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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DISC, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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DISC, INC.
372 TURQUOISE STREET
MILPITAS, CA 95035
(408) 934-7000
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
TO BE HELD AUGUST 5, 1999
The 1999 Annual Meeting of Shareholders of DISC, Inc., a California
corporation (the "Company"), will be held at the Company's facility located at
372 Turquoise Street, Milpitas, California on Thursday, August 5, 1999 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 approve and ratify an amendment to the Company's 1990 Stock Plan
(the "1990 Plan"), as amended most recently in 1995, to increase the number
of shares of Common Stock issuable and reserved for issuance thereunder by
200,000 shares, bringing the total number of shares of Common Stock subject
thereto to 1,350,000.
3. To ratify the appointment of PriceWaterhouseCoopers LLP as
independent auditors of the Company for the fiscal year ending December 31,
1999.
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 28, 1999 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 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
President and Chief Executive Officer
Milpitas, California
July 6, 1999
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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., a California
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the 1999 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 Thursday,
August 5, 1999 at 9:30 A.M., local time, and any and all postponements or
adjournments thereof. The purposes of the annual meeting are set forth in this
Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders.
These proxy materials are being mailed on or about July 6, 1999 to all holders
of the Company's Common Stock, and Series C through T Preferred Stock
("Preferred Stock") of record as of June 28, 1999.
PERSONS MAKING THE SOLICITATION
This solicitation is made by the Board of Directors of the Company on
behalf of the Company. 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 that brokerage
firms, nominees, custodians and fiduciaries 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
Holders of record of the Company's Common Stock and Preferred Stock at the
close of business on June 28, 1999 are entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof. On that date, 3,699,637 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, 199,275 shares of Series L Preferred Stock, 179,372 shares of
Series M Preferred Stock, 666,667 shares of Series N Preferred Stock, 1,320,755
shares of Series O Preferred Stock, 36,585 shares of Series P Preferred Stock,
112,097 shares of Series Q Preferred Stock, 86,207 shares of Series R Preferred
Stock, 96,875 shares of Series S Preferred Stock, and 16,089 shares of Series T
Preferred Stock were issued and outstanding. Each share of Common Stock has one
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, L, M, N and O 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, H, P, Q,
R, S, and T 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
nor as votes present and voting on the proposal.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock and Preferred Stock of the Company as of June 28,
1999, as to (a) all directors and nominees for director (b) the named executive
officers identified in the Summary Compensation Table located at page [8], (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 any class of the
Company's voting securities. Each share of the Company's Series C, Series D,
Series E and Series I through Series O 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, Series H
and Series P through Series T 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 each
beneficial owner includes all shares of Common Stock and Preferred Stock on an
as-if-converted basis, and "Percentage of Class" represents the percentage of
the total of the Company's Common Stock and Preferred Stock, on an
as-if-converted basis, issued and outstanding as of June 28, 1999, held by each
such beneficial owner. 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.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
MK Global Ventures+............................. 773,744(1) 6.0%
MK Global Ventures II+.......................... 913,982(2) 6.9%
MK GVD Fund+.................................... 11,711,211(3) 76.7%
Michael D. Kaufman+............................. 13,443,937(4) 86.9%
Frank T. Connors++.............................. 127,558(5) 1.0%
J. Richard Ellis++.............................. 80,313(6) *
F. Rigdon Currie++.............................. 45,000(7) *
Arch J. McGill++................................ 45,000(7) *
Michael A. McManus, Jr.++....................... 57,500(7) *
Brian Irvine++.................................. 22,730(8) *
Ronald F. Reynolds++............................ 58,313(9) *
Henry Madrid++.................................. 46,286(10) *
Directors and Executive Officers as a group (ten
(10) persons)................................. 13,942,262(11) 88.0%
- ---------------
* Less than 1%
+ The address of such beneficial owner is 2471 E. Bayshore Road, Palo Alto,
CA 94303.
++ The address of such beneficial owner is c/o DISC, Inc., 372 Turquoise
Street, Milpitas, CA 95035.
(1) According to a Schedule 13D filed with the Securities and Exchange
Commission on January 29, 1999 by Michael D. Kaufman, MK Global Ventures
beneficially owns 759,093 shares of Common Stock and 10,465 shares of
Series C Preferred Stock. See the first paragraph of this section for a
description of the conversion and voting rights with respect to the Series
C Preferred Stock. Beneficial ownership also includes warrants for 4,186
shares of Common Stock exercisable on June 28, 1999 or within 60 days
thereafter.
(2) According to a Schedule 13D filed with the Securities and Exchange
Commission on January 29, 1999 by Michael D. Kaufman, MK Global Ventures II
beneficially owns 310,462 shares of Common Stock, 361,831 shares of Series
C Preferred Stock and 77,566 shares of Series I Preferred Stock. See the
first paragraph of this section for a description of the conversion and
voting rights with respect to the Series C and Series I Preferred Stock.
Beneficial ownership also includes warrants for 164,123 shares of Common
Stock exercisable on June 28, 1999 or within 60 days thereafter.
