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 Section 240.14a-11(c) or Section
240.14a-12
ENCAD, 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:
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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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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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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[LOGO]
ENCAD, INC.
6059 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 1998
The Annual Meeting of Stockholders (the "Meeting") of ENCAD, Inc., a Delaware
corporation (the "Company"), will be held on Tuesday, June 9, 1998 at 2:00
p.m., Pacific Daylight Time (local time), at the Del Mar Hilton Hotel, 15575
Jimmy Durante Blvd., Del Mar, California, 92014, to consider and vote upon the
following matters which are more fully described in the accompanying Proxy
Statement:
1. To elect the Board of Directors.
2. To approve the adoption of the 1998 Stock Option Plan (the "1998
Plan") and the reservation of 575,000 shares for issuance
thereunder.
3. To ratify appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1998.
4. To transact such other business as may properly be presented at the
Meeting or any adjournments or postponements thereof.
Only stockholders of record as of the close of business on April 15, 1998 will
be entitled to notice of and to vote at the Meeting or any adjournments or
postponements thereof.
All stockholders are cordially invited to attend the Meeting in person.
Regardless of whether you plan to attend the Meeting, you are urged to sign and
date the enclosed Proxy which is solicited by the Board of Directors, and
return it promptly in the accompanying envelope, postage for which has been
provided if mailed in the United States. The prompt return of Proxies will
ensure a quorum and save the Company the expense of further solicitation. Any
stockholder returning the enclosed Proxy may revoke it prior to its exercise by
voting in person at the Meeting or by filing with the Secretary of the Company
a written revocation or a duly executed Proxy bearing a later date.
By order of the Board of Directors,
/s/ Thomas L. Green
-----------------------------------
Thomas L. Green, Esq.
Corporate Secretary
San Diego, California
April 30, 1998
Del Mar Hilton
15575 Jimmy Durante Boulevard
Del Mar, CA 92014
(800) 833-7904/(619) 792-5200
[MAP]
YOUR VOTE IS IMPORTANT
In order to ensure your representation at the Meeting, you are requested to
complete, sign and date the enclosed Proxy and return it as promptly as
possible in the enclosed envelope. No postage need be affixed if mailed in
the United States.
ENCAD, INC.
6059 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 1998
TABLE OF CONTENTS
GENERAL INFORMATION..................................................... 4
SOLICITATION OF PROXIES AND VOTING...................................... 4
PROPOSAL 1 - ELECTION OF DIRECTORS...................................... 5
PROPOSAL 2 - APPROVAL OF THE 1998 STOCK OPTION PLAN..................... 8
PROPOSAL 3 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS.......... 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 19
BOARD OF DIRECTORS...................................................... 20
EXECUTIVE OFFICERS...................................................... 21
COMPENSATION OF EXECUTIVE OFFICERS...................................... 23
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION........... 27
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS.................... 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 30
SUBMISSION OF STOCKHOLDER PROPOSALS..................................... 31
FINANCIAL STATEMENTS AUTHORIZED......................................... 31
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................. 31
OTHER MATTERS........................................................... 31
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
OF
ENCAD, INC.
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
Proxies by and on behalf of the Board of Directors (the "Board") of ENCAD,
Inc., a Delaware corporation (the "Company"), for use at the Company's Annual
Meeting of Stockholders (the "Meeting") to be held at the Del Mar Hilton
Hotel, 15575 Jimmy Durante Blvd., Del Mar, California, 92014, on Tuesday,
June 9, 1998, at 2:00 p.m., Pacific Daylight Time (local time), and at any
adjournments or postponements thereof, for the purposes set forth in the
preceding notice. It is anticipated that this Proxy Statement and the
accompanying Proxy will be mailed to the Company's stockholders on or about
April 30, 1998.
SOLICITATION OF PROXIES AND VOTING
SOLICITATION
The expense of printing and mailing these Proxy materials will be borne
by the Company. The Company has contracted with Corporate Investor
Communications, Inc. ("CIC") to assist in solicitation of Proxies for the
Meeting. CIC will mail a search notice to banks, brokers, nominees and
street-name accounts to develop a listing of stockholders, distribute Proxy
materials to brokers and banks for subsequent distribution to beneficial
holders of the stock, and solicit Proxy responses from holders of the
Company's Common Stock, $0.001 par value ("Common Stock"). The anticipated
cost of the Proxy solicitation by CIC is $5,000. In addition, the Company
may reimburse brokers, banks, and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses incurred in connection with
forwarding these Proxy materials to the beneficial owners of the Common Stock
as of the Record Date (as defined below). No additional compensation will be
paid for such services.
STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record as of the close of business on April 15,
1998 (the "Record Date") will be entitled to vote at the Meeting. As of the
Record Date, there were issued and outstanding 11,561,634 shares of Common
Stock. No shares of the Company's Preferred Stock, $0.001 par value
("Preferred Stock") were outstanding.
QUORUM AND VOTING
The required quorum for the transaction of business at the Meeting is the
presence, in person or by proxy, of the holders of a majority of shares of
Common Stock issued and outstanding on the Record Date. Stockholders are
entitled to one vote for each share of stock owned by that stockholder on the
Record Date. On all matters properly brought before the Meeting, other than the
election of Directors, the affirmative vote of a majority of shares represented
in person or by proxy at the Meeting and entitled to vote on the item shall
constitute approval of that item by the stockholders, unless the vote of a
greater number is required by Delaware General Corporation Law, the Company's
Certificate of Incorporation or the Company's Bylaws. Directors shall be
elected by a plurality of votes of shares represented in person or by proxy at
the Meeting and entitled to vote on the election of Directors. Accordingly, the
seven Director nominees receiving the highest number of votes of the shares
entitled to vote at the Meeting will be elected.
On any matter other than the election of Directors, any stockholder may
vote part of its shares in favor of a proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if a stockholder
fails to specify the number of shares which a stockholder is voting
affirmatively, it will be conclusively presumed that the stockholder's
approving vote is with respect to all shares that the stockholder is entitled
to vote. No stockholder
4
shall be entitled to cumulate votes (i.e., cast a number of votes greater than
the number of the stockholder's shares for any one or more candidates).
Delaware statute and case law do not give specific instructions regarding
the treatment of abstentions; however, the Company believes that abstentions
should be counted for purposes of determining (i) the existence of a quorum
and (ii) the total number of votes eligible to vote on an issue (other than the
election of Directors). Accordingly, in the absence of controlling precedent,
failure to vote yes on any matter will have the same effect as a negative vote
on such issue; however, abstentions will have no effect on the election of
Directors.
The Delaware Supreme Court has held that, while broker non-votes should be
counted for the purpose of determining the presence or absence of a quorum for
the transaction of business, they should not be counted for the purpose of
determining the number of votes eligible to vote on a particular proposal. The
Company intends to treat broker non-votes in this manner. Thus, a broker non-
vote will not affect the outcome of the voting on any proposal, including the
election of Directors.
VOTING AND REVOCABILITY OF PROXY
If the enclosed Proxy is properly signed and received by the Company
prior to the Meeting, the Proxy shall be voted as directed by the
stockholder. If no instructions are given on the executed Proxy, the Proxy
will be voted in favor of the election of the nominees for the Board
(Proposal 1), and also in favor of Proposals 2 and 3 as described in this
Proxy Statement. The persons named in the Proxy will have discretionary
authority to vote the Proxy with respect to additional matters that are
properly presented for action at the Meeting.
Any stockholder returning the enclosed Proxy may revoke the Proxy prior
to its exercise by attending the Meeting and voting in person, or by filing
with the Company's Corporate Secretary either (i) a written revocation of the
Proxy, or (ii) a duly executed Proxy bearing a later date than the Proxy
previously filed with the Company.
PROPOSAL 1
ELECTION OF DIRECTORS
Seven individuals have been nominated for election to the Board at the
Meeting to hold office until their term has expired or until their successors
are duly elected and qualified. Under the Company's Bylaws, the number of
Directors is to be established by resolution of the Board, with the number of
Directors initially fixed at seven. The Board currently consists of seven
Directors. Each of the seven Directors currently serving on the Board, listed
below as Nominees for Election as Director, has agreed to stand for
re-election at the Meeting and to serve until the next Annual Meeting of
Stockholders or until his respective successor is elected or appointed.
Unless individual stockholders specify otherwise, each returned Proxy will
be voted for the election of the nominees who are listed herein, or for as many
nominees of the Board as possible, such votes to be distributed among such
nominees in the manner as the persons named in the enclosed Proxy see fit.
If, however, any of the nominees are unable to serve, or for good cause
decline to serve at the time of the Meeting, the persons named in the
enclosed Proxy will exercise discretionary authority to vote for substitutes.
The Board is not aware of any circumstances that would render any nominee
unavailable for election.
NOMINEES FOR ELECTION AS DIRECTOR
DAVID A. PURCELL
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
AGE: 60
Mr. Purcell has served as Chairman of the Board, a Director and President
since the Company's founding in November 1981. Mr. Purcell resigned the title
of President in June 1995 but continues to serve as Chairman of
5
the Board and Chief Executive Officer of the Company. Prior to founding the
Company, Mr. Purcell served in varying capacities, including District,
Regional and National Sales Manager at Union Carbide's Electronics Division
from 1964 to 1969. In 1969 he founded Celtec, a technical manufacturers'
representative company, and served as its Chief Executive Officer. He is
also a co-founder of two other companies: Bishop Electronics, a manufacturer
of precision capacitors, and Ryno Electronics, Inc., an electronics
distribution company ultimately acquired by Western Microtechnology in 1986.
Mr. Purcell served as a director of Bishop Electronics from 1976 to 1993 and
of Ryno Electronics from 1978 to 1986. Mr. Purcell attended Nasson College
and California State College-Fresno.
ROBERT V. ADAMS
DIRECTOR
AGE: 66
Mr. Adams has served as a Director since December 1994. Mr. Adams is
currently President, Chief Executive Officer and Senior Principal of Xerox
Technology Ventures, a division of Xerox Corporation ("Xerox") where he has
held numerous management positions since 1965, including President and
General Manager of the Printing Systems Division, Corporate Vice President
and President of Xerox Systems Group and Executive Vice President overseeing
the Corporate Strategy Office and Custom Systems Division. Currently, Mr.
Adams is Chairman of the Board of Documentum and Document Sciences, and a
director of Tekelec, Inc., a company engaged in the design and manufacture of
test systems for data communications. Mr. Adams holds an undergraduate
degree in Mechanical Engineering from Purdue University and an MBA from the
University of Chicago.
CRAIG S. ANDREWS
DIRECTOR
AGE: 45
Mr. Andrews has served as a Director since June 1996. Mr. Andrews has been
a partner with the law firm of Brobeck, Phleger & Harrison LLP since 1987. He
is currently a director of four privately-held companies. Mr. Andrews holds an
undergraduate degree from the University of California, Los Angeles and a JD
from the University of Michigan.
RONALD J. HALL
DIRECTOR
AGE: 57
Mr. Hall has served as a Director since December 1993. Since 1990, Mr.
Hall has been managing general partner of Hall Capital Management of Mission
Viejo, California (the general partner of a former principal stockholder of the
Company) and was previously with First Interstate Venture Capital Corporation
from 1986 to 1990. Mr. Hall was also a general partner of Weiss, Peck & Greer,
a New York City-based venture capital and money management firm, and with the
venture capital operation of Bank of America. Mr. Hall holds an undergraduate
degree in Industrial Management from Brigham Young University and an MBA in
Finance from the University of California, Los Angeles.
HOWARD L. JENKINS
DIRECTOR
AGE: 61
Mr. Jenkins has been a Director since December 1993. Since 1976, Mr.
Jenkins has been President of Jenkins Machinery Co., a tractor and machinery
dealership serving California and Nevada. He is also managing general partner
of Jenkins Ranch. Previously, Mr. Jenkins had been a board member of Alex
Brown Financial Group. Mr. Jenkins holds an undergraduate degree in Business
Administration from Eastern Washington University.
RICHARD A. PLANTE
DIRECTOR AND PRESIDENT AND CHIEF OPERATING OFFICER
AGE: 45
Mr. Plante has served as a Director since June 1996 and as President and
Chief Operating Officer since joining the Company in June 1995. He is also
currently serving as interim Vice President and General Manager of the
Company's Signage Business Unit. Prior to joining the Company, Mr. Plante
served as Vice President, Product
6
Development from 1992 to 1995 at CalComp, Inc., a manufacturer of plotters
and printers. From 1991 to 1992, Mr. Plante was Vice President of
Manufacturing of Kwikset Corporation/Black & Decker Corporation, a
manufacturer of residential door hardware. From 1974 to 1991, Mr. Plante
held various senior level positions at Hewlett-Packard, a publicly-held
company which designs, manufactures and services electronic products. Mr.
Plante holds undergraduate degrees in Computer Science and Business
Administration from Oregon State University.
