a price of $4.00 per
share and 150,000 warrants to purchase additional shares of Common Stock at an
exercise of $5.50 per share, at a price of $.01 per warrant. In connection with
such sale, in satisfaction of the Company's antidilution obligations under the
Series D Purchase Agreement, the Company issued to MK GVD FUND an additional
33,333 shares of Series D Preferred Stock and warrants to purchase an additional
45,000 shares of Common Stock, and exchanged warrants to purchase 150,000 shares
of Common Stock at an exercise price of $5.50 per share for the warrants to
purchase 150,000 shares of Common Stock at an exercise price of $6.50 per share
which were originally issued to MK GVD FUND in connection with its purchase of
Series D Preferred Stock. Subsequently, the Series E Preferred Stock Agreement
was amended to allow the Company to issue to MK GVD FUND an additional 125,000
shares of Series E Preferred Stock at a price of $4.00 per share and warrants to
purchase an additional 50,000 shares of Common Stock at an exercise price of
$5.50 per share at a price of $.01 per warrant. Michael D. Kaufman, a director
of the Company, is a general partner of MK GVD FUND, and
8
<PAGE> 11
Mr. Kaufman and MK GVD FUND are each a beneficial owner of more than 5% of the
voting stock of the Company.
On March 31, 1995, the Company entered into a Series E Preferred Stock
Purchase Agreement with J.F. Shea Co., Inc. whereby J.F. Shea Co., Inc. agreed
to purchase a minimum of 125,000 shares of Series E Preferred Stock at a price
of $4.00 per share and 50,000 warrants to purchase additional shares of Common
Stock at an exercise price of $5.50 per share, at a price of $.01 per warrant.
In connection with such sale, in satisfaction of the Company's antidilution
obligations under the Series D Purchase Agreement, the Company issued to J.F.
Shea Co., Inc. an additional 11,111 shares of Series D Preferred Stock and
warrants to purchase an additional 15,000 shares of Common Stock, and exchanged
warrants to purchase 50,000 shares of Common Stock at an exercise price of $5.50
per share for the warrants to purchase 50,000 shares of Common Stock at an
exercise price of $6.50 per share which were originally issued to J.F. Shea,
Co., Inc. in connection with its purchase of Series D Preferred Stock. J.F. Shea
Co., Inc. is a holder of more than 5% of the voting stock of the Company.
In September 1995, the Company entered into a Series F Preferred Stock
Purchase Agreement with MK GVD FUND whereby MK GVD FUND purchased 156,250 shares
of Series F Preferred Stock, each initially convertible into two (2) shares of
Common Stock at a price of $8.00 per share and 125,000 warrants to purchase
additional shares of Common Stock at an exercise price of $5.50 per share, at a
price of $.01 per warrant. Michael D. Kaufman, a director of the Company, is a
general partner of MK GVD FUND, and Mr. Kaufman and MK GVD FUND are each a
beneficial owner of more than 5% of the voting stock of the Company.
On March 29, 1996, the Company entered into a Series G Preferred Stock
Purchase Agreement with MK GVD FUND whereby MK GVD FUND agreed to purchase
47,500 shares of Series G Preferred Stock, each initially convertible into ten
(10) shares of Common Stock, at a price of $20.00 per share and 118,750 warrants
to purchase additional shares of Common Stock at an exercise price of $2.50 per
share, at a price of $.01 per warrant. Michael D. Kaufman, a director of the
Company, is a general partner of MK GVD FUND, and Mr. Kaufman and MK GVD FUND
are each a beneficial owner of more than 5% of the voting stock of the Company.
In connection with such sale, in satisfaction of the Company's
antidilution obligations under the Series E Purchase Agreement, the Company
issued to J.F. Shea Co., Inc. an additional 12,500 shares of Series G Preferred
Stock. J.F. Shea Co., Inc. is a holder of more than 5% of the voting stock of
the Company. Also in connection with such sale, in satisfaction of the Company's
antidilution obligations under the Series E and Series F Purchase Agreement, the
Company issued to MK GVD FUND an additional 93,750 and 50,000 shares of Series F
and Series G Preferred Stock, respectively. Michael D. Kaufman, a director of
the Company, is a general partner of MK GVD FUND, and Mr. Kaufman and MK GVD
FUND are each a beneficial owner of more than 5% of the voting stock of the
Company.
