<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
ENCAD, INC.
6059 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON June 16, 1997
The Annual Meeting of Shareholders (the "Meeting") of ENCAD, Inc., a
California corporation (the "Company"), will be held on Monday, June 16, 1997
at 2:00 p.m., Pacific Daylight Time (local time), at the Sheraton Grande
Torrey Pines, 10950 North Torrey Pines Road, La Jolla, California 92037-1705,
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 ratify appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1997.
3. To approve an amendment to the 1993 Employee Stock Purchase Plan (the
"Purchase Plan") to increase the number of shares authorized to be
purchased under the Purchase Plan by 120,000 shares, from 400,000
shares to a total of 520,000 shares.
4. To approve an amendment to the Purchase Plan to provide for automatic
annual increases in the number of shares authorized for issuance under
the Purchase Plan in an amount equal to one percent (1%) of the then
outstanding shares of Common Stock, with such increases to commence on
January 1, 1998 and to continue on the first day of January of each
year thereafter.
5. To approve an amendment to the 1993 Stock Option/Stock Issuance Plan
(the "Option Plan") to increase the number of shares authorized for
issuance under the Option Plan by 240,000 shares, from 1,559,020
shares to a total of 1,799,020 shares.
6. To approve an amendment to the Option Plan to provide for automatic
annual increases in the number of shares authorized for issuance under
the Option Plan in an amount equal to two percent (2%) of the then
outstanding shares of Common Stock, with such increases to commence
on January 1, 1998 and to continue on the first day of January of
each year thereafter.
7. To approve the Company's reincorporation in Delaware through the
merger of ENCAD, Inc., a California corporation, with a wholly-owned
subsidiary of ENCAD, Inc., with authorization to issue 60,000,000
shares of Common Stock.
8. In the event Proposal 7 is not approved, to approve the amendment of
the Company's Restated Articles of Incorporation to provide for an
increase in the number of shares of Common Stock authorized for
issuance by the Company from 15,000,000 to 60,000,000 shares.
9. To transact such other business as may properly be presented to the
Meeting or any adjournments or postponements thereof.
Only shareholders of record as of the close of business on May 9, 1997
will be entitled to notice of and to vote at the Meeting or any adjournments
or postponements thereof.
<PAGE>
All shareholders 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 shareholder
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,
Thomas L. Green, Esq.
Corporate Secretary
SAN DIEGO, CALIFORNIA
May 16, 1997
YOUR VOTE IS IMPORTANT
In order to assure 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.
2
<PAGE>
ENCAD, INC.
6059 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON June 16, 1997
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
Proxies by and on behalf of the Board of Directors of ENCAD, Inc., a
California corporation (the "Company"), for use at the Company's Annual
Meeting of Shareholders (the "Meeting") to be held at Sheraton Grande Torrey
Pines, 10950 North Torrey Pines Road, La Jolla, California 92037-1705, on June
16, 1997, 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 shareholders on or about
May 16, 1997.
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 shareholders, 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, no 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.
SHAREHOLDERS ENTITLED TO VOTE
Only shareholders of record as of the close of business on May 9, 1997 (the
"Record Date") will be entitled to vote at the Meeting. As of the Record Date,
there were issued and outstanding _________ shares of Common Stock. No shares of
the Company's Preferred Stock, no 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 entitled
to vote as of the Record Date. The shareholders are entitled to one vote per
share on all matters brought before the Meeting. The shareholders' votes may be
oral or by ballot; provided however, that any election of directors of the
Company ("Directors") must be by ballot if demanded by any shareholder before
the voting has begun. On any matter other than the election of Directors,
3
<PAGE>
any shareholder 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
shareholder fails to specify the number of shares which a shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares that the shareholder is entitled to vote. If
a quorum is present, the affirmative vote of the majority of the shares
represented at the Meeting and entitled to vote on any matter (other than the
election of Directors) shall be the act of the shareholders, unless the vote of
a greater number or voting classes is required by California General Corporation
Law, the Company's Restated Articles of Incorporation or the Company's Amended
and Restated Bylaws. No shareholder shall be entitled to cumulate votes (i.e.,
cast votes for any one or more candidates a number of votes greater than the
number of the shareholder's shares). California statute and case law does not
give specific instructions regarding the treatment of abstentions and broker
nonvotes for companies such as ENCAD, Inc., however, the Company believes that
California law provides that if shares are represented and voted on any issue at
a shareholder meeting, a failure to vote yes on any other issues (through either
abstention or a broker nonvote) has the same effect as a negative vote on such
other issues.