CHARLES E. VOLPE
DIRECTOR
AGE: 60
Mr. Volpe has served as a Director since December 1995. Mr. Volpe is
currently a director of Kemet Electronics Corp and its parent, Kemet
Corporation, a publicly-held Delaware corporation, where he held numerous
management positions from 1970 until retiring as President and Chief
Operating Officer in 1996. Prior to joining Kemet in 1966, Mr. Volpe was with
the Micro Switch Division of Honeywell, Inc. In addition to being a director
of Kemet, Mr. Volpe is also a director of Sinter Metals Inc., a
Cleveland-based pressed metals company. Mr. Volpe holds an undergraduate
degree in Mechanical Engineering from Rochester Institute of Technology.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE NOMINEES FOR DIRECTORS
AS SET FORTH IN ITEM 1 ON THE PROXY.
7
PROPOSAL 2
APPROVAL OF THE 1998 STOCK OPTION PLAN
Stockholders are being asked to consider and vote upon a proposal to
approve the 1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan was
adopted by the Board on March 9, 1998. The Board believes that the 1998 Plan
is essential to recruiting and retaining high caliber personnel, and in
eliciting their maximum efforts. The Board has authorized 575,000 shares for
issuance under the 1998 Plan in order to maintain an adequate number of shares
to offer competitive compensation packages, as well as to accommodate potential
employee demand and the growth of the Company.
The following is a summary of the material terms and provisions of the
1998 Plan. The summary, however, does not purport to be a complete description
of all the provisions of the 1998 Plan. Copies of the actual plan document may
be obtained by any stockholder upon written request to the Company's Corporate
Secretary, Thomas L. Green, at 6059 Cornerstone Court West, San Diego,
California 92121.
The Company maintains two other equity incentive plans: the 1993 Stock
Option/Stock Issuance Plan (the "1993 Plan")and the 1997 Supplemental Stock
Option Plan (the "1997 Plan"). The 1993 Plan includes a discretionary option
grant program with substantially the same provisions as the comparable
Discretionary Option Grant Program under the 1998 Plan as described below,
except that option grants may be made under the 1993 Plan at 85% of the fair
market value of the Common Stock on the grant date, whereas options granted
under the 1998 Plan must be issued at 100% of the fair market value of the
Common Stock on the grant date. The 1993 Plan also includes an automatic
option grant program for the non-employee Directors pursuant to which options
are to be granted to those Directors at periodic intervals over their period
of service on the Board. However that program will terminate upon stockholder
approval of the 1998 Plan, and the Automatic Option Grant Program for
non-employee Directors under the 1998 Plan, as described below, will become
the successor program. As of March 31, 1998, options for 945,461 shares of
Common Stock were outstanding under the 1993 Plan, and 131,042 shares
remained available for future grant. In October 1997, the Company implemented
the 1997 Plan, under which 140,000 shares of Common Stock have been reserved
for issuance to employees, independent advisors and consultants of the
Company who are neither executive officers nor Directors. The provisions of
the 1997 Plan are substantially the same as those in effect under the
Discretionary Option Grant Program of the 1998 Plan as described below. As
of March 31, 1998, options for 110,925 shares of Common Stock were
outstanding under the 1997 Plan, and 29,075 shares remained available for
future grant.
1998 PLAN STRUCTURE
The 1998 Plan is divided into four separate components, collectively
referred to as the "Programs":
1. The Discretionary Option Grant Program, eligibility under which is
limited to employees, including executive officers, independent consultants
and advisors in the service of the Company (or any parent or subsidiary of
the Company) and non-employee Directors. All options granted under this
program will have an exercise price of 100% of the fair market value of the
Common Stock on the grant date. The granted options may be either incentive
stock options designed to meet the requirements of Internal Revenue Code
("Code") Section 422, or non-statutory stock options which are not intended
to satisfy such requirements.
2. The Automatic Option Grant Program, eligibility under which is
limited to non-employee members of the Company's Board who are (i) first
elected or appointed as non-employee Directors on or after the effective date
of the 1998 Plan, or (ii) are re-elected as non-employee Directors at one or
more annual stockholder meetings, beginning with the 1998 Annual Meeting of
Stockholders. Upon meeting such eligibility requirements,
8
non-employee Directors are granted non-statutory stock options at an
exercise price equal to 100% of the fair market value of the Common Stock on
the grant date.
3. The Salary Reduction Option Grant Program, eligibility under which is
limited only to executive officers of the Company selected by the Primary
Committee to participate in the program. Any executive officer selected to
participate in the Salary Reduction Option Grant Program must, prior to the
beginning of any calendar year of participation, file with the 1998 Plan
Administrator (or its designate) an irrevocable authorization directing the
Company to reduce his or her base salary for that calendar year by a designated
multiple of 1%. Each executive officer who files a timely salary reduction
authorization will automatically receive a special option under this program on
the first trading day of the calendar year for which the salary reduction is to
be in effect.
4. The Director Fee Option Grant Program, eligibility under which is
limited only to non-employee Directors who elect to apply all or any portion of
their annual compensation for service on the Board to the acquisition of a
stock option granted under this program. Such election must be filed with the
Company's Chief Financial Officer prior to the start of the calendar year for
which the compensation which is the subject of that election would be otherwise
payable. Each non-employee Director who files a timely election will
automatically be granted a special option under this program on the first
trading day of the next calendar year.
1998 PLAN ADMINISTRATION
The 1998 Plan shall be administered by the Board, a Primary Committee,
and by one or more Secondary Committees, collectively referred to as the 1998
Plan Administrator. The Primary Committee will consist of two or more non-
employee Directors and shall have the sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to executive
officers. Administration of the Discretionary Option Grant Program with
respect to all other individuals eligible under the 1998 Plan may, at the
Board's discretion, be delegated to the Primary Committee or the Secondary
Committee, or the Board may retain the power to administer the Programs with
respect to such persons. The members of the Secondary Committee may be employee-
Directors. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed
from service on a committee by the Board at any time. The Board may also at
any time, terminate the functions of any Secondary Committee and reassume all
powers and authority previously delegated to any Secondary Committee.
ELIGIBILITY
The individuals eligible to participate in the Discretionary Option Grant
Program shall be limited to those employees, including executive officers,
independent consultants and advisors, and non-employee Directors in the service
of the Company (or any parent or subsidiary of the Company) at the time of
grant. Only executive officers of the Company will be eligible to participate
in the Salary Reduction Option Grant Program.
The individuals eligible to participate in the Automatic Option Grant
Program shall be limited to non-employee Directors, who are (i) first elected
or appointed as non-employee Directors on or after the effective date of the
1998 Plan, whether through appointment by the Board or election by the
Company's stockholders, provided they have not otherwise been an employee of
the Company (or any parent or subsidiary of the Company) or (ii) are re-
elected as non-employee Directors at one or more annual stockholder meetings,
beginning with the 1998 Annual Meeting of Stockholders.
The non-employee Directors are also eligible to participate in the
Director Fee Option Grant Program.
SHARE RESERVE
Shares of the Common Stock will be available for issuance under the
1998 Plan. The maximum number of shares of Common Stock reserved for issuance
over the ten year term of the 1998 Plan, measured from the effective date of
the 1998 Plan, will not exceed 575,000 shares. In no event, however, may any
one individual be granted stock options under the 1998 Plan for more than
175,000 share of Common Stock per calendar year.
9
Shares subject to any options granted under the 1998 Plan which
subsequently expire or otherwise terminate prior to exercise will be available
for subsequent issuance. Unvested shares issued under the 1998 Plan and
subsequently repurchased by the Company, at the option exercise price paid per
share, pursuant to the Company's repurchase rights under the 1998 Plan, will
also be available for subsequent issuance.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
1998 Plan, (ii) the number and/or class of securities for which any one person
may be granted options under the 1998 Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non-employee Directors
and (iv) the number and/or class of securities and the exercise price per share
in effect under each outstanding option in order to prevent the dilution or
enlargement of benefits thereunder.
TERMS UNDER THE DISCRETIONARY OPTION GRANT PROGRAM
OPTION TYPES
The 1998 Plan Administrator, at its discretion, may issue stock options
under this program which may be either incentive stock options designed to
meet the requirements of Code Section 422, or non-statutory stock options
which are not intended to satisfy such requirements.
OPTION PRICE
The option price for any option granted under the Discretionary Option
Grant Program will be fixed by the 1998 Plan Administrator at 100% of the
fair market value of the Common Stock on the grant date.
OPTION TERM
No option will have a maximum term in excess of ten years measured from
the grant date.
VESTING
Each option shall become exercisable at such time or times, during such
period and for such number of shares as shall be determined by the 1998 Plan
Administrator and set forth in the documents evidencing such option.
PAYMENT
Full payment of the exercise price and any applicable federal and state
income and employment taxes shall become immediately due upon exercise of the
option in any of the following methods: (i) cash; (ii) shares of the Common
Stock valued at fair market value on the date of exercise; (iii) a combination
of such shares and cash or (iv) a "same-day sale" and remittance procedure
through a brokerage firm.
TERMINATION OF SERVICE
Any option outstanding at the time of the optionee's cessation of
service for any reason shall remain exercisable for such limited period of
time thereafter as shall be determined by the 1998 Plan Administrator and
set forth in the documents evidencing the option, but no such option shall
be exercisable after the expiration of the option term.
Any option exercisable in whole or in part by the optionee at the
time of death may be subsequently exercised by the personal representative
of the optionee's estate or by the person or persons to whom the option is
transferred pursuant to the optionee's will or in accordance with the laws
of descent and distribution.
During the applicable post-service exercise period, the option may
not be exercised in the aggregate for more than the number of shares for
which the option is exercisable on the date of the optionee's cessation of
service. Upon the expiration of the applicable post-service exercise
period or (if earlier) upon the expiration of the option term, the option
shall terminate and cease to be outstanding for any otherwise exercisable
shares for which the option has not been exercised. However, the option
shall, immediately upon the optionee's cessation of service, terminate and
cease to be outstanding for any and all shares for which the option is not
otherwise at that time exercisable.
10
The 1998 Plan Administrator shall have the discretion, exercisable either
at the time an option is granted or at any time while the option remains
outstanding to extend the period of time for which the option is to remain
exercisable following optionee's cessation of service or death from the limited
period otherwise in effect for that option to such greater period of time as
the 1998 Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or to permit the option to be exercised,
during the applicable post-service exercise period, not only with respect to
the number of shares of Common Stock for which such option is exercisable at
the time of the optionee's cessation of service but also with respect to one or
more additional installments for which the option would have become exercisable
had the optionee continued in service.
TERMS UNDER THE AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first
becomes a non-employee Director on or after the date of the Meeting, whether
through election by the stockholders or appointment by the Board, will
receive, upon his or her initial election or appointment to the Board, an
automatic option grant for 15,000 shares of Common Stock, provided such
individual was not previously an employee of the Company. In addition, at
each successive annual meeting of stockholders, beginning with the 1998
Annual Meeting of Stockholders, each Director who is re-elected will
automatically be granted on the date of such meeting, an option to purchase
5,000 shares of Common Stock. There will be no limit to the number of
5,000-share option grants which any of the non-employee Directors may receive
over the period of his or her service on the Board, and any non-employee
Director who was previously an employee of the Company will be fully eligible
for one or more 5,000-share options over his or her service on the Board.
Stockholder approval of this Proposal will constitute pre-approval of each
option granted on or after the date of the Meeting pursuant to the provisions
of this program and the subsequent exercise of that option in accordance with
its terms. In addition, upon such stockholder approval, the automatic option
grant program for non-employee Directors under the 1993 Plan will terminate,
and no further options will be granted under that program.
OPTION TYPE
All options granted under this program will be non-statutory stock
options which are not intended to satisfy the requirements of Code Section
422.
OPTION PRICE
The option price for any option granted under this program will be equal
to 100% of the fair market value of the Common Stock on the grant date.
OPTION TERM
Each option will have a maximum term of ten years measured from the
grant date.
VESTING
Each option shall become exercisable in a series of three successive
equal annual installments over the Directors period of service on the Board,
with the first such installment to become exercisable upon the completion of
one year of service on the Board measured from the grant date.
PAYMENT
Full payment of the exercise price and any applicable federal and state
income and employment taxes shall become immediately due upon exercise of the
option by any of the following methods: (i) cash; (ii) shares of the Common
Stock valued at fair market value on the date of exercise; (iii) a combination
of such shares and cash or (iv) a "same-day sale" and remittance procedure
through a brokerage firm.
TERMINATION OF SERVICE
Should the optionee cease to serve as a Director for any reason (other
than death) while holding one or more automatic option grants under this
program, then such Director shall have six months after cessation of service on
the Board in which to exercise each such option for any or all of the shares of
Common Stock for which the option is exercisable at the time of such cessation
of service on the Board. Each such option shall immediately
11
terminate and cease to be outstanding, at the time of such cessation of
service on the Board, with respect to any shares for which the option is not
otherwise at that time exercisable.
Should the Director die while serving as a Director or within six months
after cessation of service on the Board, then each outstanding option held by
the Director at the time of death may subsequently be exercised, for any or
all of the shares of Common Stock for which the option is exercisable at the
time of the Director's cessation of service on the Board (less any option
shares subsequently purchased by the Director prior to death), by the personal
representative of the Director's estate or by the person or persons to whom the
option is transferred pursuant to the Director's will or in accordance with the
laws of descent and distribution. Any such exercise must occur within 12
months after the date of the Director's death.
In no event shall any option under this program remain exercisable after
the specified expiration date of the ten year option term.