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(3) According to a Schedule 13D filed with the Securities and Exchange
Commission on January 29, 1999 by Michael D. Kaufman, MK GVD Fund
beneficially owns 595,049 shares of Common Stock; 333,333 shares, or 75%,
of the Series D Preferred Stock; 375,000 shares, or 75%, of the Series E
Preferred Stock; 250,000 shares, or 100%, of the Series F Preferred Stock;
97,500 shares, or 89%, of the Series G Preferred Stock; 26,109 shares, or
100%, of the Series H Preferred Stock; 89,499 shares, or 54%, of the Series
I Preferred Stock; 244,966 shares, or 100%, of the Series J Preferred
Stock; 235,110 shares of the Series K Preferred Stock; 199,275 shares of
the Series L Preferred Stock; 179,372 shares of the Series M Preferred
Stock; 666,667 shares of the Series N Preferred Stock; 1,320,755 shares of
the Series O Preferred Stock; 36,585 shares of the Series P Preferred
Stock; 112,097 shares of the Series Q Preferred Stock; 86,207 shares of the
Series R Preferred Stock; 96,875 shares of the Series S Preferred Stock;
and 16,089 shares of the Series T Preferred Stock. See the first paragraph
of this section for a description of the conversion and voting rights with
respect to the different series of Preferred Stock. Beneficial ownership
also includes warrants for 2,257,564 shares of Common Stock exercisable on
June 28, 1999 or within 60 days thereafter.
(4) Includes Common Stock and Preferred Stock beneficially owned by MK Global
Ventures, MK Global Ventures II and MK GVD Fund, as separately described in
notes (1), (2) and (3) above. Mr. Kaufman is the managing general partner
of each of those funds. Beneficial ownership also includes warrants for
2,425,873 shares of Common Stock exercisable on June 28, 1999 or within 60
days thereafter.
(5) Includes 70,000 shares of Common Stock issuable upon exercise of stock
options exercisable on June 28, 1999 or within 60 days thereafter.
(6) Includes 70,313 shares of Common Stock issuable upon exercise of stock
options exercisable on June 28, 1999 or within 60 days thereafter.
(7) Includes 45,000 shares of Common Stock issuable upon exercise of stock
options exercisable on June 28, 1999 or within 60 days thereafter.
(8) Includes 18,750 shares of Common Stock issuable upon exercise of stock
options exercisable on June 28, 1999 or within 60 days thereafter.
(9) Includes 45,313 shares of Common Stock issuable upon exercise of stock
options exercisable on June 28, 1999 or within 60 days thereafter.
(10) Includes 15,625 shares of Common Stock issuable upon exercise of stock
options exercisable on June 28, 1999 or within 60 days thereafter.
(11) Includes 415,626 shares of Common Stock issuable upon exercise of stock
options and warrants for 2,425,873 shares of Common Stock exercisable on
June 28, 1999 or within 60 days thereafter.
PROXY/VOTING INSTRUCTION CARDS AND REVOCABILITY OF PROXY
When the proxy in the enclosed form is returned properly executed, the
shares represented thereby 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 amendment to the 1990 Stock Plan, "FOR" the appointment of
PriceWaterhouseCoopers 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. 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.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for management's six nominees named below, all of whom are presently directors
of the Company. 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 shares 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 voting in the election
of directors 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 that the shareholder is entitled to vote at the meeting or to distribute
those 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 candidates receiving the highest number of affirmative
votes, up to the number of directors to be elected, shall be elected. Votes
against any candidate and votes withheld shall have no legal effect.
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. 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 management 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:
NAME AGE POSITIONS HELD
---- --- --------------
J. Richard Ellis................... 54 Chairman of the Board, President
and Chief Executive Officer
Frank T. Connors................... 65 Director and Secretary
Michael D. Kaufman................. 58 Director
F. Rigdon Currie................... 69 Director
Arch J. McGill..................... 67 Director
Michael A. McManus, Jr............. 56 Director
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 elected 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
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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 a director of the Company since June 1988 and
Secretary of the Company since May 1990. From May 1990 to December 1994 Mr.
Connors was Chief Executive Officer of the Company. Mr. Connors is Vice Chairman
of the Board of Directors and President 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 each of MK Global
Ventures, MK Global Ventures II and MK GVD FUND of 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, Hypermedia Communications, Inc.,
which publishes Newmedia magazine, a periodical dedicated to interactive
multimedia technology, Syntellect Inc., a telecommunications company, and Asante
Technologies Inc., a networking company.
F. RIGDON CURRIE became a director of the Company in December 1988. Since
February 1988, he has been Special Limited Partner of MK Global Ventures II and
MK GVD FUND. Mr. Currie serves on the Board of Directors of QMS Inc., a
manufacturer of monochrome and color laser printers.
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
serves on the Boards of Directors of ACT Networks, Inc., a manufacturer of
network access products, Carleton Corporation, a software company, and CIBER,
Inc., a provider of system integration services.
MICHAEL A. MCMANUS, JR. became a director of the Company in August 1993.
Since November 1998 he has been President and Chief Executive Officer of
Misonix, Inc., a medical device company. From April 1998 to October 1998 he was
retired. From November 1991 to March 1998, he was 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 Jamcor 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 National Wireless Holdings
Inc., a communications company, Novavax, Inc., a biopharmaceutical company and
the Untied States Olympic Committee.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings during
1998 with 100% attendance at each meeting with the exception of Arch McGill who
was absent from two meetings. 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 1998
with 100% attendance. 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, Connors and McGill, held one
meeting during 1998, with 100% attendance.