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 shareholder. 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 of Directors (Proposal 1), and
also in favor of Proposals 2 through 7 as described in this Proxy Statement, and
in favor of Proposal 8, if Proposal 7 is not approved by the shareholders.
Any shareholder 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.
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
___________ shares of Common Stock (not including shares of Common Stock subject
to unexercised stock options) constituting approximately ____ % of the shares of
Common Stock outstanding and entitled to vote at the Meeting. The approval of
the proposals is not assured.
The following table sets forth information as of March 31, 1997 relating to
the beneficial ownership of Common Stock by (i) each shareholder 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 ("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 Director, Named Executive
Officers, principal shareholders and Schedule 13Gs filed with the SEC. Unless
otherwise indicated, the individual shareholders 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.
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
------------------------------------
OWNED AT ACQUIRABLE PERCENT
MARCH 31, 1997 WITHIN 60 DAYS OF CLASS
NAMES AND ADDRESSES (2) (3)
--------------------------------------------------
<S> <C> <C> <C>
Pilgrim Baxter & Associates, Ltd.(1) 1,188,400 0 10.5%
11255 Drummers Lane, Suite 300
Wayne, Pennsylvania 19087
Driehaus Capital Management (1) 765,119 0 6.8%
25 E. Erie Street
Chicago, Illinois 60611
Navellier & Associates (1) 744,215 0 6.6%
1 East Liberty Street, 3rd Floor
Reno, Nevada 89501
American Century Companies (1) 700,000 0 6.2%
P.O. Box 418210
Kansas City, Missouri 64141(9210)
Scudder, Stevens & Clark, Inc. (1) 638,000 0 5.6%
345 Park Avenue
New York, New York 10154
Nicholas Applegate Capital Management (1) 584,678 0 5.2%
600 W. Broadway, 29th Floor
San Diego, California 92101
Robert V. Adams 0 20,667 *
Craig S. Andrews 10,324 10,000 *
Ronald J. Hall 57,610 31,667 *
Howard L. Jenkins 193,176 31,667 1.9%
Charles E. Volpe 4,000 10,000 *
David A. Purcell 760,002 2,500 6.6%
Richard A. Plante 4,499 42,812 *
Francis J. Wypychowski 0 22,500 *
Mark C. Lewis 0 5,000 *
Clifford R. McCarney 1,956 6,857 *
All directors and executive officers
as a group (15 persons) 1,060,114 257,735 11.4%
</TABLE>
5
<PAGE>
* Less than one percent.
(1) Based upon information filed with the SEC on Schedule 13G as of December
31, 1996.
(2) Shares issuable upon exercise of stock options that are exercisable within
60 days of March 31, 1997.
(3) Applicable percentage ownership is based on 11,340,030 shares of Common
Stock outstanding on March 31, 1997 and calculated pursuant to SEC Rule
13d-3(d)(1), which includes the number of shares acquirable within 60 days.
BOARD OF DIRECTORS
TERM OF BOARD
Members of the Board of Directors (the "Board") hold office and serve until
the next annual meeting of the shareholders 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.
COMMITTEES AND MEETINGS OF THE BOARD
The Company has a Compensation Committee and an Audit Committee. The Board
does not maintain a nominating committee or other committee which performs
similar functions.
The current members of the Compensation Committee are Mr. Hall (Chairman),
Mr. Adams, and Mr. Volpe. The Compensation Committee will provide
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 four meetings in the
year ended December 31, 1996.
The current members of the Audit Committee are Mr. Jenkins (Chairman), Mr.
Hall, and Mr. Andrews. The Audit Committee will recommend the Company's
independent auditors, review the results and scope of the audit and
other services provided by such auditors, and evaluate fees. During the year
ended December 31, 1996, the Audit Committee held one meeting.
The Board held 10 meetings during the year ended December 31, 1996. 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, non-employee Directors received cash
compensation in the amount of $6,000 for 1996 and are eligible for reimbursement
of their expenses incurred in attending meetings of the Board in accordance with
Company policy.