TERMS UNDER THE SALARY REDUCTION OPTION GRANT PROGRAM
The 1998 Plan Administrator will have complete discretion in implementing
this program for one or more calendar years and in selecting the executive
officers who are to participate in the program for those years. As a
condition to such participation, each selected executive officer must, prior to
the start of each calendar year of participation, file with the 1998 Plan
Administrator an irrevocable authorization directing the Company to reduce
his or her base salary for that calendar year by a designated multiple of 1%.
However, the minimum amount of such salary reduction must be not less than the
GREATER of (i) five percent (5%) of his or her rate of base salary for the
calendar year or (ii) $10,000.00 and must not be more than the LESSER of (i)
25% of his or her rate of base salary for the calendar year or (ii) $75,000.00.
Each executive officer who files a proper salary reduction authorization shall
automatically be granted an option under this program on the first trading day
in January of the calendar year for which that salary reduction is to be in
effect. Stockholder approval of the 1998 Plan at the Meeting will constitute
pre-approval of each option subsequently granted pursuant to the provisions of
this program and the subsequent exercise of that option in accordance with its
terms.
OPTION TYPE
All options granted under this program will be non-statutory stock
options.
OPTION PRICE AND NUMBER OF SHARES
The option price for any option granted under this program will be fixed
by the 1998 Plan Administrator at 33-1/3% of the fair market value per share of
the Common Stock on the grant date.
The number of shares granted will be determined by dividing the total
dollar amount of the authorized reduction in the executive officer's annual
base salary by two-thirds of the fair market value of the Common Stock on the
grant date. As a result, the total spread of the option (the difference
between the number of shares granted multiplied by the option price less the
number of shares granted multiplied by the fair market value of the Common
Stock on the grant date) will be equal the dollar amount of the reduction to
the executive officer's base salary to be in effect for the calendar year for
which the option was granted.
VESTING AND OPTION TERM
The option shall become exercisable in a series of 12 successive equal
monthly installments upon the optionee's completion of each calendar month of
service in the calendar year for which the salary reduction is in effect. Each
option shall have a maximum term of ten years measured from the grant date.
PAYMENT
The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program.
12
TERMINATION OF SERVICE
Should the optionee cease to be in service of the Company for any reason
while holding one or more options under this program, then each such option
shall remain exercisable, for any or all of the shares for which the option
is exercisable at the time of such cessation of service, until the EARLIER of
(i) the expiration of the ten-year option term or (ii) the expiration of the
three-year period measured from the date of such cessation of service.
Should optionee die while holding one or more options under this program,
then each such option may be exercised, for any or all of the shares for
which the option is exercisable at the time of the optionee's cessation of
service (less any shares subsequently purchased by optionee prior to death),
by the personal representative of the optionee's estate or by the person or
persons to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution. Such right of
exercise shall lapse, and the option shall terminate, upon the EARLIER of (i)
the expiration of the ten-year option term or (ii) the three-year period
measured from the date of the optionee's cessation of service. However, the
option shall, immediately upon the optionee's cessation of service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
TERMS UNDER THE DIRECTOR FEE OPTION GRANT PROGRAM
Each non-employee Director will have the right to apply all or a portion
of the fees he or she would otherwise receive as cash compensation each year
to the acquisition of a special option granted under this program. The option
will automatically be granted on the first trading day in January following
the filing of a proper election to receive an option in lieu of fees and
will have an exercise price per share equal to one-third of the fair market
value of the option shares on the grant date. The number of shares granted
will be determined by dividing the total dollar amount of the fees subject to
the Director's election by two-thirds of the fair market value per share of
Common Stock on the grant date. As a result, the total spread of the option
(the difference between the number of shares granted multiplied by the option
price less the number of shares granted multiplied by the fair market value
of the Common Stock on the grant date) will be equal to the portion of the
fees subject to the Director's election. Stockholder approval of this
Proposal will constitute pre-approval of each option subsequently granted
pursuant to the provisions of this program and the subsequent exercise of
that option in accordance with its terms.
OPTION TYPE
All options granted under this program will be non-statutory stock
options.
OPTION PRICE
The option price for any option granted under this program will be fixed
by the 1998 Plan Administrator at 33-1/3 % grant date.
VESTING AND OPTION TERM
The option shall become exercisable in a series of 12 successive equal
monthly installments upon the Director's completion of each calendar month of
service on the Board in the calendar year for which the annual retainer fee
which is the subject of his or her election under this program would otherwise
be payable. Each option shall have a maximum term of ten years measured from
the grant date.
PAYMENT
The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program.
TERMINATION OF SERVICE
Should the Director's service on the Board cease for any reason (other
than death or permanent disability) while holding one or more options under
this program, then each such option shall remain exercisable, for any or all of
the shares for which the option is exercisable at the time of such cessation of
service on the Board until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the three-year period measured from the date of such
cessation of service on the Board. However, each option held by the Director
under this program at the time of his or her cessation of service on the Board
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
13
DEATH OR PERMANENT DISABILITY
Should the Director's service on the Board cease by reason of death or
permanent disability, then each option held by such Director under this
program shall immediately become exercisable for all the shares of Common Stock
at the time subject to that option, and the option may, during the three-year
period following such cessation of service on the Board, be exercised for any
or all of those shares as fully vested shares.
Should the Director die while holding one or more options under this
program, then each such option may be exercised, for any or all of the shares
for which the option is exercisable at the time of the Director's cessation
of service on the Board (less any shares subsequently purchased by Director
prior to death), by the personal representative of the Director's estate or
by the person or persons to whom the option is transferred pursuant to the
Director's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
EARLIER of (i) the expiration of the ten-year option term or (ii) the
three-year period measured from the date of the Director's cessation of
service on the Board.
FINANCING
The 1998 Plan Administrator may permit the payment of the option exercise
price by delivering a promissory note payable to the Company (or any parent or
subsidiary of the Company) in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the 1998 Plan Administrator in its sole discretion.
Promissory notes may be authorized with or without security or collateral. In
all events, the maximum amount of credit made available may not exceed the sum
of (i) the aggregate option exercise price payable for the purchased shares
plus (ii) any federal and state income and employment tax liability incurred in
connection with the option exercise.
SPECIAL TAX ELECTION
The 1998 Plan Administrator may provide one or more holders of options
under the Discretionary Option Grant Program or the Salary Reduction Option
Grant Program with the right to have the Company withhold a portion of the
shares otherwise issuable to the optionee in satisfaction of any tax liability
incurred in connection with the exercise of such options. Alternatively, the
1998 Plan Administrator may allow optionees to deliver previously acquired
shares of Common Stock in payment of such tax liability.
FEDERAL TAX CONSEQUENCES
Options granted under the 1998 Plan may be either incentive stock options
which satisfy the requirements of Code Section 422 or non-statutory options
which are not intended to meet such requirements. The federal income tax
treatment for the two types of options differs as described below.
NON-STATUTORY STOCK OPTIONS
No taxable income is recognized by an optionee upon the grant of a non-
statutory option. The optionee will, in general, recognize ordinary income in
the year in which the option is exercised, equal to the excess of the fair
market value of the purchased shares on the date of exercise over the exercise
price paid for the shares.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will, in general, be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee.
Gain recognized on the subsequent sale of the stock will be taxable as
capital gain as discussed below.
INCENTIVE STOCK OPTIONS
No regular taxable income is recognized by the optionee at the time of the
option grant, and no taxable income is generally recognized at the time the
option is exercised (although the excess of the fair market value of the shares
purchased pursuant to an incentive stock option over the amount paid for the
shares will be included in
14
alternative minimum taxable income). The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or
otherwise made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories:
(i) qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding periods
prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of
those shares on the date the option was exercised over (ii) the exercise price
paid for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the date the option was exercised over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Capital gains from property held for more than one year are subject to a
maximum tax rate which, at present, is significantly lower than the tax rate
applicable to ordinary income.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by the Company
in connection with disqualifying dispositions of incentive stock options or
the exercise of non-statutory stock options granted with exercise prices
equal to 100% of the fair market value of the option shares on the grant date
will qualify as performance-based compensation for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation
paid to certain executive officers of the Company. Accordingly, all
compensation deemed paid with respect to those options will remain deductible
by the Company without limitation under Code Section 162(m).
ACCOUNTING TREATMENT
Under current accounting principles, options granted under the 1998 Plan
where the exercise price is equal to the fair market value of the Common Stock
on the grant date, will not result in any charge to the Company's earnings per
share. However, the Company must disclose, in the footnotes and pro-forma
statements to its financial statements, the impact that those options would
have on the Company's earnings per share if the value of those options at the
time of grant were treated as compensation expense. In addition, the number of
any options outstanding under the 1998 Plan could be a factor in determining
the Company's diluted earnings per share.
STOCKHOLDER RIGHTS
No optionee shall have any rights as a stockholder with respect to a stock
option granted under the 1998 Plan until the optionee has exercised the option,
paid the option price in full, and has been issued the purchased shares.
15
AMENDMENT OF THE 1998 PLAN
The Board shall have complete and exclusive power and authority to amend
or modify the 1998 Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options at the time outstanding under the 1998 Plan, unless the affected
optionees consent to such amendment or modification. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations or if stockholder approval is required by the Board.
TRANSFERABILITY OF OPTIONS
Stock options granted under the 1998 Plan shall be exercisable only by the
optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the optionee's death. However,
a non-statutory option may, in connection with the optionee's estate plan, be
assigned in whole or in part during the optionee's lifetime to one or more
members of the optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the 1998 Plan Administrator may deem appropriate.
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or otherwise replaced with a cash
incentive program which preserves the spread on the unvested option shares will
automatically accelerate in full. The 1998 Plan Administrator will have
complete discretion to grant one or more options under the Discretionary Option
Grant Program which will become fully exercisable for all option shares in the
event those options are assumed in the acquisition and the optionee's service
with the Company or the acquiring entity is terminated within a designated
period following such acquisition. The 1998 Plan Administrator will have
similar discretion to grant options which will become fully exercisable for all
the option shares should the optionee's service terminate, whether
involuntarily or through a resignation for good reason, within a designated
period following a change in control of the Company (whether by successful
tender offer for more than 50% of the outstanding voting stock or by proxy
contest for the election of Board members).
Each option outstanding under the Salary Reduction Option Grant Program,
the Automatic Option Grant Program and the Director Fee Option Grant Program
will automatically accelerate in the event that the Company is acquired by
merger or asset sale or in the event of certain other changes in control of the
Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares of Common Stock
represented and voted at the Meeting is required for approval of the 1998
Plan. The 1998 Plan will become effective immediately upon approval by
stockholders at the Meeting. Should such stockholder approval not be
obtained, then the 1998 Plan will not be implemented. However, the Company's
1993 Plan (including the automatic option grant program under that plan for
non-employee Directors) will remain in effect. Options will continue to be
granted under that plan until the share reserve as last approved by
stockholders is depleted, and any of the non-employee Directors re-elected at
the Meeting will receive an option under that plan for 1,000 shares and any
newly-elected non-employee Director would receive an option for 15,000 shares.
16
OUTSTANDING OPTION GRANTS UNDER THE 1998 PLAN
As of March 31, 1998, no options have been granted under the 1998 Plan.
No options will be granted under the 1998 Plan unless stockholders approve
the 1998 Plan at the Meeting. If such stockholder approval is obtained, and
Messrs. Adams, Andrews, Hall and Jenkins are re-elected to the Board at the
Meeting, each will each receive an option for 5,000 shares under the
Automatic Option Grant Program. Each such option will have an exercise price
per share equal to the closing price of the Company's Common Stock on the
Nasdaq National Market on the date of the Meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE APPROVAL OF THE 1998 STOCK OPTION PLAN
AS SET FORTH IN ITEM 2 ON THE PROXY.
17
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has appointed the accounting firm of Deloitte & Touche LLP as
the independent auditors for the Company for the year ending December 31, 1998.
Deloitte & Touche LLP has served as independent auditors of the Company since
1983 and the Board believes that the firm is well-qualified to provide these
services. Representatives of Deloitte & Touche LLP are expected to be present
at the Meeting. They will have the opportunity to make a statement if they
desire to do so and will be available to respond to your questions.
Ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditors requires the affirmative vote of a majority of the shares
of Common Stock represented in person or by Proxy and entitled to vote at the
Meeting on this matter. In the event that the stockholders fail to ratify such
appointment, the Board will reconsider its selection. Even if the selection is
ratified, the Board, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Board
believes that such a change would be in the best interest of the Company and
its stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR RATIFICATION OF THE SELECTION
OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
AS SET FORTH IN ITEM 3 ON THE PROXY.
18
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the Record Date, Directors and executive officers of the Company
were beneficial owners (or deemed to be beneficial owners) of an aggregate of
1,012,620 shares of Common Stock (not including shares of Common Stock
subject to unexercised stock options) constituting approximately 8.8% of the
shares of Common Stock outstanding and entitled to vote at the Meeting. As a
result, approval of the proposals is not assured.