OTHER EXECUTIVE OFFICERS
HENRY MADRID, 42, 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
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manufacturer of computer terminals, as Controller and later Vice President,
Finance. From August 1979 to May 1987, Mr. Madrid was employed by
PriceWaterhouseCoopers, San Jose, California, in various positions, the last of
which was as manager in the Audit Department. Mr. Madrid is a Certified Public
Accountant.
BRIAN IRVINE, 53 joined the Company in April 1990, and has held various
engineering positions in the Company including Director of Engineering before
being promoted to Vice President of Engineering in December 1997.
RONALD F. REYNOLDS, 61, 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.
ROBERT CELLUCCI, 56, joined the Company in February 1998 as the Vice
President of Operations. Prior to joining the Company, from 1994 to August 1997,
Mr. Cellucci served as the Vice President of Operations at Ion Systems, a
manufacturer of static control equipment and systems, and from September 1997 to
January 1998 served as Manufacturing and Materials consultant for Cyberdent, a
dental equipment start-up.
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 1998, 1997 and 1996 to the
person who was the Company's Chief Executive Officer and the other executive
officers of the Company who received salary and bonus compensation which
exceeded $100,000 in fiscal year 1998 (the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL -------------------------------------
COMPENSATION SECURITIES
----------------- UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) (#)(1) COMPENSATION($)
--------------------------- ---- ---------- ------------------ ----------------
J. Richard Ellis.............................. 1998 157,000 225,000+ 1,000(2)
President and Chief Executive Officer 1997 152,000 75,000 1,000(2)
1996 152,000 50,000 1,000(2)
---- ------- ------- -----
Henry Madrid.................................. 1998 115,000 50,000+ 1,000(2)
Vice President, Finance and Chief Financial 1997 108,000 50,000 1,000(2)
Officer....................................... 1996 110,000 -- 1,000(2)
---- ------- ------- -----
Ronald F. Reynolds............................ 1998 143,000 145,000+ 1,000(2)
Sr. Vice President, Sales and Marketing (3) 1997 141,000 45,000 1,000(2)
1996 118,000 100,000 1,000(2)
---- ------- ------- -----
Brian Irvine.................................. 1998 109,000 65,000+ 1,000(2)
Vice President, Engineering 1997 99,000 50,000 1,000(2)
1996 91,000 5,000 1,000(2)
==== ======= ======= =====
- ---------------
+ Option grants reflect repricing of options previously granted pursuant to
the Company's 1990 Stock Plan. See "COMPENSATION COMMITTEE REPORT ON OPTION
REPRICING" on page 10 for a further description of the option repricing.
(1) Options are awarded pursuant to the Company's 1990 Stock Plan, which is
administered by the Board of Directors. The Board of Directors determines
the eligibility of employees and consultants, the number of shares to be
granted and the terms of such grants.
(2) The amounts shown represent life insurance premiums paid by the Company.
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(3) Mr. Reynolds joined the Company in February 1996.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER TOTAL RATES OF
OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION ---------------------
NAME GRANTED(#) YEAR PRICE ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- ------------ ---------- --------- ---------
J. Richard Ellis.................. 225,000(1) 19.4% $0.75 May 2003 215,000 271,000
President and Chief Executive
Officer
Henry Madrid...................... 50,000(1) 4.3% $0.75 May 2003 48,000 60,000
Vice President, Finance and
Chief Financial Officer
Ronald F. Reynolds Sr. ........... 145,000(1) 12.5% $0.75 May 2003 139,000 175,000
Vice President, Sales and
Marketing
Brian Irvine...................... 65,000(1) 5.6% $0.75 May 2003 62,000 79,000
Vice President, Engineering
- ---------------
(1) Option grants reflect repricing of options previously granted pursuant to
the Company's 1990 Stock Plan. See "COMPENSATION COMMITTEE REPORT ON OPTION
REPRICING" below for a further description of the option repricing.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on the value of options exercised
in fiscal 1998 and the value of unexercised in-the-money options held by the
named executive officers as of December 31, 1998.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
J. Richard.................. -- -- 32,812 192,188 $ -- $ --
Ellis Henry Madrid.......... -- -- 7,292 42,708 -- --
Ronald F. Reynolds.......... -- -- 21,146 123,854 -- --
Brian Irvine................ -- -- 9,479 55,521 -- --
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(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, 1998 on the NASDAQ Small Cap Market System was $
0.375.
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.
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
On May 19, 1998, the Compensation Committee approved the repricing of
786,250 options granted pursuant to the Company's 1990 Stock Plan and 1995 Stock
Option Plan for Non-Employee Directors, including an aggregate of 485,000
options granted to the named executive officers and an aggregate of 225,000
options granted to members of the Board of Directors. Such options had exercise
prices ranging from $1.58 to
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$6.25. Such repricing was effected by a replacement grant of new options with an
exercise price of $0.75 per share, and which, with respect to employees, had a
new four-year vesting period. The vesting period for the new options for the
non-employee directors remained unchanged.
