<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:
[ ] Preliminary Proxy Statement
[X] 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] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11*
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(4) Proposed maximum aggregate value of transaction:
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* Set forth the amount on which the filing fee is calculated and state
how it was determined):
[ ] Fee previously paid by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE> 2
DISC, INC.
372 TURQUOISE STREET
MILPITAS, CA 95035
(408) 934-7000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
TO BE HELD AUGUST 12, 1997
The 1997 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 12, 1997, 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 ratify the appointment of Price Waterhouse LLP as independent
auditors of the Company for the fiscal year ending December 31, 1997;
and
3. 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 July 7, 1997, 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
Chairman of the Board, President and
Chief
Executive Officer
Milpitas, California
July 10, 1997
<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 1997 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 12, 1997 at 9:30 A.M., local
time, and any and all adjournments thereof. These proxy materials are being
mailed on or about July 11, 1997, 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, Series G Preferred Stock, Series H Preferred Stock,
Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock,
and Series L Preferred Stock ("Preferred Stock") of record as of July 7, 1997.
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-ofpocket
expenses in forwarding such material.
VOTING AT THE MEETING
Holders of record of the Company's Common Stock and Preferred Stock at the
close of business on July 7, 1997 are entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof. On that date, 3,334,323 shares of
Common Stock, 372,296 shares of Series C Preferred Stock, 444,444 shares of
Series D Preferred Stock, 500,000 shares of Series E Preferred Stock, 250,000
shares of Series F Preferred Stock, 110,000 shares of Series G Preferred Stock,
26,109 shares of Series H Preferred Stock, 167,065 shares of Series I Preferred
Stock, 244,966 shares of Series J Preferred Stock, 235,110 shares of Series K
Preferred Stock and 199,275 shares of Series L Preferred Stock were outstanding
and entitled to vote. Pursuant to the Company's Amended and Restated Articles of
Incorporation, the Company's outstanding shares of Preferred Stock vote together
with the Common Stock on all matters except as required by law, and each share
of Preferred Stock is entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible. Each share of the
Company's Series C, D, E, I, J, K, and L 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 and H
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
<PAGE> 4
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 appointment of Price Waterhouse LLP as independent auditors of
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 July 7, 1997, as to (a) all
directors, (b) the named executive officers identified in the Summary
Compensation Table located at page 6, (c) all directors and executive officers
as a group, and (d) each person known to the Company to be the beneficial owner
of more than 5% of the company's voting securities. Each share of the Company's
Series C, Series D, Series E, Series I, Series J, Series K and Series L
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 and Series H Preferred Stock is convertible into
ten shares of Common Stock and is entitled to ten votes per share. 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
outstanding Preferred Stock, on an as-if-converted basis, of the Company issued
and outstanding as of July 7, 1997. 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.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------------------------- -------------------- --------
<S> <C> <C>
MK Global Ventures 773,744(1) 10.5%
2471 E. Bayshore Road
Palo Alto, CA 94303
MK Global Ventures II 913,982(2) 12.1%
2471 E. Bayshore Road
Palo Alto, CA 94303
MK GVD FUND 4,059,508(3) 49.4%
2471 E. Bayshore Road
Palo Alto, CA 94303
J.F. Shea Co, Inc. 509,682(4) 6.8%
655 Brea Canyon Road
Walnut, CA 91789
Michael D. Kaufman 5,782,234(5)(8) 68.8%
2471 E. Bayshore Road
Palo Alto, CA 94303
Frank T. Connors 107,558(6) 1.5%
J. Richard Ellis 47,916(7) *
F. Rigdon Currie 35,000(8) *
Arch J. McGill 35,000(8) *
Michael A. McManus, Jr. 35,000(8) *
Wayne F. Augsburger -- *
Ronald F. Reynolds 25,000(9) *
Henry Madrid 44,661(10) *
Directors and Executive Officers 6,120,181(11) 70.7%
as a group (9) persons
</TABLE>
- ---------------
* Less than 1%
2
<PAGE> 5
(1) Includes 759,093 shares of the Company's Common Stock and 10,465 shares, or
2.8%, of the Company's Series C Preferred Stock. Also includes warrants for
4,186 shares of Common Stock exercisable during the 60-day period following
the Record Date.
(2) Includes 310,462 shares of the Company's Common Stock, 361,831 shares, or
97.2%, of the Company's Series C Preferred Stock, and 77,566 shares, or
46.4%, of the Company's Series I Preferred Stock. Also includes warrants
for 164,123 shares of Common Stock exercisable during the 60-day period
following the Record Date.