On March 29, 1996, the Company entered into a Convertible Debenture
Purchase Agreement with MK GVD FUND whereby MK GVD FUND agreed to purchase an
aggregate of $1,400,000 in principal amount of subordinated convertible
debentures, with the debentures issued during each calendar quarter being
mandatorily convertible into shares of Preferred Stock and Warrants to Purchase
Common Stock on the last day of such quarter at a conversion price based on the
average closing price for the Common Stock for the five trading days ended three
days prior to the conversion date. Michael D. Kaufman, a director of the
Company, is a general partner of MK GVD FUND, and Mr. Kaufman and MK GVD FUND
are each a beneficial owner of more than 5% of the voting stock of the Company.
The above transactions were unanimously approved by the Board of
Directors of the Company. As noted above, one of the directors of the Company
was, and continues to be, an affiliate of MK GVD FUND. However, the Company
believes that the terms and provisions of the above transactions were as fair to
the Company as they could have been if made with unaffiliated third parties.
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PROPOSAL TWO
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF PREFERRED STOCK
The Board of Directors has directed that there be submitted to the
shareholders of the Company at the Annual Meeting a proposed amendment to
Article III of the Company's Amended and Restated Articles of Incorporation. The
proposed amendment can be used to make a change in control of the Company more
difficult.
Currently, Article III authorizes the Company to issue up to 20,000,000
shares of Common Stock, no par value per share, and 2,000,000 shares of
Preferred Stock, no par value per share (the "Preferred Stock"). The proposed
amendment, which was unanimously approved by the Company's Board of Directors,
will increase the authorized number of shares of Preferred Stock from 2,000,000
to 5,000,000. The Board of Directors is authorized to provide for the issuance
of the Preferred Stock in one or more series, to establish the number of shares
to be included in each such series and to fix the designations, powers,
preferences and relative, participating, optional or other special rights of
such series, along with any other qualifications, limitations and restrictions
thereon. There are no pre-emptive rights to purchase or otherwise acquire any
Preferred Stock that may be issued in the future.
It is not possible to state the effects of the proposed amendment upon
the rights of holders of Common Stock and/or already designated series of
Preferred Stock until the Board of Directors determines the respective rights,
including any dividend rates, conversion prices or voting rights, of the holders
of one or more additional series of Preferred Stock. The effects of such
issuance could include, however (i) reduction of the amount otherwise available
for payment on dividends on Common Stock and/or one or more series of Preferred
Stock, (ii) restrictions on dividends on Common Stock and/or one or more series
of Preferred Stock, (iii) dilution of the voting power of Common Stock and/or
Preferred Stock, and (iv) restrictions of the rights of holders of Common Stock
and/or one or more series of Preferred Stock to share in the Company's assets on
liquidation until satisfaction of any liquidation preference granted to the
holders of such subsequently designated series of Preferred Stock.
The proposed amendment will give the Company increased financial
flexibility as it will allow additional shares of Preferred Stock to be
available for issuance from time to time as determined by the Board for any
proper corporate purpose. Such purpose could include, without limitation,
issuance for cash as a means of obtaining capital for use by the Company, or
issuance as part or all of the consideration required to be paid by the Company
for acquisitions of other businesses or properties. The Company anticipates that
it will issue additional shares of Preferred Stock during the next twelve months
to finance its operations.
Shares of voting or convertible Preferred Stock could be issued, or
rights to purchase such shares could be issued, to create voting impediments or
to frustrate persons seeking to effect a takeover or otherwise gain control of
the Company. The ability of the Board of Directors to issue such additional
shares of Preferred Stock, with rights and preferences it deems advisable, could
discourage an attempt by a party to acquire control of the Company by tender
offer or other means. Such issuances could therefore deprive shareholders of
benefits that could result from such an attempt, such as the realization of a
premium over the market price for their shares in a tender offer or the
temporary increase in market price that such an attempt could cause. Moreover,
the issuance of such additional shares of Preferred Stock to persons friendly to
the Board of Directors could make it more difficult to remove incumbent managers
and directors from office even if such change were to be favorable to
shareholders generally.
While the amendment may have anti-takeover ramifications, the Board of
Directors believes that financial flexibility offered by the amendment outweighs
any disadvantages. To the extent that it may have anti-takeover effects, the
amendment may encourage persons seeking to acquire the company to negotiate
directly with the Board of Directors, enabling the Board to consider the
proposed transaction in a manner that best serves the shareholders' interests.
The affirmative vote of the holders of the majority of the outstanding
shares of Common Stock and Preferred Stock, voting together as a class, as well
as the affirmative vote of the holders of the majority of the
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<PAGE> 13
outstanding shares of Preferred Stock, voting as a class, are required to
authorize the proposed amendment regarding the issuance of Preferred Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE
COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED SHARES OF PREFERRED STOCK.