The Compensation Committee approved the repricing because it believes that
equity interests are a significant factor in the Company's ability to attract
and 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 Company by permitting them to participate in
the success and increased value of the Company. The Compensation Committee
repriced the options because subsequent to several grants of options under the
1990 Stock Plan and the 1995 Stock Option Plan For Non-Employee Directors, the
price per share of the Company's Common Stock declined to approximately $1.00 as
a result of unforeseen market factors. The Compensation Committee believed that,
as a result of this sudden and large relative decline, the options so granted
would not have the desired motivational effect on the optionees. Accordingly,
the Compensation Committee approved the repricing as a means of ensuring that
such optionees have a meaningful equity interest in the Company.
Respectfully submitted,
Frank T. Connors
Michael A. McManus, Jr.
F. Rigdon Currie
TEN-YEAR OPTION REPRICINGS
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OPTION TERM
UNDERLYING OF STOCK EXERCISE PRICE NEW REMAINING
OPTIONS AT TIME OF AT TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED(#) REPRICING($) REPRICING($) PRICE($) REPRICING
---- ---- ----------- ------------ -------------- -------- --------------
J. Richard Ellis....... May 19, 1998 225,000 $0.75 1.578 - 6.25 $0.75 14 - 55 months
President and CEO
Henry Madrid........... May 19, 1998 50,000 $0.75 1.578 $0.75 55 months
V. P. Finance and CFO
Ronald F. Reynolds, May 19, 1998 145,000 $0.75 1.578 - 5.38 $0.75 36 - 55 months
Sr...................
V. P., Sales and May 20, 1996 50,000 $3.88 4.25 $3.88 45 months
Marketing
Brian Irvine........... May 19, 1998 65,000 $0.75 1.578 - 5.375 $0.75 27 - 55 months
V. P. Engineering May 20, 1996 5,000 $3.88 5.00 $3.88 24 months
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Frank T. Connors, Michael A. McManus, Jr. and F. Rigdon Currie comprised
the Board's Compensation Committee during fiscal 1998. Mr. Connors has been
Secretary of the Company since May 1990 and Chief Executive Officer of the
Company from May 1990 to December 1994. Neither Mr. McManus nor Mr. Currie was
during fiscal 1998 an officer or employee of the Company, and neither has been
an officer or employee of the Company. See "Certain Relationships and Related
Transactions" below for a discussion of certain relationships and transactions
between Mr. Currie and the Company. During fiscal year 1998, no executive
officer of the Company (i) served as a member of the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the board of directors) of another entity, one of whose
executive officers served on the Company's Compensation Committee, (ii) served
as a director of another entity, one of whose executive officers served on the
Company's Compensation Committee, or (iii) served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the board of directors) of another
entity, one of whose executive officers served as a director of the Company.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, as amended, 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, 1998, were
satisfied, with the exception of those required due to the option repricing as
discussed on page 9.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. In addition, MK GVD Fund assigned a portion of its obligations
under the agreement to MK Global Ventures II. During the quarters ended June 30,
September 30 and December 31, 1996, the Company issued $1,000,000, $700,000 and
$730,000, respectively, 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, respectively, and MK Global Ventures II converted into 77,566
shares of Series I Preferred Stock at $38.30, $4.19 and $2.98 for Series H,
Series I and Series J Preferred Stock, respectively. In addition, MK GVD Fund
received for Series H, Series I and Series J Preferred Stock warrants to
purchase 65,272, 22,375 and 61,241 shares of Common Stock, respectively, at
exercise prices of $4.85, $5.24 and $3.73 per share, respectively.
MK Global Ventures II received with Series I Preferred Stock a warrant to
purchase 19,291 shares of Common Stock at an exercise price of $5.24 per share.
In April 1997, the Convertible Debenture Purchase Agreement was amended to
increase to $4,430,000 the total principal amount of subordinated debentures
which MK GVD Fund has agreed to purchase. During the quarters ended March 31,
June 30, September 30 and December 31, 1997, the Company issued $750,000,
$550,000, $400,000 and $600,000, respectively, in principal amount of such
debentures to MK GVD Fund. On March 31, June 30, September 30 and December 31,
1997, such debentures were converted into 235,110, 199,275, 179,372 and 666,667
shares of Series K, Series L, Series M and Series N Preferred Stock, and
warrants to purchase 58,777, 49,819, 44,843 and 166,666 shares of Common Stock,
respectively, at exercise prices of $3.98, $3.45, $2.78 and $1.13, respectively.
In December 1997, the agreement was further amended to increase to $4,730,000
the total principal amount of subordinated convertible debentures which MK GVD
Fund has agreed to purchase.
In February 1998, the Company sold 1,320,755 shares of Series O Preferred
Stock and warrants to purchase 330,188 shares of Common Stock at an exercise
price of $1.33 per share to MK GVD Fund for a total purchase price of
$1,400,000.
During the quarters ended March 31, June 30, September 30 and December 31,
1998, the Company issued $300,000, $695,000, $500,000 and $310,000,
respectively, in principal amount of subordinated convertible debentures to MK
GVD Fund. On March 31, June 30, September 30 and December 31, 1998, such
debentures were converted into 36,585, 112,097, 86,207 and 96,875 shares of
Series P, Series Q, Series R and Series S Preferred Stock, respectively, and
warrants to purchase 91,462, 280,242, 215,517 and 242,187 shares of Common
Stock, respectively, at exercise prices of $0.82, $0.78, $0.73 and $0.40,
respectively. In December 1998, the Convertible Debenture Purchase Agreement was
further amended to increase to $6,535,000 the total principal amount of
subordinated convertible debentures which MK GVD Fund has agreed to purchase.