The following table sets forth information as of March 31, 1998 relating
to the beneficial ownership of Common Stock by (i) each stockholder known by
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each Director and nominee for election at the Meeting, (iii)
the Chief Executive Officer of the Company and the Company's four most highly
compensated executive officers (the "Named Executive Officers"), and (iv) all
the Company's executive officers and Directors as a group. This table is based
upon information supplied by Directors, nominees for election at the Meeting,
Named Executive Officers, principal stockholders and Schedule 13Gs filed with
the Securities and Exchange Commission ("SEC"). Unless otherwise indicated,
the individual stockholders named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
19
Amount and Nature of
Beneficial Ownership Percent Acquirable
Owned at Within 60 days of Class
Names and Addresses March 31, 1998 (1) (2)
- -------------------------- -------------------- --------- ---------
J & W SELIGMAN CO. INCORPORATED (3) 985,000 8.5%
100 Park Avenue
New York, NY 10017
SCUDDER KEMPER INVESTMENTS, INC. (4) 928,900 8.0%
345 Park Avenue
New York, NY 10154
MELLON BANK CORPORATION (4) 601,030 5.2%
One Mellon Bank Center
Pittsburgh, PA 15258
ROBERT V. ADAMS 30,000 1,334 *
CRAIG S. ANDREWS 10,324 20,000 *
RONALD J. HALL 32,610 17,334 *
HOWARD L. JENKINS 183,176 32,334 1.9%
CHARLES E. VOLPE 4,000 20,334 *
DAVID A. PURCELL 740,002 14,062 6.5%
RICHARD A. PLANTE 5,131 68,124 *
FRANCIS J. WYPYCHOWSKI 0 40,937 *
LAWRENCE E. THOMPSON 3,456 28,124 *
TODD W. SCHMIDT 0 23,750 *
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (12 PERSONS) 1,012,620 291,179 11.3%
(1) Shares issuable upon exercise of stock options that are exercisable within
60 days of March 31, 1998.
(2) Applicable percentage ownership is based on 11,561,634 shares of Common
Stock outstanding on March 31, 1998, and calculated pursuant to SEC Rule
13d-3(d)(1), which includes the number of shares acquirable within 60
days.
(3) Based upon information filed with the SEC on Schedule 13G/A as of March
31, 1998.
(4) Based upon information filed with the SEC on Schedule 13G as of December
31, 1997.
* Less than 1%.
BOARD OF DIRECTORS
TERM OF BOARD
Members of the Board hold office and serve until the next annual meeting
of the stockholders of the Company or until their respective successors have
been elected and qualified. Executive officers are appointed by, and serve
at the discretion of, the Board.
RELEVANT COMMITTEES AND MEETINGS OF THE BOARD
The Company has a Compensation and an Audit Committee. The Board does
not maintain a nominating committee or other committee which performs similar
functions.
20
The current members of the Compensation Committee are Mr. Volpe
(Chairman), Mr. Andrews and Mr. Jenkins. The Compensation Committee
provides recommendations concerning salaries and incentive compensation for
executive officers and key personnel other than stock options for Directors
and remuneration of Directors. The Compensation Committee held three
meetings during the year ended December 31, 1997.
The current members of the Audit Committee are Mr. Adams (Chairman), Mr.
Hall and Mr. Jenkins. The Audit Committee recommends the Company's
independent auditors, reviews the results and scope of the audit and other
services provided by such auditors and evaluates fees. The Audit Committee
held two meetings during the year ended December 31, 1997.
The Board held five meetings during the year ended December 31, 1997.
No incumbent Director attended fewer than 75% of the Board and Committee
meetings in which such Director was entitled to participate.
COMPENSATION OF DIRECTORS
For their services as Directors in 1997, non-employee Directors received
cash compensation of $12,000 annually with an additional payment of $3,000 to
each non-employee Director who served on at least one special committee of
the Board. Non-employee Directors were also eligible for reimbursement of
their expenses incurred in attending meetings of the Board in accordance with
Company policy.
At the 1997 Annual Meeting of Stockholders held on July 17, 1997,
Messrs. Adams, Andrews, Hall and Jenkins were re-elected to the Board, and
each received a stock option for 1,000 shares of the Company's Common Stock
pursuant to the automatic option grant program in effect for non-employee
Directors under the Company's 1993 Plan. Each option has an exercise price of
$39.125 per share and one third of the option shares becomes exercisable one
year from the grant date. The option has a term of ten years measured from
the grant date, subject to earlier termination following the Director's
cessation of service on the Board. The option will immediately vest and
become exercisable for all the option shares upon certain changes in
ownership or control of the Company. If stockholders approve the proposal to
implement the 1998 Plan, then the automatic option grant program under the
1993 Plan will terminate, and all automatic option grants made to
non-employee Directors on or after the date of the Meeting, whether upon
their initial election or appointment to the Board or their re-election at
one or more subsequent annual stockholders meetings, will be effected solely
and exclusively under the Automatic Option Grant Program of the 1998 Plan.
EXECUTIVE OFFICERS
The following individuals were executive officers of the Company as of
March 31, 1998:
Name Age Position
----------- --- ------------
David A. Purcell.......... 60 Chief Executive Officer
Richard A. Plante......... 45 President and Chief Operating Officer;
Interim Vice President and General Manager,
Signage Business Unit
Richard L. Diamond........ 57 Vice President and Chief Information
Officer; Interim Vice President, Human
Resources; Interim Vice President,
Supply Chain
Thomas L. Green........... 50 Vice President, Secretary and General
Counsel
Todd W. Schmidt........... 55 Vice President and Chief Financial Officer
21
Lawrence E. Thompson...... 49 Vice President and General Manager,
Supplies Business Unit; Interim Vice
President and General Manger, Textile
Supplies Business Unit
Francis J. Wypychowski.... 49 Vice President, Corporate Development and
Strategic Planning
Mr. Purcell is currently serving as Chairman of the Board and Chief
Executive Officer of the Company. See "Election of Directors - Nominees for
Election as Director."
Mr. Plante has served as the President and Chief Operating Officer since
joining the Company in June 1995 and as a Director since June 1996. See
"Election of Directors - Nominees for Election as Director."
Mr. Diamond joined the Company in January 1998 as Vice President and
Chief Information Officer. He is also serving as interim Vice President,
Human Resources and interim Vice President, Supply Chain. From June 1997
through December 1997, Mr. Diamond was a principal in Diamond & Associates,
an information technology consulting service which provided consulting
services to the Company in December 1997. From March 1995 to June 1997, Mr.
Diamond served as Vice President and Chief Information Officer for Madge
Networks, N.V. and from August 1993 to March 1995 served in the same capacity
for AST Computer. Prior to that, Mr. Diamond was Managing Director for
Applied Materials, Inc. from April 1984 to August 1993. Mr. Diamond holds a
BS in Information Engineering from New York University and an MBA in Finance
from the University of Louisville.
Mr. Green has served as Vice President since December 1995, and as
General Counsel and Secretary since joining the Company in June 1994, after
serving as a legal consultant for the Company from February 1994 to May 1994.
From February 1992 to June 1993, Mr. Green served as General Counsel for
Psicor, Inc., a publicly-traded company that provides services related to
open-heart perfusion. He was Senior Vice President and General Counsel from
May 1990 to February 1992 for Pacific Scene Development, a real estate
development company. Mr. Green has also worked for two public companies which
owned and operated hotels and restaurants: Atlas Hotels, Inc. where he
served as General Counsel from February 1987 to May 1989, and Trust House
Forte / Travel Lodge, Inc. where he served as Senior Corporate Counsel from
November 1981 to February 1987. Mr. Green holds a BA in economics from West
Virginia Wesleyan College and a JD from the Western States University School
of Law.
Mr. Schmidt joined the Company as Vice President and Chief Financial
Officer in June 1996. From September 1995 to May 1996, Mr. Schmidt was a
financial consultant. During that period, from March to May 1996, Mr.
Schmidt rendered financial consulting services to the Company. Mr. Schmidt
previously served as Vice President, Finance and Administration from July
1990 to September 1995 for Biosym Technologies, Inc., a developer and seller
of computer-aided molecular modeling software. He held similar positions
from January 1984 to July 1990 with Dura Pharmaceuticals, Inc., a
publicly-traded company which develops and sells prescription pharmaceutical
products, and from September 1976 to February 1982 with IVAC Corporation, a
developer and seller of medical devices and related disposable products. He
is a Certified Public Accountant with a BS in industrial engineering and an
MBA, both from Northwestern University.
Mr. Thompson has served the Company as Vice President and General
Manager, Supplies Business Unit since July 1997 and is also currently serving
as interim Vice President and General Manager, Textile Supplies Business
Unit. Previously, Mr. Thompson served as the Company's Vice President,
Supplies Business Unit from November 1995 until July 1997. Mr. Thompson
joined the Company as Director of Business Development in October 1994 and
served the Company in that capacity until November 1995. Prior to joining
the Company, Mr. Thompson held a number of sales and management positions
with Xerox Corporation (and its subsidiaries), a publicly-traded company
which develops, manufactures, and markets office products ("Xerox"). During
his tenure with Xerox from October 1970 to September 1994, Mr. Thompson
served as Director of Strategy and Third Party Arrangements, Director of
Alternate Channel Sales/Marketing of Xerox Engineering Systems Division, and
Manager of Multi-National OEM/Distribution Marketing/Sales and Manager of
Group Program Office-Advanced Products at Xerox Printing System. Mr.
Thompson holds a BS in engineering from Indiana Institute of Technology and
an MBA from the Rochester Institute of Technology.
22
Mr. Wypychowski joined the Company as Vice President, Engineering and
Manufacturing in June 1996 and served in that capacity until July 1997. From
July 1997 to January 1998 Mr. Wypychowski served as Senior Vice President
and General Manager. Since January 1998 he has served as Vice President,
Corporate Development and Strategic Planning. From January 1995 to June 1996,
Mr. Wypychowski was a partner of JTA Research which provided design
consulting services to the Company from January 1996 to June 1996. He has
held executive positions with companies involved in the development and
marketing of design automation software, including Synopsys, Inc., where Mr.
Wypychowski served as Vice President from February 1992 to August 1994, and
Cadence Design Systems, Inc., (formerly Valid Logic Systems, Inc. and Analog
Design Tools, Inc.) where he held the positions of Vice President and General
Manager from December 1988 to February 1992. Mr. Wypychowski holds a BS and
an MS in electrical engineering from State University of New York at Buffalo,
and an AS in chemistry from Arizona College.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the aggregate compensation paid or
accrued by the Company for the Named Executive Officers for the years ended
December 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation ------------------
-------------------------------------------- Awards
Other --------------
Name and Annual Securities
Principal Compen- Underlying
Position Year Salary($)(1) Bonus($)(2) sation($)(3) Options/SARs(#)(4)
- ---------- ---- ----------- ---------- ------------ ------------------
DAVID A. PURCELL 1997 $327,356 $165,000 $ - 65,000
Chief Executive 1996 $286,329 $228,000 $ - 0
Officer and Chairman 1995 $242,020 $ 55,700 $ - 0
of the Board
RICHARD A. PLANTE (5) 1997 $293,484 $331,024 $ - 50,000
President and Chief 1996 $267,030 $348,753 (6) $ 50,000 (7) 0
Operating Officer and Director 1995 $129,383 $ 50,875 $ - 150,000
FRANCIS J. WYPYCHOWSKI (8) 1997 $212,413 $ 61,331 $ - 5,000
Vice President, Corporate 1996 $111,082 $ 63,079 $ - 80,000
Development and Strategic 1995 $ - $ - $ - 0
Planning
LAWRENCE E. THOMPSON 1997 $152,226 $107,528 $ - 15,000
Vice President and General 1996 $126,314 $ 88,689 $ - 0
Manager, Supplies Business 1995 $114,753 $ 20,298 $ - 25,000
Unit
TODD W. SCHMIDT (9) 1997 $169,724 $ 57,047 $ - 20,000
Vice President and 1996 $ 87,698 $ 72,299 $ - 40,000
Chief Financial Officer 1995 - - $ - 0
(1) Includes salary, otherwise payable in cash during each year, the payment
of which has been deferred at the election of the participant pursuant to
either the Company's 401(k) Plan or Select Compensation Non-Qualified
23
Deferred Compensation Plan (the "NQDC" Plan). For a description of the
NQDC Plan, see "Severance, Change in Control, and Other Arrangements."
(2) Includes bonuses, commissions and payments under the Company's profit-
sharing plan. Bonuses are awarded pursuant to annual incentive
compensation targets established by the Compensation Committee. See
"Board Compensation Committee Report on Executive Compensation-Incentive
Compensation." Also includes bonuses and profit-sharing amounts, otherwise
payable in cash during each year, the payment of which has been deferred
pursuant to either the Company's 401(k) Plan or NQDC Plan.
(3) In accordance with SEC rules, amounts paid to Named Executive Officers for
perquisites or other personal benefits totaling the lesser of $50,000 or
10% of total annual salary have been omitted.
(4) The number of shares listed in this column for 1995 and 1996 have been
adjusted for the two-for-one stock split payable in the form of a 100%
stock dividend distributed to stockholders of the Company on May 31, 1996
(the "1996 Stock Dividend"). All awards were non-statutory stock options
issued pursuant to the Company's 1993 Plan. No Stock Appreciation Rights
(SARs) were awarded.
(5) Mr. Plante joined the Company in June 1995. His 1995 compensation
reported in this table commences at that time.
(6) The 1996 bonus amount reported for Mr. Plante includes a special bonus of
$200,000 in addition to the annual bonus determined by the Compensation
Committee.
(7) The amount indicated represents reimbursement to Mr. Plante for relocation
costs.