Non-employee Directors participate in the Automatic Option Grant Program
of the Option Plan. Under the Automatic Option Grant Program, non-employee
Directors who first join the Board receive a maximum initial option grant of
15,000 shares of Common Stock upon their election or appointment to the
Board, and Directors who continue to serve as non-employee Directors receive
option grants of 1,000 shares each year they are re-elected. The number of
shares initially issued to new non-employee Directors under automatic option
grants may be decreased, as determined by formula, based upon the number of
shares in the Company owned by, or available to, the non-employee Director at
the time of his or her election or appointment. The terms and conditions of
such automatic option grants are otherwise fixed by the Option Plan and are
not subject to the discretion of the Board. The exercise price for each
option granted under the Automatic Option Grant Program must be at least 100%
of the fair market value of the stock on the date of the option grant.
6
<PAGE>
For 1997, cash compensation to non-employee Directors has increased to
$12,000 annually with an additional payment of $3,000 to each non-employee
Director who serves on at least one special committee of the Board. Expense
reimbursement practices and the Automatic Option Grant Program, as described
above, remain unchanged.
EXECUTIVE OFFICERS
The following individuals were executive officers of the Company at
March 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Purcell . . . . . .59 Chairman of the Board and Chief Executive
Officer
Richard A. Plante. . . . . .44 President and Chief Operating officer
Todd W. Schmidt. . . . . . .54 Vice President and Chief Financial Officer,
Thomas L. Green. . . . . . .49 Vice President, Secretary, and General Counsel
Francis J. Wypychowski . . .48 Vice President, Engineering & Manufacturing
Robert Zabaronick. . . . . .50 Vice President, Human Resources
Mark C. Lewis . . . . . . .41 Vice President, Marketing
Serge H. Drobatschewsky. . .50 Vice President, Materials and Logistics
Clifford R. McCarney . . . .45 Vice President, Sales
Lawrence E. Thompson . . . .48 Vice President, Supplies Business Unit
</TABLE>
Mr. Purcell has served as Chairman of the Board, a Director and Chief
Executive Officer since the Company's founding in November 1981. 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. Schmidt joined the Company as Vice President and Chief Financial
Officer in June 1996. Mr. Schmidt previously served as Vice President,
Finance and Administration from July 1990 to September 1995 for Biosym
Technologies, Inc., a wholly-owned subsidiary of Corning Incorporated, which
develops and sells computer-aided molecular modeling software. He held
similar positions from January 1984 to July 1990 with Dura Pharmaceuticals, a
publicly-traded biotechnology corporation which designs and develops
immunoregulatory drugs, and from September 1976 to February 1982 with IVAC
Corporation which manufactures and sells medical devices and related
disposable products. He is a certified public accountant with both a BS in
industrial engineering and an MBA from Northwestern University.
Mr. Green has served as Vice President since December 1995, and as General
Counsel and Secretary since joining the Company in June 1994, previous to which
Mr. Green was a consultant for the Company. 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 served as
General Counsel for two public companies which owned and operated hotels and
restaurants: Atlas Hotels, Inc. where he worked from February 1987 to May 1989,
and Trust House Forte / Travel Lodge, Inc. where he worked 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. Wypychowski joined the Company as Vice President, Engineering and
Manufacturing in June 1996. 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
7
<PAGE>
Vice President and General Manager from December 1988 to February 1992 and
Senior Vice President, Product Development from October 1988 to December 1988.
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.
Mr. Zabaronick has served as Vice President, Human Resources since joining
the Company in January 1997. From July 1987 to January 1997, he held the
position of Senior Vice President, Human Resources for Brooktree Corporation, a
publicly-traded company which produces computer chips and software. From March
1984 to March 1985, he also served as Vice President, Human Resources for Cipher
Data Products, a computer storage technology business, and from March 1985 to
July 1987 as an independent human resources consultant for high technology
clients. Mr. Zabaronick holds a BA from Franklin College and an MBA from
Southern Illinois University.
Mr. Lewis joined the Company in April 1996 as Vice President, Marketing.