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During the quarter ended March 31, 1999, the Company issued $325,000 in
principal amount of subordinated convertible debentures to MK GVD Fund. On March
31, 1999, such debentures were converted into 16,089 shares of the Series T
Preferred Stock, and warrants to purchase 40,222 shares of Common Stock at an
exercise price of $2.53.
The above transactions were unanimously approved by the Board of Directors
of the Company. Michael D. Kaufman, a director of the Company, is the managing
general partner of MK GVD Fund and MK Global Ventures II and beneficial owner of
more than 5% of the voting stock of the Company. F. Rigdon Currie, a director of
the Company, was, and continues to be, special limited partner of MK GVD Fund
and MK Global Ventures II. 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
AMENDMENT TO COMPANY'S 1990 STOCK PLAN
Subject to approval by the Company's shareholders, the Board of Directors
amended the Company's 1990 Stock Plan (the "1990 Plan") on June 3, 1999 to
increase the number of shares of Common Stock issuable under the 1990 Plan by
200,000 shares of Common Stock, and to reserve the additional shares for
issuance under the 1990 Plan, bringing the total number of shares of Common
Stock subject to the 1990 Plan to 1,350,000.
Approval of the adoption of the amendment to the 1990 Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock and Preferred Stock, voting together, present or represented at the
Annual Meeting and entitled to vote thereat.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE 1990 PLAN
ADDING 200,000 SHARES OF COMMON STOCK TO THE POOL OF SHARES RESERVED FOR
ISSUANCE THEREUNDER.
The essential features of the 1990 Plan are summarized below. The summary
does not purport to be a complete description of the 1990 Plan. The Company's
shareholders may obtain a copy of the 1990 Plan upon written request to the
Secretary of the Company.
PLAN ACTIVITY
As of June 28, 1999, without taking into account the proposed amendments to
the 1990 Plan, 47,000 shares remained available for future grants from the
1,150,000, shares reserved for issuance under the Company's 1990 Stock Plan.
The table under the caption "Option Grants in Last Fiscal Year" provides
information with respect to the grant of options under the 1990 Plan to the
Chief Executive Officer and the named executive officers during fiscal year
1998. The following table sets forth additional information with respect to
options granted under the 1990 Plan during fiscal year 1998 to certain groups:
WEIGHTED AVERAGE OPTIONS
EXERCISE PRICE GRANTED
---------------- --------
All executive officers as a group........................... $ 0.75 535,000(1)
All employees, including all current officers who are not
executive officers, as a group............................ $ 0.76 627,850(1)
- ---------------
(1) Reflects the repricing of certain stock options.
GENERAL NATURE AND PURPOSE
The 1990 Plan was adopted by the Board of Directors in November 1990 and
approved by the Company's shareholders on October 21, 1991. On April 29, 1993
the Board of Directors adopted an amendment to the
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1990 Plan increasing the authorized number of shares of Common Stock issuable
under the 1990 Plan to 900,000, shares which amendment was approved by the
Company's shareholders on September 21, 1993. On May 10, 1995 the Board of
Directors adopted an amendment to the 1990 Plan increasing the authorized number
of shares of Common Stock issuable under the 1990 Plan, as amended, to 1,150,000
shares, which amendment was approved by the Company on August 10, 1995. The
Company has reserved 1,150,000 shares of its Common Stock for issuance under the
1990 Plan.
The 1990 Plan provides for the grant by the Company of (i) options for the
purchase of Common Stock and (ii) restricted shares of Common Stock to the
Company's officers and employees, including directors who are also employees,
and also to consultants with important business relationships with the Company.
At June 26, 1999, five (5) executive officers (including the Chief Executive
Officer who is also a Director), and approximately fifty (50) employees of the
Company were eligible to participate in the 1990 Plan. The 1990 Plan currently
is administered by the Board of Directors. The Board of Directors has broad
discretion, subject to the terms of the 1990 Plan, to determine who is entitled
to receive options or restricted shares under the 1990 Plan, the terms and
conditions under which options or restricted shares are to be granted, the
vesting periods of such options and restricted shares and the number of shares
of Common Stock subject to options or restricted shares and the repurchase
rights with respect thereto. The Board of Directors also has discretion to
determine the nature of the consideration to be to be paid upon the exercise of
an option or purchase of a restricted share granted under the 1990 Plan. Shares
issuable under the 1990 Plan are issued by the Company and are not purchased in
the open market by the Company. No fees, commissions, or other charges are paid
in connection with such issuances.
Options granted under the 1990 Plan may be either "incentive stock
options," within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or "nonstatutory stock options," as determined by
the Board of Directors at the time of grant. Incentive stock options, however,
may not be to any person who is not an officer or employee of the Company.
Options may be granted under the 1990 Plan for terms of up to 10 years and
the exercise price in the case of incentive stock options granted under the 1990
Plan must be at least equal to the fair market value of the Common Stock as of
the date of grant; provided, however, that if the person to whom incentive stock
options are granted owns 10% or more of the outstanding voting stock of the
Company, the exercise price must be at least equal to 110% of the fair market
value of the Common Stock as of the date of grant and for terms not to exceed
five (5) years. To the extent that the aggregate fair market value (determined
on the date of grant) of the stock with respect to which incentive stock options
are exercisable by such optionee in any calendar year under the 1990 Plan (and
any other plans of the Company) exceeds $100,000, such excess options shall be
treated as non-statutory stock options. No other limitation exists with respect
to the amount of stock options or restricted shares that may be granted to any
participant in the 1990 Plan.