PROPOSAL THREE
APPOINTMENT OF AUDITORS
The Board of Directors has approved a resolution retaining Price
Waterhouse LLP as its independent auditors for the fiscal year ending December
31, 1996. Price Waterhouse LLP has audited the Company's financial statements
since 1989. A representative of Price Waterhouse LLP will be present at the
Annual Meeting and will have an opportunity at the meeting to make a statement
if he desires to do so and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF PRICE
WATERHOUSE LLP AS THE COMPANY'S AUDITORS.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Based upon its review of the copies of reporting forms furnished to the
Company, the Company believes that all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934 applicable to its directors, officers and
any persons holding ten percent or more of the Company's Common Stock with
respect to the Company's fiscal year ended December 31, 1995, were satisfied.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 1997
Annual Meeting of Shareholders which is desired to be presented in the Company's
Proxy Statement with respect to such meeting should arrange for such proposal to
be delivered to the Company at its principal place of business no later than
April 15, 1997. Matters pertaining to such proposals, including the number and
length thereof, the eligibility of persons entitled to have such proposals
included and other aspects are regulated by the Securities Exchange Act of 1934,
Rules and Regulations of the Commission and other laws and regulations to which
interested persons should refer.
OTHER MATTERS
Management is not aware of any other matters to come before the
meeting. If any other matter not mentioned in this Proxy Statement is brought
before the meeting, the persons named in the enclosed form of proxy will have
discretionary authority to vote all proxies with respect thereto in accordance
with their judgment.
By Order of the Board of Directors
J. Richard Ellis
Chairman of the Board, President and Chief
Executive Officer
July 3, 1996
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12
<PAGE> 15
The Annual Report to Shareholders of the Company for the fiscal year
ended December 31, 1995, is being mailed concurrently with this Proxy Statement
to all shareholders of record as of June 21, 1996. The Annual Report is not to
be regarded as proxy soliciting material or as a communication by means of which
any solicitation is to be made.
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE COMMISSION ON FORM 10-K
WILL BE PROVIDED TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
CHIEF FINANCIAL OFFICER, DISC, INC., 372 TURQUOISE STREET, MILPITAS, CALIFORNIA
95035.
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<PAGE> 16
PROXY CARD
DISC, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE SHAREHOLDERS
AUGUST 6, 1996
The undersigned hereby nominates, constitutes and appoints J. Richard
Ellis and Henry Madrid, and each of them individually, the attorney, agent and
proxy of the undersigned, with full power of substitution, to vote all stock of
DISC, Inc. (the "Company") which the undersigned is entitled to represent and
vote at the 1996 Annual Meeting of Shareholders of the Company to be held at the
Company's facility, 372 Turquoise Street, Milpitas, California, on August 6,
1996, at 9:30 A.M., and at any and all adjournments thereof, as fully as if the
undersigned were present and voting at the meeting, as follows:
THE DIRECTORS RECOMMEND A VOTE "FOR" ITEMS 1, 2, and 3
1. ELECTION OF DIRECTORS:
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees listed below (except to vote for all nominees
as marked to the contrary below) listed below
Election of the following nominees as directors: Frank T. Connors, Michael D.
Kaufman, F. Rigdon Currie, Arch J. McGill, Michael A. McManus, Jr. and J.
Richard Ellis.
(INSTRUCTIONS: To withhold authority to vote for any nominee, print that
nominee's name in the space provided below.)
2. APPROVAL OF AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES
OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF PREFERRED SHARES
TO 5,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT
AUDITORS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT THEREOF.
IMPORTANT--PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY.
<PAGE> 17
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER ON THE REVERSE SIDE. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL
BE VOTED "FOR" THE ELECTION OF THE DIRECTORS NAMED ON THE REVERSE SIDE OF THIS
PROXY, "FOR" THE AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF PREFERRED SHARES TO AND "FOR"
APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT AUDITORS. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY TO CUMULATE VOTES FOR ANY AND ALL OF THE NOMINEES FOR
ELECTION OF DIRECTORS FOR WHICH AUTHORITY TO VOTE HAS NOT BEEN WITHHELD.
Dated: _________________, 1996
______________________________________________
(Signature of shareholder)
Please sign your name exactly as it appears hereon. Executors, administrators,
guardians, officers of corporations, and others signing in a fiduciary
capacity should state their full titles as such.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
15