Prior to that time, Mr. Lewis worked for nearly 10 years - from October 1986 to
March 1996 - at CalComp, a subsidiary of Lockheed-Martin Corporation, which
manufactures printers and plotters. During his tenure with CalComp, Mr. Lewis
became Vice President, Marketing after serving as Director of Product Marketing
and occupying several managerial positions in the marketing area. From May 1980
to October 1986, he held various sales positions at NCR Corporation, a
publicly-traded company which develops and manufactures computer systems. He
has a BS in accounting from the University of Wisconsin and an MBA from
Rockhurst College.
Mr. Drobatschewsky has served as Vice President, Materials and Logistics
since January 1996 and was Vice President, Operations from August 1992 to
December 1995 and Vice President, Quality Assurance from March 1992 to August
1992. Mr. Drobatschewsky previously held several positions of responsibility,
including Vice President, Quality and Director of Operations, from 1979 to
1991 at Cipher Data Products, Inc., a computer storage technology business.
Mr. Drobatschewsky holds a BS in electrical engineering from Arizona State
University and an MS in systems management from the University of Southern
California.
Mr. McCarney has served as Vice President, Sales since January 1996,
Director of International Sales from January 1995 to January 1996, and
International Sales Manager from July 1992 to December 1994. Prior to joining
the Company, Mr. McCarney held a variety of sales and management positions at
Numonics Corp. from 1986 to 1992. Mr. McCarney was also IC Planning Manager for
Thompson CSF Components from 1985 to 1986. Mr. McCarney holds a BA in marketing
from Temple University.
Mr. Thompson has served as Vice President, Supplies Business Unit since
November 1995 and Director of Business Development from October 1994 to 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. 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.
8
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the aggregate compensation paid or accrued
by the Company for the years ended December 31, 1996, 1995 and 1994, for
Named Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------ --------------------
OTHER AWARDS
NAME AND ANNUAL SECURITIES
PRINCIPAL COMPEN- UNDERLYING
POSITION YEAR SALARY ($)(1) BONUS ($)(2) SATION($)(3) OPTIONS/SARS (#)(4)
- - --------------------------------- ------- -------------- ------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
David A. Purcell 1996 $286,329 $228,000 $ - -
Chairman of the Board and 1995 $242,020 $ 55,700 $ - -
Director and Chief Executive 1994 $193,782 $ 75,000 $ - -
Officer
Richard A. Plante (5) 1996 $267,030 $348,753 (6) $ 50,000 (7) -
President and Chief 1995 $129,383 $ 50,875 $ - -
Operating Officer 1994 $ - $ - $ - -
Francis J. Wypychowski (8) 1996 $111,082 $ 63,079 $ - 90,000 (9)
Vice President, Engineering 1995 $ - $ - $ - -
and Manufacturing 1994 $ - $ - $ - -
Mark C. Lewis (10) 1996 $102,850 $ 87,378 (11) $ - 40,000
Vice President, Marketing 1995 $ - $ - $ - -
1994 $ - $ - $ - -
Clifford R. McCarney (12) 1996 $118,645 $ 135,430 (13) $ - 29,700
Vice President, Sales 1995 $ - $ - $ - -
1994 $ - $ - $ - -
</TABLE>
(1) Includes salary, otherwise payable in cash during the 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 Deferred Compensation Plan (the "NQDC" Plan). See,
"Severance, Change in Control, and Other Arrangements."
(2) Bonuses are awarded pursuant to annual incentive compensation targets
established by the Compensation Committee. See "Board Compensation
Committee Report on Executive Compensation - Annual Incentive
Compensation." Includes payments under the Company's profit-sharing plan.
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 Securities and Exchange Commission ("SEC") rules,
amounts paid to Named Executive Officers for car allowances and relocation
costs (which constitute 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 have been adjusted for a
two-for-one stock split payable in the form of a 100% stock dividend
distributed to shareholders of the Company on May 31, 1996 (the "1996
Stock Dividend").
9
<PAGE>
(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) Ten thousand shares of the options granted to Mr. Wypychowski are subject
to termination based upon a performance-based incentive agreement. See
footnote (6) to the table under "Option Grants in 1996" below.
(10) Mr. Lewis joined the Company in April 1996. His 1996 compensation
reported in this table commences at that time.