The purposes of the 1990 Plan are to enable the Company to retain the
services of existing executive personnel and key employees of the Company, to
attract and retain competent new executive personnel and employees, to provide
an incentive to all such personnel and employees to devote their utmost effort
and skill to the advancement and betterment of the Company by permitting them to
participate in the ownership of the Company and thereby in the success and
increased value of the Company and to allow consultants, business associates and
others with important business relationships with the Company the opportunity to
participate in the ownership of the Company and thereby have an interest in
success and increased value of the Company.
ADMINISTRATION
The 1990 Plan may be administered by the Board of Directors or by a
committee of the Board (the "Committee") constituted to comply with federal and
state law applicable to the administration of similar plans, including Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended. The
1990 Plan currently is administered by the Board of Directors.
Subject to the limitations on eligibility discussed below and the specific
provisions of the 1990 Plan, the Board of Directors (or the Committee, as the
case may be) has the full and final authority to determine which persons shall
be granted incentive stock options, nonstatutory stock options or restricted
shares under the 1990
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Plan, the number of shares of Common Stock to be covered by each option or
restricted share, the exercise price, the form of consideration and all the
other terms and conditions of each option or restricted share and, generally, to
take all actions and make all determinations necessary or appropriate to
administer the 1990 Plan. Determinations of the Board of Directors (or
Committee, as the case may be) as to all matters of interpretation of the 1990
Plan are final and binding upon all participants and prospective participants of
the 1990 Plan.
AMENDMENT AND TERMINATION OF THE 1990 PLAN
The Board of Directors may from time to time alter, amend, suspend or
terminate the 1990 Plan in such respects as the Board of Directors may deem
advisable; provided, however, that no such alteration, amendment, suspension or
termination will be made that would impair the rights of any person under any
incentive stock option, nonstatutory stock option or restricted share
theretofore granted to such person without his or her consent; and, provided
further, that shareholder approval of any amendment to the 1990 Plan shall be
obtained to the extent necessary or advisable to comply with applicable federal
or state law.
Unless previously terminated by the Board of Directors, the 1990 Plan will
terminate on October 21, 2001.
ELIGIBILITY
Incentive Stock Options. Officers and other key employees of the Company
(including directors if they are also employees of the Company), as may be
determined by the Board of Directors or the Committee, who qualify for incentive
stock options under the applicable provisions of the Code, will be eligible for
selection to receive incentive stock options under the 1990 Plan. An employee
who has been granted an incentive stock option may, if otherwise eligible, be
granted an additional incentive stock option or options and receive nonstatutory
stock options or restricted shares if the Board of Directors or Committee so
determine.
Nonstatutory Stock Options or Restricted Shares. Officers and other key
employees of the Company, and any consultants (but not non-employee directors)
will be eligible to receive nonstatutory stock options or restricted shares
under the 1990 Plan. An individual who has been granted a nonstatutory stock
option or restricted share may, if otherwise eligible, be granted an incentive
stock option or an additional nonstatutory stock option or options or restricted
shares if the Board of Directors or Committee so determines. The exercise price
or the purchase price, as the case may be, will be subject to the antidilution
provision of the 1990 Plan. In each case, such fair market value shall, if the
Common Stock is then listed or admitted to trading on any stock exchange or
national market system, including the NASDAQ National Market System, be the
closing sale price on such day on the principal stock exchange or national
market system on which the Common Stock is then listed or admitted to trading,
or if no sale takes place on such day on such principal exchange or national
market system, then the closing sale price of the Common Stock on such exchange
or national market system on the last market trading day prior to the time of
determination; or, if the Common Stock is quoted on the NASDAQ system (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, be the mean between the
high and the low asked prices for the Common Stock. In the absence of an
established market, the fair market value of the Common Stock shall be
determined in good faith by the Board of Directors (or the Committee, as the
case may be) which shall consider, among other facts that it considers to be
relevant, the book value of the Common Stock and the earnings of the Company.
Subject to the foregoing limitations applicable to incentive stock options
and the total number of shares reserved for issuance under the 1990 Plan, no
maximum or minimum limitation exists with respect to the number of shares of
Common Stock for which stock options or restricted shares may be granted or
offered to any one person under the 1990 Plan.
TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED SHARES
Exercise and Purchase Price. The exercise price of the shares of Common
Stock covered by each incentive stock option granted under the 1990 Plan shall
not be less than the fair market value of such shares
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on the date on which the incentive stock option is granted, and the exercise
price in the case of nonstatutory stock options granted to an employee shall not
be less than 85% of the fair market value of such shares on the date on which
the nonstatutory stock option is granted; provided, however, that the exercise
price with respect to incentive options and nonstatutory stock options shall not
be less than 110% of fair market value if the person to whom shares are granted
owns 10% or more of the outstanding voting stock of the Company (a "10%
shareholder"). The purchase price of restricted shares granted under the 1990
Plan shall not be less than 50% of the fair market value of such shares as of
the date of the offer.