(8) Mr. Wypychowski joined the Company in June 1996. His 1996 compensation
reported in this table commences at that time. The amount reported does
not include compensation in the amount of $64,071 paid to JTA Research
("JTA") for independent contractor services rendered to the Company from
January 1996 to May 1996 by Mr. Wypychowski who was a partner of
JTA at the time.
(9) Mr. Schmidt joined the Company in June 1996. His 1996 compensation
reported in this table commences at that time. The amount reported in 1996
does not include compensation in the amount of $42,514 paid for consulting
services rendered to the Company by Mr. Schmidt from March 1996 to May
1996.
OPTION GRANTS IN 1997
The following table sets forth information concerning stock option
grants during 1997 to the Named Executive Officers. The Company may, in its
discretion, grant options to the Named Executive Officers under the 1998 Plan
and the 1993 Plan. No SARs were granted during 1997 to the Named Executive
Officers.
Individual Grants
---------------------------------------------------------- Potential Realizable
Number of % of Total Value at Assumed
Securities Options/SARs Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciation for
Options/SARS Employees in Base Price Expiration Option Term (5)
Name Granted(#)(1) Fiscal Year(2) ($/Sh)(3) Date (4) 5%($) 10%($)
- -------------------------- ------------- ------------- ----------- ---------- ---------- ----------
David A. Purcell 65,000 18.2% (6) (6) $1,426,018 $3,613,811
Richard A. Plante 50,000 13.9% (7) (7) $1,053,398 $2,669,518
Francis J. Wypychowski (8) 5,000 1.4% $ 36.25 7/18/07 $ 113,987 $ 288,865
Lawrence E. Thompson (9) 15,000 4.2% $ 27.50 12/31/07 $ 259,419 $ 657,418
Todd W. Schmidt 20,000 5.6% (10) (10) $ 353,753 $ 896,480
24
(1) All options granted in 1997 were non-statutory stock options under the
Code and generally became exercisable in equal quarterly installments over
a period of four years. The first quarterly installment will become
exercisable three months after the date of grant.
(2) In 1997 employees received stock options amounting to a total of 370,125
shares.
(3) Exercise price is the closing price of the Common Stock as reported on the
Nasdaq National Market on the date of grant.
(4) The options were granted for a term of 10 years, subject to earlier
termination under certain circumstances related to termination of
employment.
(5) Potential realizable value was calculated using an assumed annual
compounded growth rate over the term of the option of 5% and 10%,
respectively. Use of this model should not be viewed in any way as a
forecast of the future performance of Common Stock, which will be
determined by future events and unknown factors.
(6) Mr. Purcell was granted two stock options in 1997 as follows: (i)
40,000 shares on January 2, 1997 at an exercise price of $29.50,
expiring on January 2, 2007 and (ii) 25,000 shares on December 31, 1997
at an exercise price of $27.50, expiring on December 31, 2007.
(7) Mr. Plante was granted two stock options in 1997 as follows: (i) 25,000
shares on January 2, 1997 at an exercise price of $29.50, expiring on
January 2, 2007 and (ii) 25,000 shares on December 31, 1997 at an
exercise price of $27.50, expiring on December 31, 2007.
(8) Mr. Wypychowski's stock option grant of 5,000 shares was made on July
18, 1997.
(9) Mr. Thompson's stock option grant of 15,000 shares was made on December
31, 1997.
(10) Mr. Schmidt was granted two stock options in 1997 as follows: (i)
10,000 shares on January 29, 1997 at an exercise price of $28.75,
expiring on January 29, 2007 and (ii) 10,000 shares on December 31,
1997 at an exercise price of $27.50, expiring on December 31, 2007.
OPTION EXERCISES IN 1997
The following table sets forth certain information with respect to each
exercise of stock options during the year ended December 31, 1997 by each of
the Named Executive Officers and the number and value of unexercised options
held by such Named Executive Officers as of December 31, 1997.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year
End Option Values
Number of Securities Value of Unexercised in-the-
Underlying Unexercised Money Options/
Options/SARs SARs
Shares at December 31, 1997 at December 31, 1997 (2)
Acquired on Value --------------------------- ----------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------- ------------- ------------ ------------- ----------- -------------
David A. Purcell - $ - 7,500 57,500 $ - $ -
Richard A. Plante 20,000 $601,200 44,687 120,313 $812,400 $1,523,250
Francis J. Wypychowski - $ - 30,312 54,688 $480,000 $ 800,000
Lawrence E. Thompson - $ - 23,750 31,250 $473,125 $ 321,250
Todd W. Schmidt - $ - 16,875 43,125 $240,000 $ 400,000
(1) Fair market value of the Common Stock on the date of exercise less the
exercise price.
(2) Fair market value of the Common Stock at December 31, 1997 ($27.50)
multiplied by the applicable number of shares less the aggregate
exercise price of the options for such number of shares.
25
SEVERANCE, CHANGE IN CONTROL, AND OTHER ARRANGEMENTS
SEVERANCE AGREEMENTS
On February 11, 1997, the Compensation Committee approved severance
agreements for its executive officers, including all Named Executive
Officers. Under the severance agreements, benefits are triggered by the
occurrence of two events: (1) Termination Without Cause (as defined in the
severance agreements) and (2) Resignation for Good Cause (as defined in the
severance agreements) within 12 months after a Change of Control of the
Company. A "Change of Control" includes mergers, consolidations, and reverse
mergers, the sale of substantially all the Company's assets, a Hostile
Take-Over (as defined in the severance agreements), and the acquisition by a
stockholder or related group of stockholders of (i) 25 % of the voting power
of the Company's outstanding securities, (ii) additional shares in the
Company so as to increase total holdings to more than 50 % of the voting
power of the Company's outstanding securities, or (iii) sufficient voting
power to elect an absolute majority of the members of the Board.
In the event of Termination Without Cause, participants will receive an
amount equal to their annual base salary on the date of termination ("Base
Salary"), plus the average of their bonuses paid over the previous two years
("Average Bonus"). The Chief Executive Officer and Chief Operating Officer
will receive an amount equal to twice their Base Salary, plus twice their
Average Bonus.
In the event of Termination Without Cause or Resignation for Good Cause
within 12 months following a Change of Control, executive officers will
receive an amount equal to their Total Annual Compensation (i.e., their Base
Salary and Average Bonus, plus total costs of any other benefits made
available to the participant by the Company during the prior year). The Chief
Executive Officer and Chief Operating Officer will each receive an amount
equal to twice his Total Annual Compensation and, for a limited time, will
also be furnished with health care coverage at the Company's expense.
With respect to either termination event described above, all outstanding
options granted to the participant will automatically become fully vested and
immediately exercisable. Such options will remain exercisable until the
earlier of (i) the expiration date of the option term, or (ii) three months
from the date of termination.
Payment of severance benefits are contingent upon the participant's
compliance with a covenant not to compete and a prohibition against
soliciting the Company's employees, customers, and business associates.
OPTION AGREEMENTS UPON CHANGE IN CONTROL
To the extent not already exercisable, certain options granted to
executive officers generally become exercisable upon liquidation or
dissolution of the Company or a merger or consolidation pursuant to which
either (i) the Company does not survive or (ii) ownership of more than 50% of
the voting power of the Company's stock is transferred. In addition, the
Compensation Committee of the Board may accelerate the vesting, upon such
conditions as it may impose, in the event of a "Hostile Takeover," generally
defined as the acquisition by one or more related parties of more than 50% of
the voting power of the Company's stock pursuant to a tender or exchange
offer not recommended by the Board. In addition, certain options granted to
Named Executive Officers, at the sole discretion of the administrator of the
1993 Plan, and all automatic option grants to Directors, are subject to
"limited stock appreciation rights" pursuant to which the options, to the
extent exercisable and outstanding for at least six months at the time of a
"Hostile Takeover" in which more than 50% of the shares acquired are acquired
from parties other than Directors and executive officers of the Company, will
automatically be cancelled in return for a cash payment to the optionee equal
to the difference between the then market price of the stock subject to the
option (or, if higher, the highest price paid per share for stock by the
acquirer in the Hostile Takeover) and the exercise price.
SELECT COMPENSATION NON-QUALIFIED DEFERRED COMPENSATION PLAN
The NQDC Plan, which was adopted by the Company in 1996, allows select
management or highly-compensated employees chosen by the Company to defer for
each year a certain percentage of annual salary, bonus, or profit-sharing
amounts, or any combination thereof, as determined by agreement between the
participant and the
26
Company. Deferred compensation is invested in mutual funds selected by
participants from a group of mutual funds designated under the NQDC Plan.
Distribution of amounts paid into the NQDC Plan is made (i) upon the
participant's retirement, disability, death or other termination of
employment with the Company, (ii) on the date elected in advance by the
participant, or (iii) in the event the participant has an unforeseeable
emergency. No matching contributions were made to the NQDC Plan by the
Company in 1997.
THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH ON PAGE 30 SHOULD NOT BE
CONSIDERED TO BE PART OF THIS PROXY STATEMENT AND ANY CURRENT OR FUTURE CROSS-
REFERENCES TO THIS PROXY STATEMENT AND FILINGS WITH THE SEC UNDER EITHER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, SHALL NOT INCLUDE SUCH REPORT OR GRAPH.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board (the "Committee") is responsible
for developing and making recommendations to the Board with respect to the
Company's executive compensation policies. In addition, the Committee,
pursuant to authority delegated by the Board, determines on an annual basis
the compensation to be paid to the Chief Executive Officer and each of the
other executive officers of the Company.
The Committee has adopted the following objectives as guidelines for its
compensation decisions:
- Provide a competitive total compensation package that enables the
Company to attract and retain key executives.
- Integrate all compensation programs with the Company's short-term
and long-term business objectives and strategic goals.
- Ensure that compensation is meaningfully related to the value
created for stockholders.
EXECUTIVE OFFICER COMPENSATION PROGRAM COMPONENTS
The Committee formulates a compensation program for the Company which
will ensure that salary levels and incentive opportunities are competitive
and reflect the performance of the Company. The Company's compensation
program for executive officers consists of base salary, quarterly cash
incentive compensation and long-term compensation in the form of stock
options.
BASE SALARY
Base salary levels for the Company's executive officers are determined,
in part, through comparisons with companies in the computer industry and
other companies with which the Company competes for personnel. In addition,
the Committee also evaluates individual experience and performance and
specific issues particular to the Company, such as success in creation of
stockholder value and achievement of specific Company milestones. The
Committee reviews each executive's salary once a year and may increase each
executive's salary at that time based on: (i) the individual's increased
contribution to the Company over the prior 12 months; (ii) the individual's
increased responsibilities over the prior 12 months; and (iii) any increase
in median competitive pay levels. Individual contributions are measured with
respect to specific individual accomplishments established for each executive.
INCENTIVE COMPENSATION
Based upon target performance levels tied to the Company's revenues and
earnings, the Committee established target bonus percentages for 1997 which
varied between 20% and 40% of base salary for the Company's executive
officers. These percentages increased to between 40% and 80% if actual
performance exceeded target
27
performance. The Committee also predetermined a minimum performance level
below which no bonus was earned. The performance goal at which the full
target bonus was earned was determined by the Chief Executive Officer based
upon individual performance and other factors. In the event the Company did
not achieve the minimum performance level for any quarter, or for the year,
the Board would consider recommendations from the Chief Executive Officer and
the Committee, and would decide whether bonuses should be paid, and in what
amounts.
STOCK OPTION PLANS
The stock option plans are the Company's long-term incentive plans for
executive officers and other employees. The Committee strongly believes that
providing those persons who have substantial responsibility for the
management and growth of the Company with an opportunity to increase their
ownership of Company stock will serve the best interests of stockholders.
Generally, stock options are granted with exercise prices equal to the
fair market value of the Common Stock on the grant date, have ten-year terms
and have equal quarterly vesting periods over four years. Awards are made
at a level intended to be competitive within both the local computer
industry, and a broader group of computer peripheral manufacturing companies
of comparable size and complexity.
CEO COMPENSATION
The compensation of the Company's Chief Executive Officer is based upon
a number of economic and non-economic factors. Base salary and target bonus
percentage levels were determined in accordance with general guidelines as
described above in "Overview and Philosophy." The base salary level is
determined, in part, through a comparison of salaries of chief executive
officers for companies of comparable size in the computer industry. In
addition, the Committee considers the Company's performance in the prior
year, as well as Mr. Purcell's experience and knowledge of the Company's
business. Mr. Purcell's performance and his contributions to achieving
specific Company objectives are also evaluated by the Committee.
Mr. Purcell's incentive compensation consisted of bonuses and stock
options in 1997. The Committee set a target performance level in terms of
the Company's attaining certain revenue and earnings goals. In the event the
performance target levels were achieved, it was determined that Mr. Purcell
would be awarded a target bonus of 40% of his base salary. If target
performance levels were exceeded, the bonus percentage increased to between
40% and 80% of Mr. Purcell's base salary.
SUMMARY
After its review of all existing programs, the Committee continues to
believe that the Company's compensation program for its executive officers is
competitive with the compensation programs provided by other companies with
which the Company competes. The Committee intends that any amounts to be paid
under the annual incentive plan will be appropriately related to corporate and
individual performance, yielding awards that are directly linked to the
achievement of Company goals and annual financial and operational results.