(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, 97,500
shares, or 89%, of the Company's Series G Preferred Stock, 26,109 shares,
or 100%, of the Company's Series H Preferred Stock, 89,499 shares, or
53.6%, of the Company's Series I Preferred Stock, 244,966 shares, or 100%,
of the Company's Series J Preferred Stock, 235,110 shares, or 100%, of the
Company's Series K Preferred Stock, and 199,275 shares, or 100%, of the
Company's Series L Preferred Stock. Also includes warrants for 846,235
shares of Common Stock exercisable during the 60-day period following the
Record Date.
(4) Includes 33,571 shares of the Company's Common Stock, 111,111 shares, or
25%, of the Company's Series D Preferred Stock, 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. Also includes warrants for 115,000
shares of Common Stock exercisable during the 60-day period following the
Record Date.
(5) Includes 759,093 shares of Common Stock and 10,465 shares of Series C
Preferred Stock owned by MK Global Ventures, 310,462 shares of Common
Stock, 361,831 shares of Series C Preferred Stock and 77,566 shares of
Series I 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, 97,500 shares of Series G
Preferred Stock, 26,109 shares of Series H Preferred Stock, 89,499 shares
of Series I Preferred Stock, 244,966 shares of Series J Preferred Stock,
235,110 shares of Series K Preferred Stock and 199,275 shares of Series L
Preferred Stock owned by MK GVD Fund. Also includes warrants for 4,186
shares of Common Stock held by MK Global Ventures, warrants for 164,123
shares of Common Stock held by MK Global Ventures II, and warrants for
846,235 shares of Common Stock held by MK GVD FUND exercisable during the
60-day period following the Record Date. 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; however, the aggregate voting power represented by Mr.
Kaufman's beneficial ownership of all such Common Stock and Preferred Stock
is indicated in the appropriate column.
(6) Includes 50,000 shares issuable upon exercise of stock options during the
60-day period following the Record Date.
(7) Includes 47,916 shares issuable upon exercise of stock options during the
60-day period following the Record Date.
(8) Includes 35,000 shares issuable upon exercise of stock options during the
60-day period following the Record Date.
(9) Includes 25,000 shares issuable upon exercise of stock options during the
60-day period following the Record Date.
(10) Includes 14,000 shares issuable upon exercise of stock options during the
60-day period following the Record Date.
(11) Includes 1,299,272 shares issuable upon exercise of stock options and
warrants during the 60-day period following the Record Date.
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 52 Chairman of the Board, President and
Chief Executive Officer
Frank T. Connors 63 Director and Secretary
Michael D. Kaufman 56 Director
F. Rigdon Currie 66 Director
Arch J. McGill 66 Director
Michael A. McManus, Jr. 54 Director
</TABLE>
J. RICHARD ELLIS, joined the Company as President and Chief Operating
Officer in July 1994 and became Chief Executive Officer in January, 1995. Mr.
Ellis was appointed to the Board of Directors on July 13, 1994, and became
Chairman of the Board of Directors in August 1996. 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.
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 August 1996,
and Chief Executive Officer of the Company from May 1990 to December 1994. Since
October 1994, Mr. Connors has been Executive Vice
4
<PAGE> 7
President and Vice Chairman of the Board of Directors of STM Wireless, Inc., a
publicly held manufacturer of satellite communication networks.
MICHAEL D. KAUFMAN, became a director of the Company in December 1988.
Since October 1987, he has been the Managing General Partner of MK Global
Ventures, Palo Alto, California, a group of venture capital funds 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
1996 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
1996. 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
1996, with 100% attendance.
OTHER EXECUTIVE OFFICERS
HENRY MADRID, 40, 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 LLP, 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, 48, joined the Company in May 1993 as Vice President
of Sales and Marketing and, subsequently, left the Company in January, 1997.
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
5
<PAGE> 8
Chapter 11 of the federal bankruptcy law. The plan of reorganization was
approved and the bankruptcy proceedings terminated in October 1993.
WILLIAM F. TOTH, 39, joined the Company in June 1997 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, 59, 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.
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during fiscal years 1996, 1995, and 1994 to the
Company's Chief Executive Officer and to the other executive officers of the
Company whose salary and bonus compensation for fiscal year 1996 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
NAME AND ------------------ ------------
PRINCIPAL POSITION YEAR SALARY($) OPTIONS(1) ALL OTHER COMPENSATION($)(2)
- ------------------------------------ ---- --------- ------------ ----------------------------
<S> <C> <C> <C> <C>
J. Richard Ellis 1996 152,000 50,000 1,000
President and Chief 1995 152,000 -- 1,000
Executive Officer 1994 58,000(3) 100,000 500
Wayne F. Augsburger 1996 120,000 -- 1,000
Vice President -- Sales and 1995 113,000 -- 1,000
Marketing(4) 1994 121,000 -- 1,000
Henry Madrid 1996 110,000 -- 1,000
Vice President -- Finance 1995 111,000 -- 1,000
1994 99,000 -- 1,000
Ronald F. Reynolds 1996 118,000 100,000 1,000(2)
Sr. Vice President,
Sales and Marketing(5)
</TABLE>
- ---------------
(1) Options are awarded pursuant to the Company's Stock Plan, which is
administered by the Board of Directors. The Board of Directors determines
the eligibility of employees and consultants, the number of shares to be
granted and the terms of such grants.