Payment. Payment for shares upon exercise of an option or upon issuance of
restricted shares must be made in full at the time of exercise of the option or
issuance of the restricted shares. The form of consideration payable upon
exercise of an option or purchase of restricted shares shall, at the discretion
of the Board of Directors (or the Committee, as the case may be) be (i) by
tender of United States dollars in cash, check or bank draft; (ii) subject to
any legal restriction against the Company's acquisition or purchase of the
Company's shares of Common Stock, shares of Common Stock, which shall be deemed
to have a value equal to the aggregate fair market value of such shares
determined on the date of exercise or purchase as described under the caption
"Eligibility -- Nonstatutory Stock Options or Restricted Shares" above (iii) by
the issuance of a promissory note acceptable to the Board of Directors (or the
Committee, as the case may be); or (iv) pursuant to other methods described in
the 1990 Plan.
Exercise of Options and Purchase of Restricted Shares. The Board of
Directors (or the Committee, as the case may be) has discretionary authority at
the time an option is granted under the 1990 Plan to determine when and in what
increments shares covered by the option may be purchased. An option may be
granted on terms providing that it will be exercisable either in whole or in
part at any time during its term or only in specified percentages at stated time
periods or intervals during the term of the option. The Board of Directors (or
the Committee, as the case may be) also may accelerate any optionee's right to
exercise options granted under the 1990 Plan. The Board of Directors (or the
Committee, as the case may be) also has discretionary authority to specify the
terms and conditions under which the restricted shares are issued.
Terms of Options. The term of each option granted under the 1990 Plan is
determined by the Board of Directors (or the Committee, as the case may be) at
the time the option is granted; provided, however, that no incentive stock
option granted under the 1990 Plan may have a term in excess of ten years; and
provided further, that no option granted under the 1990 Plan to a 10%
shareholder may have a term in excess of five years.
Termination of Employment or Consulting Relationships Other Than by Death
or Disability. In the event of termination of an optionee's employment or
consulting relationship with the Company, (i) all options granted to any such
optionee pursuant to the 1990 Plan that are not exercisable at the date of such
cessation shall terminate immediately and become void and of no effect, and (ii)
all options granted to any such optionee pursuant to the 1990 Plan that are
exercisable at the date of such cessation may be exercised at any time within 90
days of the date of such cessation, but in any event no later than the date of
expiration of the option, and, if not so exercised within such time, shall
become void and of no effect at the end of such time.
Termination of Employee or Consultant by Reason of Death or
Disability. Generally, in the event of the termination of an optionee's
employment or consulting relationship with the Company by reason of his or her
death or disability, all options granted to such optionee under the 1990 Plan
that are exercisable at the date of such termination may be exercised at any
time within 12 months after the optionee's death or disability, but in any event
no later than the expiration date of the option, by such optionee or, in the
event of death, by the executors or administrators of such optionee's estate or
any person or persons who have acquired such optionee's options by bequest or
inheritance. All options granted to such optionee that are not exercisable at
the date of such termination shall become void and of no effect as of such date.
Continuation of Employment. Neither the 1990 Plan nor the granting of any
incentive stock option, nonstatutory stock option or restricted share under the
1990 Plan imposes any obligation on the Company to continue the employment of
any optionee or offeree.
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No Obligation to Exercise Option or Issue Restricted Share. Neither the
granting of an incentive stock option or nonstatutory stock option nor the offer
of a restricted share under the 1990 Plan shall impose any obligation upon the
optionee to exercise such incentive stock option or nonstatutory stock option or
upon the offeree to purchase such restricted shares.
ADJUSTMENTS UPON CHANGES OF CAPITALIZATION AND REORGANIZATIONS
In the event that the outstanding shares of Common Stock are increased or
decreased by reason of recapitalization, stock split, combination of shares,
reclassification, reincorporation, stock dividend or any other change in the
corporate structure of the Company effected without receipt of consideration by
the Company while the 1990 Plan is in effect, appropriate adjustments shall be
made by the Board of Directors to the aggregate number of shares subject to the
1990 Plan, and the number of shares and the price per share subject to
outstanding incentive stock options, nonstatutory stock options and restricted
shares, in order to preserve, but not to increase, the benefits to persons then
holding incentive stock options, nonstatutory stock options or restricted
shares.
In the event of the proposed dissolution or liquidation of the Company, the
Board of Directors shall notify each optionee at least 15 days prior to such
proposed action and, to the extent not exercised prior thereto, all options
granted under the 1990 Plan shall terminate immediately prior to the
consummation of the proposed dissolution or liquidation. In the event that the
Company at any time proposes to enter into a merger with or into another
corporation, provision shall be made in connection with such transaction for the
assumption of options theretofore granted or for the substitution of equivalent
options by such successor corporation. If such provision is not made in such
transaction for the assumption of such options or the substitution of equivalent
options by the successor corporation, then the Board of Directors or the
Committee shall cause notice of the proposed transaction to be given to each
optionee and shall further notify each optionee that his or her options shall be
exercisable for a period of 15 days from the date of such notice, and that all
options granted under the 1990 Plan shall terminate on the expiration date of
such notice, and that all options granted under the 1990 Plan shall terminate on
the expiration of such period.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
of participation in the 1990 Plan. State and local income taxes, which may vary
from locality to locality, are not discussed.