COMPENSATION COMMITTEE
CHARLES E. VOLPE, Committee Chairman
CRAIG S. ANDREWS, Committee Member
HOWARD L. JENKINS, Committee Member
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Code section 162(m) disallows a tax deduction to publicly-held companies
for compensation paid to certain of their executive officers, to the extent
that compensation exceeds $1 million per covered executive officer in any
fiscal year. The limitation applies only to compensation which is not
considered to be performance-based. Non-performance based compensation paid
to the Company's executive officers for 1997 did not exceed the $1 million
limit per executive officer and the Committee does not anticipate that the
non-performance based compensation to be paid to the Company's executive
officers for 1998 will exceed that limit. The Company's 1993 Plan and 1998
Plan
28
have each been structured so that any compensation deemed paid in connection
with the exercise of option grants made under those plans with an exercise
price equal to the fair market value of the option shares on the grant date
will, assuming stockholders approve the 1998 Plan at the Meeting, qualify as
performance-based compensation which will not be subject to the $1 million
limitation. Because it is unlikely that the cash compensation payable to any
of the Company's executive officers in the foreseeable future will approach
the $1 million limit, the Committee has decided at this time not to take any
action to limit or restructure the elements of cash compensation payable to
the Company's executive officers. The Committee will reconsider this
decision should the individual cash compensation of any executive officer
ever approach the $1 million level.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From June 18, 1996 until July 17, 1997, the Committee consisted of three
Directors: Ronald J. Hall (Chairman), Robert V. Adams, and Charles E. Volpe.
On July 17, 1997, the Board appointed Charles E. Volpe (Chairman), Craig S.
Andrews, and Howard L. Jenkins as members of the Committee. All three
Directors served through the end of 1997 and are currently members of the
Committee. Mr. Andrews is a partner in the law firm of Brobeck, Phleger &
Harrison LLP, which will provide legal services to the Company in its current
year and has provided legal services in connection with corporate and
litigation matters to the Company during 1997.
No member of the Committee for 1997 is a former or current executive
officer or employee of the Company or any of its subsidiaries. The Company
is not aware of any other interlocks or insider participation with respect to
the members of the Committee which would require disclosure under the
applicable rules of the SEC.
PERFORMANCE GRAPH
The following graph compares total stockholder returns related to the
Common Stock since the Company became a reporting company under the
Securities Exchange Act of 1934, as amended, to the weighted average return
of stocks of companies included in the Nasdaq Stock Market (U.S. Companies)
Index and a peer group index consisting of Nasdaq computer manufacturers. The
total return for each of the Common Stock, the Nasdaq Stock Market (U.S.
Companies) Index and the Nasdaq Computer Manufacturers Index assumes the
reinvestment of dividends, although dividends have not been declared on the
Common Stock. The Nasdaq Stock Market (U.S. Companies) Index tracks the
aggregate price performance of equity securities of companies traded on the
Nasdaq. The Common Stock is traded on the Nasdaq National Market. The
Nasdaq Computer Manufacturers Index consists of companies with a Standard
Industrial Classification Code identifying them as a computer manufacturer.
The stockholder return shown on the graph below is not necessarily indicative
of future performance and the Company will not make or endorse any
predictions as to future stockholder returns.
29
[GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
- -----------------------------FISCAL YEAR ENDING---------------------------------
COMPANY 1993 1993 1994 1995 1996 1997
ENCAD INC 100 106.98 230.23 325.58 1534.88 1023.26
PEER GROUP 100 100.00 109.83 172.81 232.05 281.02
BROAD MARKET 100 100.00 97.74 138.22 170.02 208.75
ASSUMES $100 INVESTED ON DECEMBER 16, 1993.
ASSUMES DIVIDEND REINVESTED.
FISCAL YEAR ENDED DECMEBER 31, 1997.
THE PEER GROUP CHOSEN WAS:
NASDOQ COMPUTER MANUFACTURERS
THE BROAD MARKET INDEX CHOSEN WAS:
NASDAQ MARKET INDEX-U.S. COMPANIES
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify its Directors and executive officers to the fullest
extent permitted under Delaware law. The Company has entered into
indemnification agreements with its Directors and executive officers
containing provisions that may require the Company, among other things, to
indemnify the Directors and executive officers against certain liabilities
that may arise by reason of their status or service as Directors or executive
officers (other than liabilities arising from acts which are knowingly
fraudulent or deliberately dishonest, or which constitute willful
misconduct), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company extended a loan at a market rate of interest in the
principal amount of $100,000 to Mr. Plante, a Director and the President and
Chief Operating Officer of the Company. The loan originally provided for
payment of all outstanding amounts due on October 12, 1996. On August 14,
1996, the Board approved an extension for repayment of the loan until June
30, 1997. In June 1997, the loan was paid in full by Mr. Plante and as of
December 31, 1997, no amounts were outstanding under the loan.
30
Mr. Craig S. Andrews, a Director of the Company, is a partner in the
law firm of Brobeck, Phleger & Harrison LLP which will provide legal
services to the Company in its current year and has provided legal services
in connection with corporate and litigation matters to the Company during the
past year.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders are advised that any stockholder proposal intended for
consideration at the next Annual Meeting of Stockholders must be received by
the Company on or before January 27, 1999 in order to be considered for
inclusion in the Proxy Statement for the 1999 Annual Meeting of Stockholders.
Such proposals may be included in next year's Proxy Statement only if they
comply with certain rules and regulations promulgated by the SEC and the
Company's Bylaws. A Stockholder's notice must also comply with the Company's
Bylaws and SEC regulations. It is recommended that stockholders submitting
proposals direct them to the Company's Corporate Secretary, Thomas L. Green,
at 6059 Cornerstone Court West, San Diego, California 92121, using Certified
Mail-Return Receipt Requested.
FINANCIAL STATEMENTS AUTHORIZED
Financial statements for the Company are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. Copies of
these statements, and the Annual Report as filed with the SEC (excluding
exhibits, unless such exhibits have been specifically incorporated by
reference therein) are available without charge to stockholders and may be
obtained by writing the Company's Corporate Secretary, Thomas L. Green, at
6059 Cornerstone Court West, San Diego, California 92121.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Directors, the Company's executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file initial
reports of ownership and reports of changes in ownership with the SEC and the
NASD. Such persons must also provide copies of any such report filed to the
Company.
Based solely on the Company's review of the forms which it received and
of written representations from certain reporting persons, the Company
believes that during the year ended December 31, 1997, all its executive
officers, Directors and greater than 10% beneficial owners were in compliance
with their Section 16(a) filing requirements.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no other
matters to be presented at the Meeting. If any other business is properly
presented at the Meeting for action, the persons named in the enclosed Proxy
will vote on such matters in accordance with the recommendation of the Board
or, in the absence of such a recommendation, in accordance with their best
judgment.
By order of the Board of Directors,
/s/ Thomas L. Green
---------------------
Thomas L. Green, Esq.
Corporate Secretary
San Diego, California
April 30, 1998
31
ENCAD, INC.
1998 STOCK OPTION PLAN
ARTICLE ONE
PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Option Plan ("the Plan") is intended to promote the
interests of ENCAD, Inc., ("the Corporation") a Delaware corporation, by
authorizing shares of the Corporation's Common Stock for issuance through
option grants to be made from time to time to (i) Employees, including
Officers, in the Service of the Corporation (or any Parent or Subsidiary), (ii)
independent consultants and advisors in the Service of the Corporation (or any
Parent or Subsidiary), and (iii) Directors of the Corporation (or any Parent
or Subsidiary).
II. GENERAL
A. The Plan was adopted by the Board on March 9, 1998 and shall
become effective immediately upon approval by the stockholders of the
Corporation on June 9, 1998.
B. The Plan is independent of any of the Corporation's other stock
option plans, and option shares issued under the Plan shall not reduce or
otherwise affect the number of shares of the Corporation's Common Stock
available for issuance under any of the Corporation's other plans. In
addition, option shares issued under any of the Corporation's other plans shall
not reduce or otherwise affect the number of shares of the Corporation's Common
Stock available for issuance under the Plan.
C. Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.
D. An Optionee under the Plan shall have none of the rights of a
stockholder of the Corporation with respect to any option shares issued under
the Plan until such Optionee has exercised the option, paid the exercise price
for the purchased shares, and been issued such shares.
E. Neither the grant of options nor the issuance of any shares
pursuant to the Plan shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate components: the
Discretionary Option Grant Program specified in Article Two, the Automatic
Option Grant Program specified in Article Three, the Salary Reduction Option
Grant Program specified in Article Four and the Director Fee Option Grant
Program specified in Article Five ("the Programs").
B. The provisions of Articles One and Six of the Plan, except as
otherwise expressly provided, shall apply to each of the Programs and shall
accordingly govern the interests of all Optionees in the Plan.
IV. ELIGIBILITY
A. The individuals eligible to participate in the Programs shall be
limited to those Employees, including Officers, independent consultants and
advisors in the Service of the Corporation (or any Parent or Subsidiary), and
Directors of the Corporation (or any Parent or Subsidiary) at the time of
grant.
B. The individuals eligible to participate in the Automatic
Option Grant Program shall be limited to Directorswho are (i) first elected
or appointed as Directors on or after the Effective Date of the Plan, whether
through appointment by the Board or election by the Corporation's
stockholders, provided they have not otherwise been Employees of the
Corporation (or any Parent or Subsidiary), or (ii) re-elected as Directors
at one or more annual stockholder meetings held after the Effective Date,
whether or not such individuals are otherwise serving as Directors on the
Effective Date.
C. Only Directors shall be eligible to participate in the Director
Fee Option Grant Program.
V. ADMINISTRATION OF THE PLAN
A. The Plan Administrator shall mean the Board, the Primary
Committee or one or more Secondary Committees responsible for administering the
Plan as set forth in this Article One, Section V.
B. The Primary Committee shall have the sole and exclusive
authority to administer the Discretionary Option Grant Program with respect to
Officers and to select the individuals who are to participate in the Salary
Reduction Option Grant Program. However, all grants under the Salary Reduction
Option Grant Program shall be made in accordance with the express provisions of
that Program.
C. Except to the extent that the Primary Committee is granted sole
and exclusive authority under one or more specific provisions of the Plan,
administration of the Discretionary Option Grant Program with respect to all
other Optionees may, at the Board's discretion, be delegated to the Primary
Committee or the Secondary Committee, or the Board may retain the power to
administer these programs with respect to such persons. The members of the
Secondary Committee may be Employees.
D. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed from service on a committee by the Board at any time. The Board may
also at any time, terminate the functions of any Secondary Committee and
reassume all powers and authority previously delegated to any Secondary
Committee.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a member of the Board, and members of each
committee shall accordingly be entitled to full indemnification and
reimbursement as Board Members for their service on any such committee. No
member of the Primary Committee or the Secondary Committee shall be liable for
any act or omission made in good faith with respect to the Plan or any options
granted under the Plan.
2
F. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it
may deem appropriate for proper administration of the Discretionary Option
Grant Program and to make such determinations under, and issue such
interpretations of, the provisions of such Program and any outstanding options
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all persons who have an interest in the
Discretionary Option Grant Program or any option thereunder.
G. Each Plan Administrator shall have full authority, within the
scope of its administrative jurisdiction, to determine which individuals are
eligible to receive options under the Discretionary Option Grant Program, the
time or times when such grants are to be made, the type of option granted, the
number of shares to be covered by each such grant, the time or times when each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding.
H. Notwithstanding the above, the administration of the Automatic
Option Grant and Director Fee Option Grant Programs shall be self-executing in
accordance with the terms and conditions thereof, and no Plan Administrator
shall exercise any discretionary functions in respect to matters governed by
those programs.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number
of shares of Common Stock reserved for issuance over the term of the Plan shall
be limited to 575,000 shares, subject to adjustment from time to time in
accordance with the provisions of this Article One, Section VI. However, no
one person participating in the Plan may receive options for more than 175,000
shares of Common Stock per calendar year, beginning with the 1998 calendar
year.
B. Unvested shares issued under the Plan and subsequently cancelled
or repurchased by the Corporation at the option exercise or direct issue price
paid per share pursuant to the Corporation's repurchase rights under the Plan
shall also be available for subsequent issuance under the Plan.
C. Should the exercise price of an outstanding option under the
Plan be paid with shares of Common Stock or should the shares of Common Stock
otherwise issuable pursuant to the exercise of an outstanding option under the
Plan be withheld by the Corporation to satisfy any applicable federal and state
income and employment taxes incurred in connection with such exercise, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised, and
not by the net number of shares of Common Stock actually issued to the
Optionee.
D. Should any change be made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan (ii) the maximum
number of shares for which stock options may be granted to any one person per
calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new
and continuing Directors and (iv) the number and/or class of securities and
price per share in effect under each option outstanding under the Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
3
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Options granted under this Article Two shall be authorized by action
of the Plan Administrator and shall be evidenced by one or more documents in
the form approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms and conditions specified below. Options
granted under this Article Two shall be Incentive Stock Options or Non-
Statutory Options, as determined by the Plan Administrator.
A. GRANT DATE Options granted to eligible participants under
this Article Two at such time or times as shall be determined by the Plan
Administrator.