(2) The amounts shown in this column represent life insurance premiums paid by
the Company.
(3) Mr. Ellis joined the Company as President and Chief Operating Officer in
July, 1994 and became Chief Executive Officer of the Company effective
January 1, 1995.
(4) Mr. Augsburger resigned from the Company in January 1997.
6
<PAGE> 9
(5) Mr. Reynolds joined the Company in February 1996.
OPTION GRANTS
<TABLE>
<CAPTION>
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE
NAME OPTIONS GRANTED (#) EMPLOYEES IN FY 1996 PRICE ($/SH) EXPIRATION DATE
- -------------------------------- ------------------- -------------------- ------------ ---------------
<S> <C> <C> <C> <C>
J. Richard Ellis................ 50,000 13.8% $ 5.38 November 2001
Ronald F. Reynolds.............. 50,000 13.8% $ 5.38 November 2001
Ronald F. Reynolds.............. 50,000 13.8% $ 3.88 May 2001
</TABLE>
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,
1996.
<TABLE>
<CAPTION>
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED IN-THE-MONEY
EXERCISE (#) REALIZED ($) OPTIONS AT OPTIONS AT
------------ ------------ DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
--------------------------- ---------------------------
UNEXERCISABLE UNEXERCISABLE
EXERCISABLE ------------- EXERCISABLE -------------
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Richard Ellis............ -- -- 61,459 88,541 $ -- $ --
Wayne F. Augsburger......... -- -- 46,979 302,171 -- --
Henry Madrid................ 23,884 98,641 12,833 1,167 -- --
Ronald F. Reynolds.......... -- -- 8,334 41,666 -- --
</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, 1996 on the NASDAQ Small Cap Market System was
$3.625.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE OPTION TERM
UNDERLYING OF STOCK EXERCISE PRICE NEW REMAINING
OPTIONS AT THE TIME AT TIME EXERCISE AT DATE OF
NAME DATE REPRICED (#) OF REPRICING OF REPRICING PRICE REPRICING
- --------------------------- ------------- ------------ ------------ -------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
F. Rigdon Currie........... May 20, 1996 25,000 $ 3.88 $ 6.00 $ 3.88 16 months
Michael Kaufman............ May 20, 1996 25,000 $ 3.88 $ 6.00 $ 3.88 16 months
Arch McGill................ May 20, 1996 25,000 $ 3.88 $ 6.00 $ 3.88 16 months
Michael A. McManus, Jr..... May 20, 1996 25,000 $ 3.88 $ 6.00 $ 3.88 16 months
Michael A. McManus, Jr..... May 20, 1996 5,000 $ 3.88 $ 4.50 $ 3.88 32 months
Ronald F. Reynolds......... May 20, 1996 50,000 $ 3.88 $ 4.25 $ 3.88 45 months
</TABLE>
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
On May 20, 1996, the Compensation Committee approved the repricing of 411,850
options granted pursuant to the Company's 1990 Stock Plan and 1995 Stock Option
Plan for Non-Employee Directors, including an aggregate of 219,000 options
granted to the Named Executive Officers, and an aggregate of 120,000 options
granted to members of the Board of Directors. Such options had exercise prices
ranging from $4.25 to $6.25. Such repricing was effected by offering to exchange
new options with an exercise price of $3.88 per share, but with a new four-year
vesting period, for the options then held by such optionees.
The Compensation Committee approved the repricing because it believes that
equity interests are a significant factor in the company's ability to retain
directors, executive officers and employees, by providing an incentive to all
such personnel to devote their utmost effort and skill to the advancement and
betterment of the
7
<PAGE> 10
company by permitting them to participate in the success and increased value of
the Company. Following the grant of such options, however, the price per share
of the Company's Common Stock declined to approximately $4.00 as a result of
unforeseen market factors. The Compensation Committee believed, that as a result
of this relatively sudden decline, the options so granted would not have the
desired motivational effect on the optionees. Accordingly, the Compensation
Committee approved the repricing as a means of ensuring that such optionees have
a meaningful equity interest in the Company.
Respectfully submitted,
Frank T. Connors
Michael A. McManus, Jr.
F. Rigdon Currie
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.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES 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, 1996, were satisfied.
CERTAIN TRANSACTIONS
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.