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. Long-term capital gain is
taxed at a maximum federal income tax rate of 20%. Capital losses are allowed in
full against capital gains and up to $3,000 against other income. If these
holding periods are not satisfied, the optionee recognizes ordinary income at
the time of disposition equal to the difference between the exercise price and
the lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. The Company is entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
generally entitled to a deduction in the same amount as the ordinary income
recognized by the optionee. Upon a disposition of such shares by the optionee,
any difference between the sale price and the optionee's exercise price, to the
extent not recognized as taxable income as provided
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above, is treated as long-term or short-term capital gain or loss, depending on
the holding period. Long-term capital gain is taxed at a maximum federal income
tax rate of 20%. Capital losses are allowed in full against capital gains and up
to $3,000 against other income.
Restricted Stock. At the time of purchase, restricted stock is subject to a
"substantial risk of forfeiture" within the meaning Section 83 of the Code. As a
result, the purchaser will not recognize ordinary income at the time of
purchase. Instead, the purchaser will recognize ordinary income on the dates
when a stock ceases to be subject to a substantial risk of forfeiture. The stock
will generally cease to be subject to a substantial risk of forfeiture when it
is no longer subject to the Company's right to repurchase the stock upon the
purchaser's termination of employment with the Company. At such time, the
purchaser will recognize ordinary income measured as the difference between the
purchase price and the fair market value of the stock on the date the stock is
no longer subject to a substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. The Company is generally entitled to a deduction
in the same amount as the ordinary income recognized by such purchaser.
Different rules may apply if the purchaser is also an officer, director, or 10%
shareholder of the Company.
The foregoing is only a summary of the effect of federal income taxation
upon optionees, holders of restricted stock and the Company with respect to the
grant and exercise of options and the purchase of restricted stock pursuant to
the 1990 Plan. It does not purport to be complete, and does not discuss the tax
consequences of the death of the optionee or holder or the provisions of the
income tax laws of any municipality, state or foreign country in which the
optionee or holder may reside.
PROPOSAL THREE
APPOINTMENT OF AUDITORS
The Board of Directors has approved a resolution retaining
PriceWaterhouseCoopers LLP as its independent auditors for the fiscal year
ending December 31, 1999. PriceWaterhouseCoopers LLP has audited the Company's
financial statements since 1989. A representative of PriceWaterhouseCoopers 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
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S AUDITORS.
The Board of Directors has conditioned its appointment of its independent
auditors upon receiving the affirmative vote of a majority of the shares
represented, in person or by proxy, and voting at the Annual Meeting. In the
event the shareholders do not approve the selection of PriceWaterhouseCoopers
LLP, the Board of Directors will reconsider the appointment of independent
auditors.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 2000 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 March
8, 2000. Any such proposal must be submitted in writing to the attention of the
Company's Corporate Secretary at 372 Turquoise Street, Milpitas, California
95035. 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, as amended,
the Rules and Regulations of the
15
18
Commission and other laws and regulations to which interested persons should
refer. If the Company is not notified of a shareholder proposal by May 22, 2000,
then the proxies held by the management of the Company may provide the
discretion to vote against such shareholder proposal, even though such proposal
is not discussed in the proxy statement
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 6, 1999
The Annual Report to Shareholders of the Company for the fiscal year ended
December 31, 1998 is being mailed concurrently with this Proxy Statement to all
shareholders of record as of June 28, 1999. 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, AT DISC, INC., 372 TURQUOISE STREET, MILPITAS, CALIFORNIA
95035.
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19
PROXY
DISC, Inc.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF THE SHAREHOLDERS
AUGUST 5, 1999
The undersigned shareholder of DISC, Inc., a California corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Statement, each dated July 6, 1999, and 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 the Company which the
undersigned is entitled to represent and vote at the 1999 Annual Meeting of
Shareholders of the Company to be held at the Company's facility, 372 Turquoise
Street, Milpitas, California, on August 5, 1999, 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)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
20
Please mark
your vote as [X]
indicated in
this example.
FOR WITHHELD
THE DIRECTORS RECOMMEND A all nominees listed below AUTHORITY
VOTE "FOR" ITEMS 1, 2 AND 3. (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 J. 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. INCREASE NUMBER OF SHARES OF COMMON STOCK RESERVED [ ] [ ] [ ]
FOR ISSUANCE UNDER THE COMPANY'S 1990 STOCK PLAN
TO 1,350,000.
FOR AGAINST ABSTAIN
3. APPROVAL OF APPOINTMENT OF PRICEWATERHOUSECOOPERS [ ] [ ] [ ]
LLP AS INDEPENDENT AUDITORS:
4. 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 THIS PROXY, "FOR" THE
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE
COMPANY'S 1990 STOCK PLAN TO 1,350,000,
"FOR" APPOINTMENT OF PRICEWATERHOUSECOOPERS
LLP AS INDEPENDENT AUDITORS AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS
AS MAY COME BEFORE THE MEETING. 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.
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
---------------------------------------------------- -----------
Print Name(s)
-------------------------------------------------------------------
NOTE: Please sign your name exactly as it appears hereon. Executors,
administrators, guardians, officers of corporations, and others signing in a
fiduciary capacity should so indicate and state their full titles as such. If
shares are held by joint tenants or as community property, each holder should
sign.
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FOLD AND DETACH HERE