B. EXERCISE PRICE The exercise price per share shall be fixed by
the Plan Administrator at one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the grant date.
C. PAYMENT
1. Full payment of the exercise price and any applicable
federal and state income and employment taxes shall become immediately due upon
exercise of the option and shall be payable in one or more of the forms
specified below:
a. cash or check made payable to the Corporation's order,
b. shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
c. a combination of such shares, and cash or check made
payable to the Corporation's order, or
d. full payment effected through a "same-day sale" and
remittance procedure pursuant to which the Optionee (a) shall
concurrently provide irrevocable instructions to a Corporation-
designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate Option Price payable for the purchased shares plus any
applicable federal and state income and employment taxes required to be
withheld by the Corporation by reason of such purchase and (b) shall
provide directives to the Corporation to deliver the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
2. Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
D. VESTING Each option shall become exercisable at such time or
times, during such period and for such number of shares as shall be determined
by the Plan Administrator and set forth in the documents evidencing such
option.
E. OPTION TERM No option shall have a maximum term in excess of
ten (10) years measured from the grant date.
F. TRANSFERABILITY During the lifetime of the Optionee, except
as provided in this Paragraph F of Article Two, options shall be exercisable
only by the Optionee and shall not be assignable or transferable other than by
will or by the laws of descent and distribution following the Optionee's death.
However,
4
the Plan Administrator may permit, in connection with the Optionee's estate
plan, Non-Statutory Options to be assigned in whole or in part during the
Optionee's lifetime to one or more members of the Optionee's immediate family
or to a trust established exclusively for one or more such family members.
The assigned portion may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to the assignment. The
terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
G. TERMINATION OF SERVICE
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
a. Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such limited period of time thereafter as shall be
determined by the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable after
the expiration of the option term.
b. Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
c. During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more
than the number of shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable post-Service exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease
to be outstanding for any otherwise exercisable shares for which the
option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding for any and all shares for which the option
is not otherwise at that time exercisable.
d. Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
a. extend the period of time for which the option is
to remain exercisable following Optionee's cessation of Service or
death from the limited period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option
term, and/or
b. permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments for which the option would have
become exercisable had the Optionee continued in Service.
5
II. INCENTIVE STOCK OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Stock Options granted under this Article Two, Section II. Incentive
Stock Options may only be granted to individuals who are Employees of the
Corporation. Options which are specifically designated as Non-Statutory
Options when issued under the Plan shall NOT be subject to such terms and
conditions.
A. OPTION PRICE AND TERM The option price per share of any share
of Common Stock subject to an Incentive Stock Option shall in no event be less
than one hundred percent (100%) of the Fair Market Value of such share of
Common Stock on the grant date, provided that the option price per share of any
option granted to a ten percent (10%) or more stockholder shall not be less
than one hundred ten percent (110%) of the Fair Market Value. The term of grant
of any option to any ten percent (10%) or more stockholder shall not be more
than five (5) years.
B. DOLLAR LIMITATION The aggregate Fair Market Value (determined
on the date or dates of grant) of the Common Stock for which one or more
options granted under the Plan (or any other option plan of the Corporation or
any Parent or Subsidiary) may for the first time become exercisable as
Incentive Stock Options under the Federal tax laws during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two or more such options which become exercisable for
the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Stock Options under the Federal tax
laws shall be applied on the basis of the order in which such options are
granted.
C. Except as modified by the preceding provisions of this Section
II, the provisions of Articles One, Two and Six of the Plan shall apply to all
Incentive Stock Options granted hereunder.
D. During the lifetime of the Optionee, Incentive Stock Options
shall be exercisable only by the Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following the Optionee's death.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each option
outstanding at the time but not otherwise fully exercisable shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become exercisable for all of the shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. However, an
outstanding option shall not become exercisable on such an accelerated basis if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be continued by the Corporation (in the event that it is
the surviving parent corporation in the Corporate Transaction) or is assumed by
the successor corporation (or parent thereof), or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on the
shares for which the option is not otherwise at that time exercisable (the
excess of the Fair Market Value of those shares over the exercise price payable
for such shares) and provides for subsequent payout in accordance with the same
exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been
6
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i)
the number and/or class of securities available for issuance under the Plan
on an aggregate and per participant basis following the consummation of such
Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, PROVIDED the aggregate exercise price payable for
such securities shall remain the same.
D. The Plan Administrator shall have full power and authority to
grant options under the Plan which will automatically accelerate in the event
the Optionee's Service subsequently terminates by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the EARLIER
of (i) the expiration of the option term or (ii) the expiration of the one (1)-
year period measured from the effective date of the Involuntary Termination.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to provide for the automatic acceleration of one or more
outstanding options in connection with a Change in Control so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. The accelerated option shall remain exercisable for
fully-vested shares until the expiration or sooner termination of the option
term. Alternatively, the Plan Administrator may condition such option
acceleration upon the termination of the Optionee's Service by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of the Change in Control. Each option so
accelerated shall remain exercisable for fully-vested shares until the EARLIER
of (i) the expiration of the option term or (ii) the expiration of the one (1)-
year period measured from the effective date of the Involuntary Termination.
7
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
Options granted under the Automatic Option Grant Program shall be
evidenced by one or more instruments in the form approved by the Plan
Administrator; PROVIDED, however, that each such instrument shall comply with
the terms and conditions specified below. All options granted under the
Automatic Option Grant Program shall be Non-Statutory Options. Stockholder
approval of the Plan at the 1998 Annual Meeting of Stockholders will also
constitute pre-approval of each option granted on or after the date of that
meeting pursuant to the express provisions of this Article Three and the
subsequent exercise of that option in accordance with its terms.
A. GRANT DATE
1. Options granted under this Article Three shall be made on
the dates specified below:
a. Each individual who first becomes a Director on
or after the Effective Date of the Plan, whether through election by
the Corporation's stockholders or appointment by the Board, and who
has not otherwise been in the prior employ of the Corporation shall
automatically be granted, at the time of such initial election or
appointment, an option to purchase 15,000 shares Common Stock.
b. Each individual re-elected as a Director at one or
more annual stockholder meetings, beginning with the 1998 Annual Meeting
of Stockholders, shall automatically be granted, at each such meeting at
which he or she is so re-elected, an option to purchase 5,000 shares of
Common Stock. There shall be no limit on the number of option grants
any one Director may receive over the period of service on the Board,
and Directors who have previously been in the Corporation's employ
shall be eligible to receive one or more such annual option grants over
their period of continued Board service.
2. The Automatic Option Grant Program under the Plan shall
supersede and replace the automatic option grant program currently in effect
for Directors under the Corporation's 1993 Stock Option/Stock Issuance Plan.
Accordingly, upon stockholder approval of the Plan at the 1998 Annual Meeting
of Stockholders, that program shall immediately terminate, and no further
option grants shall be made to Directors under that program. All options
granted to Directors on or after the date of the 1998 Annual Meeting of
Stockholders, whether upon their initial election or appointment to the Board
upon their re-election at one or more of the Corporation's subsequent annual
meetings of stockholders, shall be effected solely and exclusively in
accordance with the terms and provisions of this Article Three. Should
stockholder approval of the Plan not be obtained at the 1998 Annual Meeting
of Stockholders, then the automatic option grant program under the
Corporation's 1993 Stock Option/Stock Issuance Plan shall remain in full
force and effect, and option grants shall be made under that program to all
Directors re-elected at the 1998 Annual Meeting of Stockholders.
B. EXERCISE PRICE The exercise price per share shall be
equal to one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the grant date.
C. PAYMENT
1. Full payment of the exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
forms specified below:
a. cash or check made payable to the Corporation's
order,
8
b. shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date,
c. a combination of such shares, and cash or check
made payable to the Corporation's order, or
d. full payment effected through a "same-day sale"
and remittance procedure pursuant to which the Optionee (a) shall
concurrently provide irrevocable instructions to a Corporation-
designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate Option Price payable for the purchased shares plus any
applicable federal and state income and employment taxes required to
be withheld by the Corporation by reason of such purchase and
(b) shall provide directives to the Corporation to deliver the
purchased shares directly to such brokerage firm in order to complete
the sale transaction.
2. Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
D. VESTING Each option shall become exercisable in a series of
three (3) successive equal annual installments over the Optionee's period of
service on the Board, with the first such installment to become exercisable
one (1) year after the grant date. The option shall not become exercisable
for any additional option shares following the Optionee's cessation of
service on the Board for any reason. Notwithstanding the foregoing, all
options shall become fully vested in the event that the Optionee ceases to
provide service on the Board as a result of death or Permanent Disability.
E. OPTION TERM Each option shall have a maximum term of ten (10)
years measured from the grant date.
F. TRANSFERABILITY During the lifetime of the Optionee,
except as provided in this Paragraph F of Article Three, options shall be
exercisable only by the Optionee and shall not be assignable or transferable
other than by will or by the laws of descent and distribution following the
Optionee's death. However, the Optionee may, in connection with the
Optionee's estate plan, assign an option under this Article Three in whole or
in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant
to the assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the
Corporation may deem appropriate.
G. TERMINATION OF SERVICE
1. Should the Optionee cease to serve on the Board for any
reason (other than death) while holding one or more options under this
Article Three, then such Optionee shall have a six (6) month period following
the date of such cessation of service on the Board in which to exercise each
such option for any or all of the shares of Common Stock for which the option
is exercisable at the time of such cessation of service. Each such option
shall immediately terminate and cease to be outstanding, at the time of such
cessation of service, with respect to any shares for which the option is not
otherwise at that time exercisable.
2. Should the Optionee die while serving as a member of the
Board or within six (6) months after cessation of service on the Board, then
each outstanding option held by the Optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option is exercisable at the time of the Optionee's cessation of
service (less any option shares subsequently purchased by the Optionee prior to
death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution. Any such
exercise must occur within twelve (12) months after the date of the Optionee's
death. However, each such
9
option shall immediately terminate and cease to be outstanding, at the time
of the Optionee's cessation of service, with respect to any option shares for
which it is not otherwise at such time exercisable.
3. In no event shall any option under this Article Three
remain exercisable after the specified expiration date of the ten (10) year
option term. Upon the expiration of the applicable exercise period in
accordance with the subparagraphs above or (if earlier) upon the expiration of
the ten (10) year option term, the option shall terminate and cease to be
outstanding for any unexercised shares for which the option was exercisable at
the time of the Optionee's cessation of service on the Board.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction or Change in Control,
each option outstanding at the time under this Article Three but not otherwise
fully exercisable shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction or
Change in Control, become exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof). Options accelerated in connection with a Change in Control
shall remain outstanding until the expiration or sooner termination of the
option term.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be
made to the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall remain
the same.
10
ARTICLE FOUR
SALARY REDUCTION OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to determine the calendar year or years (if any) for which the
Salary Reduction Option Grant Program is to be in effect and to select the
Employees eligible to participate in the Salary Reduction Option Grant
Program for those calendar years. Only Employees who are Officers may
participate in the Salary Reduction Option Grant Program, and each selected
Officer who elects to participate in the Salary Reduction Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by a designated multiple of one percent (1%). However, the minimum
amount of such salary reduction must be not less than the GREATER of (i) five
percent (5%) of his or her rate of base salary for the calendar year or (ii)
Ten Thousand Dollars ($10,000.00) and must not be more than the LESSER of (i)
twenty five percent (25%) of his or her rate of base salary for the calendar
year or (ii) Seventy Five Thousand Dollars ($75,000.00). Each individual who
files a proper salary reduction authorization shall automatically be granted
an option under this Salary Reduction Option Grant Program on the first
trading day in January of the calendar year for which that salary reduction
is to be in effect. Stockholder approval of the Plan at the 1998 Annual
Meeting of Stockholders will constitute pre-approval of each option
subsequently granted pursuant to the express terms of this Salary Reduction
Option Grant Program and the subsequent exercise of that option in accordance
with its terms.
II. OPTION TERMS
Options granted under this Article Four, Section II shall be
evidenced by one or more documents in the form approved by the Plan
Administrator; PROVIDED, however, that each such document shall comply with
the terms and conditions specified below. All options granted under this
Article Four , Section II shall be Non-Statutory Options.
A. EXERCISE PRICE
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the "same-day sale" and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. NUMBER OF OPTION SHARES The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X - A (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount by which the Optionee's base salary is to
be reduced for the calendar year, and
B is the Fair Market Value per share of Common Stock on the
grant date.
C. VESTING AND OPTION TERM Each option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the
11
calendar year for which the salary reduction is in effect. Each option shall
have a maximum term of ten (10) years measured from the grant date.
D. TERMINATION OF SERVICE Should the Optionee cease to be in
Service for any reason while holding one or more options under this Article
Four, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the EARLIER of (i) the expiration of the ten (10) year option
term or (ii) the expiration of the three (3) year period measured from the
date of such cessation of Service. Should Optionee die while holding one or
more options under this Article Four, then each such option may be exercised,
for any or all of the shares for which the option is exercisable at the time
of the Optionee's cessation of Service (less any shares subsequently
purchased by Optionee prior to death), by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. Such right of exercise shall lapse, and the option
shall terminate, upon the EARLIER of (i) the expiration of the ten (10) year
option term or (ii) the three (3) year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon
the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for
which the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Reduction Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and shall remain
exercisable for the fully-vested shares until the EARLIER of (i) the
expiration of the ten (10) year option term or (ii) the expiration of the
three (3) year period measured from the date of the Optionee's cessation of
Service.
B. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Reduction Option Grant Program shall automatically accelerate so that such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. The option shall remain so exercisable until the EARLIER of (i) the
expiration of the ten (10) year option term or (ii) the expiration of the
three (3) year period measured from the date of the Optionee's cessation of
Service.
C. The options granted under the Salary Reduction Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
V. REMAINING TERMS
The remaining terms of each option granted under this Salary
Reduction Option Grant Program shall be the same as the terms in effect for
options granted under the Discretionary Option Grant Program.
12
ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each Director may elect to apply all or any portion of the annual
retainer fee otherwise payable in cash for his or her service on the Board to
the acquisition of a special option grant under this Director Fee Option
Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to the start of calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable.
Each Director who files such a timely election shall automatically be
granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the annual retainer fee
which is the subject of that election would otherwise be payable. Stockholder
approval of the Plan at the 1998 Annual Meeting of Stockholders will
constitute pre-approval of each option subsequently granted pursuant to the
express terms of this Director Fee Option Grant Program and the subsequent
exercise of that option in accordance with its terms.
II. OPTION TERMS
Options granted under this Article Five, Section II shall be
evidenced by one or more documents in the form approved by the Plan
Administrator; PROVIDED, however, that each such document shall comply with
the terms and conditions specified below. All options granted under this
Article Five, Section II shall be Non-Statutory Options.
A. EXERCISE PRICE
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the "same-day sale" and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. NUMBER OF OPTION SHARES The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X - A DIVIDED BY (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
Director's election, and
B is the Fair Market Value per share of Common Stock on the
grant date.
C. VESTING AND OPTION TERM Each option shall become exercisable in
a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Board service in the calendar
year for which the annual retainer fee which is the subject of his or her
election under this Article Five would otherwise be payable. Each option shall
have a maximum term of ten (10) years measured from the option grant date.
13
D. TERMINATION OF SERVICE Should the Optionee cease service on
the Board for any reason (other than death or Permanent Disability) while
holding one or more options under this Article Five, then each such option
shall remain exercisable, for any or all of the shares for which the option
is exercisable at the time of such cessation of Board service, until the
EARLIER of (i) the expiration of the ten (10) year option term or (ii) the
expiration of the three (3) year period measured from the date of such
cessation of service on the Board. However, each option held by the Optionee
under this Article Five at the time of such cessation of service on the Board
shall immediately terminate and cease to remain outstanding with respect to
any and all shares of Common Stock for which the option is not otherwise at
that time exercisable.
E. DEATH OR PERMANENT DISABILITY Should the Optionee's service on
the Board cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Article Five shall immediately become
exercisable for all the shares of Common Stock at the time subject to that
option, and the option may, during the three(3) year period following such
cessation of service on the Board, be exercised for any or all of those
shares as fully-vested shares.
Should the Optionee die while holding one or more options under
this Article Five, then each such option may be exercised, for any or all of
the shares for which the option is exercisable at the time of the Optionee's
cessation of service on the Board (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution. Such right of exercise shall lapse, and the option shall
terminate, upon the EARLIER of (i) the expiration of the ten (10) year option
term or (ii) the three (3) year period measured from the date of the
Optionee's cessation of service on the Board.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains a Director, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and shall remain
exercisable for the fully-vested shares until the EARLIER of (i) the
expiration of the ten (10) year option term or (ii) the expiration of the
three (3) year period measured from the date of the Optionee's cessation of
service on the Board.
B. In the event of a Change in Control while the Optionee remains
in service on the Board, each outstanding option held by such Optionee under
the Director Fee Option Grant Program shall automatically accelerate so that
each such option shall immediately become fully exercisable with respect to
the total number of shares of Common Stock at the time subject to such option
and may be exercised for any or all o those shares as fully-vested shares of
Common Stock. The option shall remain so exercisable until the EARLIER of
(i) the expiration of the ten (10) year option term of (ii) the expiration of
the three (3) year period measured from the date of the Optionee's cessation
of service on the Board.
C. The options granted under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Director Fee
Option Grant Program shall be the same as the terms in effect for options
granted under the Discretionary Option Grant Program.
14
ARTICLE SIX
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee under the
Discretionary Option Grant Program to pay the option exercise price by
delivering a promissory note payable to the Corporation (or any Parent or
Subsidiary) in one or more installments. The terms of any such promissory
note (including the interest rate and the terms of repayment) shall be
established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all
events, the maximum credit available to the Optionee may not exceed the sum
of (i) the aggregate option exercise price payable for the purchased shares
plus (ii) any federal and state income and employment tax liability incurred
by the Optionee in connection with the option exercise.
B. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations with respect to options at the time outstanding under the Plan,
unless the affected Optionees consent to such amendment or modification. In
addition, certain amendments may require stockholder approval pursuant to
applicable laws or regulations or if stockholder approval is required by the
Board.
B. Options to purchase shares of Common Stock may be granted
under the Plan, which are in excess of the number of shares then available
for issuance under the Plan, provided that any excess shares actually issued
under the Plan are held in escrow until stockholder approval is obtained for
a sufficient increase in the number of shares available for issuance under
the Plan. If such stockholder approval is not obtained within twelve (12)
months after the date the first such excess options are granted, then (i) any
unexercised excess options shall terminate and cease to be exercisable and
(ii) the Corporation shall promptly refund the purchase price paid for any
excess shares actually issued under the Plan and held in escrow, together
with interest (at a rate to be determined by the Plan Administrator) for the
period the shares were held in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options under the Plan shall be subject to the
satisfaction of all applicable federal and state income and employment tax
withholding requirements.
B. The Plan Administrator may, in its discretion and upon
such terms and conditions as it may deem appropriate, provide Optionees with
the election to have the Corporation withhold, from the shares of Common
Stock otherwise issuable upon the exercise of options under the Plan, a
portion of such shares with an aggregate Fair Market Value equal to the
designated percentage (up to 100% as specified by the Optionee) of any
federal and state income and employment taxes incurred in connection with the
acquisition of such shares. In lieu of such direct withholding, Optionees may
also be granted the right to deliver shares of Common Stock to the Company in
satisfaction of such taxes. The withheld or delivered shares shall be valued
at Fair Market Value on the exercise date.
15
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective immediately upon approval by
the Corporation's stockholders at the Corporation's Annual Meeting of
Stockholders on June 9, 1998. If such stockholder approval is not obtained,
then any options granted under the Plan after the date on which the Plan was
adopted by the Board but before the date of the Annual Meeting of
Stockholders shall terminate and any shares issued hereunder shall be
repurchased by the Corporation at the purchase price paid, together with
interest (at a rate to be determined by the Plan Administrator).
B. The Plan shall terminate upon the EARLIEST of (i) June 9,
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares pursuant to the exercise of
options under the Plan, or (iii) the termination of all outstanding options
in connection with a Corporate Transaction. If the date of termination is
determined under clause (i) above, then all option grants outstanding on such
date shall thereafter continue to have force and effect in accordance with
the provisions of the instruments evidencing those grants.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to options granted under the Plan shall be used for general
corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
under the Plan, and the issuance of Common Stock upon the exercise of any
options granted hereunder shall be subject to the Corporation's procurement
of all approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the stock options granted under it and the Common
Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there has been compliance with all
applicable requirements of federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the
shares of Common Stock issuable under the Plan, and all applicable listing
requirements of any securities exchange on which the Common Stock is then
listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which
rights are hereby expressly reserved by each, to terminate such Optionee's
Service at any time for any reason, with or without cause.
16
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
1. The acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation), of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders, or
2. A change in the composition of the Board over a period of
twenty-four (24) consecutive months or less such that a majority of the
Board, by reason of one or more contested elections for Board membership,
ceases to be comprised of individuals who either (A) have been Directors
continuously since the beginning of such period or (B) have been elected or
nominated for election as Directors during such period by at least a majority
of the Directors described in clause (A) who were still in office at the time
the Board approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
1. A merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction; or
2. The sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
F. CORPORATION shall mean ENCAD, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock
of ENCAD, Inc. which shall by appropriate action adopt the Plan.
G. DIRECTOR shall mean any non-employee member of the Board.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the Corporation as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise and full payment of the Option
Price.
J. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
1. If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
2. If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such exchange.
If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
K. INCENTIVE STOCK OPTION shall mean any option granted under the Plan,
intended to satisfy the requirements of Internal Revenue Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
1. Such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
2. Such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces his or
her duties and responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation (including base
salary, fringe benefits and target bonus under any corporate-performance
based bonus or incentive programs) by more than fifteen percent (15%) or (C)
a relocation of such individual's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or
disclosure by the Optionee of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by the Optionee adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of any Optionee or other person in the
Service of the Corporation (or any Parent or Subsidiary).
N. NON-STATUTORY OPTION shall mean any option granted under the Plan
which is not intended to satisfy the requirements of Internal Revenue Code
Section 422.
O. OFFICER shall mean any Employee who is deemed an Insider of the
Corporation pursuant to the provisions of Section 16.
P. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
Q. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
R. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more. However,
solely for purposes of the Automatic Option Grant and Director Fee Option Grant
Programs, Permanent Disability or Permanently Disabled shall mean the inability
of the Director to perform his or her usual duties as a Director by reason of
any medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
S. PLAN shall mean the Corporation's 1998 Stock Option Plan, as set
forth in this document.
T. PLAN ADMINISTRATOR shall mean either the Board or a committee or
designee(s) of the Board acting in its administrative capacity under the Plan.
U. PLAN EFFECTIVE DATE shall mean June 9, 1998, the date on which the
Plan was adopted by the Corporation's stockholders.
V. PRIMARY COMMITTEE shall mean the committee of two (2) or more
Directors appointed by the Board to administer the Discretionary Option Grant
Program with respect to Officers.
W. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Directors appointed by the Board to administer the Discretionary Option Grant
Program with respect to individuals other than Officers.
X. SERVICE shall mean the performance of services to the Corporation (or
any Parent or Subsidiary) by any person in the capacity of an Employee or an
independent consultant or advisor, except to the extent otherwise specifically
provided in the applicable option agreement.
Y. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
[LOGO] PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ENCAD, INC.
The undersigned hereby appoints David A. Purcell and Thomas L. Green, jointly
and severally, as proxies, with full power of substitution, to vote all shares
of Common Stock which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of ENCAD, Inc. to be held on Tuesday, June 9, 1998, or at any
postponements or adjournments thereof, as specified on the other side, and to
vote in his discretion on such other business as may properly come before the
Meeting and any adjournments thereof.
(-- PLEASE PROMPTLY PLACE YOUR VOTE --)
SEE REVERSE SIDE FOR INSTRUCTIONS
NEW! A FASTER AND EASIER WAY TO VOTE!
VOTE BY TELEPHONE
It's fast, convenient, and your vote is immediately confirmed and posted.
Just follow these simple steps:
- Read the accompanying Proxy Statement and your proxy card.
- Using a touch-tone telephone, call the toll-free number shown on
your proxy card. The number is available 24-hours a day, 7 days
a week.
- Enter your personal control number located on the upper left hand
corner of your proxy card.
- Follow the simple recorded instructions.
DO NOT RETURN YOUR PROXY CARD IF YOU VOTE BY TELEPHONE.
[LOGO] PROXY
ENCAD, Inc.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /x/
The Board of Directors recommends a vote FOR Items 1, 2 and 3
For Withheld For All
All All Except
1. ELECTION OF DIRECTORS / / / / / /
Nominees: Robert V. Adams
Craig S. Andrews _________________
Ronald J. Hall Nominee Exception
Howard L. Jenkins
Richard A. Plante
David A. Purcell
Charles E. Volpe
For Against Abstain
2. TO APPROVE THE ADOPTION / / / / / /
OF THE 1998 STOCK OPTION
PLAN
For Against Abstain
3. TO RATIFY THE SELECTION / / / / / /
OF DELOITTE & TOUCHE LLP
AS INDEPENDENT AUDITORS
Signature(s) ____________________________________________ Date ______________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, trustee or guardian, please give full title as
such.
- FOLD AND DETACH HERE -
- TELEPHONE VOTING INSTRUCTIONS -
- - Call 888-501-9727 (toll free)
Enter your six-digit control number located in the box on the
left-hand corner of this card.
Follow the recorded instructions to place your vote. Refer to the
written instructions below which correspond to the recording.
Thank you for voting!
Option #1: To vote as the Board of Directors recommends on all proposals,
press 1.
To confirm your vote, press 1.
OPTION #2: To vote separately on each proposal, press 2. You will hear the
following:
PROPOSAL 1: To vote FOR all directors, press 1.
To WITHHOLD on all directors, press 2.
To vote individually by director, press 3 and
follow the additional instructions.
To confirm your vote, press 1.
PROPOSAL 2: To vote FOR, press 1.
To vote AGAINST press 2.
To ABSTAIN, press 3.
To confirm your vote, press 1.
PROPOSAL 3: To vote FOR, press 1.
To vote AGAINST, press 2.
To ABSTAIN, press 3.
To confirm your vote, press 1.
IF YOU VOTE BY TELEPHONE DO NOT MAIL BACK YOUR PROXY.