In connection with such sale, in satisfaction of the Company's antidilution
obligations under the Series F 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 is 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, each mandatorily convertible into shares of Preferred Stock and
Warrants to Purchase Common Stock 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. In December 1996, the agreement was amended to
increase the amount to a total of $3,400,000 and the Conversion Price was
changed to the closing bid price of the Company's Common Stock on the last day
of the calendar quarter. During the quarters ended June 30, September 30 and
December 31, 1996, the Company issued $1,000,000, $700,000 and $730,000 in
principal amount of such debentures. On June 30, September 30 and December 31,
1996 such debentures were converted by MK GVD Fund into 26,109; 89,499 and
244,966 shares of Series H, Series I and Series J Preferred Stock and by MK
Global Ventures II into 77,566 shares of Series I Preferred
8
<PAGE> 11
Stock at $38.30, $4.19 and $2.98 for Series H, Series I and Series J Preferred
Stock, respectively. In connection with such conversion, MK GVD Fund received
warrants to purchase 65,272; 22,375 and 61,241 shares of Common Stock at
exercise prices of $4.85, $5.24 and $3.73 per share, respectively, and MK Global
Ventures II received a warrant to purchase 19,291 shares of Common Stock at an
exercise price of $5.24 per share. Michael D. Kaufman, a director of the
Company, is a general partner of MK GVD FUND, and is a beneficial owner of more
than 5% of the voting stock of the Company.
In April 1997, the agreement was amended to increase by $2,030,000, to
$4,430,000 the total principal amount of subordinated debentures which MK GVD
FUND has agreed to purchase. During the quarter ended March 31, 1997, the
Company issued $750,000 in subordinated convertible debentures to MK GVD FUND,
which were converted into 235,110 shares of Series K Preferred Stock. In
connection therewith. MK GVD FUND received warrants to purchase 58,778 shares of
Common Stock at an exercise price of $3.99 per share. During the quarter ended
June 30, 1997, the Company issued $550,000 in subordinated convertible
debentures to MK GVD FUND, which were converted into 199,275 shares of Series L
Preferred Stock. In connection therewith, MK GVD FUND received warrants to
purchase 49,818 shares of Common Stock at an exercise price of $3.45 per share.
The above transactions were unanimously approved by the Board of Directors of
the Company. 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.
PROPOSAL TWO
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, 1997.
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.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 1998 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, 1998. 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.
9
<PAGE> 12
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 10, 1997
The Annual Report to Shareholders of the Company for the fiscal year ended
December 31, 1996, is being mailed concurrently with this Proxy Statement to all
shareholders of record as of July 7, 1997. 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.
10
<PAGE> 13
PROXY
DISC, Inc.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE SHAREHOLDERS
AUGUST 12, 1997
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 1997 Annual Meeting of Shareholders of the Company to be held at
the Company's facility, 372 Turquoise Street, Milpitas, California, on August
12, 1997, 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:
(Continued, and to be marked, dated and signed, on the other side)
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<PAGE> 14
Please Mark
your votes as
indicated in
this example
THE DIRECTORS RECOMMEND A VOTE
"FOR ITEMS 1, 2 AND 3"
FOR WITHHOLD AUTHORITY
all nominees listed below AUTHORITY
(except as marked to to vote for all
the contrary below) nominees listed below
1. ELECTION OF DIRECTORS:
Election of the following nominees as directors:
Frank T. Connors, Michael D. Kaufman, F. Rigdon Currie,
Arch J. Mcgill, Michael A. McManus, Jr. and Richard Ellis.
(INSTRUCTIONS: To withhold authority to vote for any nominee,
print that nominee's name in the space provided below.)
__________________________________________________________________________
FOR AGAINST ABSTAIN
2. APPROVAL OF APPOINTMENT OF PRICE
WATERHOUSE LLP AS INDEPENDENT
AUDITORS:
3. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
IMPORTANT - PLEASE SIGN AND DATE AND RETURN PROMPTLY.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS
DIRECTED BY THE SHAREHOLDER ON THIS SIDE. WHERE NO
DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" THE
ELECTION OF THE DIRECTORS NAMED ON THIS SIDE OF THE PROXY
AND "FOR" APPOINTMENT OF PRICE WATERHOUSE LLP, AS I
NDEPENDENT AUDITORS. THIS PROXY, CONFERS DISCRETIONARY
AUTHORITY TO CULMINATE VOTES FOR ANY AND ALL OF THE
NOMINEES FOR ELECTION OF DIRECTORS FOR WHICH AUTHORITY
TO VOTE HAS NOT BEEN WITHHELD.
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING,
YOU ARE URGED TO SIGN AND RETURN THIS PROXY,
WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
Signature(s)________________________________________Date____________
NOTE: 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.
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