(11) The bonus amount reported for Mr. Lewis includes a bonus of $30,000 which
was awarded as an incentive to join the Company.
(12) Mr. McCarney became an officer of the Company in January 1996. His
compensation reported in this table commences at that time. Disclosure of
compensation for prior years in which he did not serve as an officer is
not required pursuant to SEC rules.
(13) In addition to profit-sharing amounts, this figure represents payment to
Mr. McCarney of a $123,164 commission. The commission paid to Mr.
McCarney is generally based upon the same considerations as bonuses.
OPTION GRANTS IN 1996
The following table sets forth information concerning stock option grants
during 1996 to the Named Executive Officers, adjusted for the 1996 Stock
Dividend. The Company may, in its discretion, grant options to the Named
Executive Officers under its Option Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS/SARS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE OR PRICE APPRECIATION FOR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM (5)
NAME GRANTED (#) (1) FISCAL YEAR (2) ($/SH)(3) DATE (4) 5%($) 10%($)
- - ---------------------- ---------------- ---------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David A. Purcell - - - - - -
Richard A. Plante - - - - - -
Francis J. Wypychowski 90,000 21.4% $ 11.50 4/10/06 $ 650,905 $ 1,649,523
Mark C. Lewis 40,000 9.5% $ 11.50 4/10/06 $ 289,292 $ 733,122
Clifford R. McCarney 29,700 7.1% $ 8.00 1/16/06 $ 149,425 $ 378,673
</TABLE>
(1) All options granted in 1996 were "non-qualified" stock options under the
Internal Revenue Code and generally are exercisable quarterly in equal
amounts over a period of 4 years. The first date on which these options
become exercisable is May 1, 1996 for Mr. Lewis and for Mr. McCarney and
August 1, 1996 for Mr. Wypychowski, except that 10,000 of Mr.
Wypychowski's shares are subject to withdrawal. See, footnote (6) to
this table.
(2) In 1996 all employees received stock options covering a total of 420,200
shares.
(3) Exercise price is the closing price of the Common Stock as reported on the
Nasdaq National Market on the date of grant.
10
<PAGE>
(4) The options were granted for a term of 10 years, subject to earlier
termination in certain events 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) 10,000 shares of the stock option issued to Mr. Wypychowski are subject to
a performance-based incentive agreement and may be withdrawn if he does
not attain certain goals in 1997.
OPTION EXERCISES IN 1996
The following table sets forth certain information with respect to each
exercise of stock options during the year ended December 31, 1996, adjusted for
the 1996 Stock Dividend, 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, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS/
OPTIONS/SARS SARS (2)
SHARES AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Purcell - $ - - - $ - $ -
Richard A. Plante 15,000 $ 554,100 22,500 112,500 $ 766,350 $ 3,831,750
Francis J. Wypychowski - $ - - - $ - $ -
Mark C. Lewis 3,000 $ 69,163 2,000 35,000 $ 59,500 $ 1,041,250
Clifford R. McCarney 12,080 $ 437,715 2,500 25,420 $ 87,527 $ 854,018
</TABLE>
(1) Fair market value of Common Stock on the date of exercise minus the
exercise price.
(2) Fair market value of Common Stock at December 31, 1996 ($41.25) multiplied
by the applicable number of shares minus the aggregate exercise price of
the options for such number of shares.
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 shareholder or related group of
shareholders of (1) 25 % of the voting power of the Company's outstanding
securities, (2) 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 (3) 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 Base Salary (i.e., annual base salary on the date of
termination), plus their Average Bonus (i.e., the average of bonuses paid over
the previous two years). 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.,
11
<PAGE>
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 (1) the expiration date of the option term, or (2) 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 Option 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 6
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 canceled in return for 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 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 (a) upon the
participant's retirement, disability, death, or other termination of employment
with the Company, (b) on the date elected in advance by the participant, or (c)
in the event the participant has an unforeseeable emergency. No matching
contributions were made to the NQDC Plan by the Company in 1996.
THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH ON PAGE 15 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
12
<PAGE>
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 shareholders.
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, annual 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 shareholder
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.
ANNUAL INCENTIVE COMPENSATION
The Committee establishes target bonus levels which vary between 20 % and
40 % of base salary for the Company's executive officers. The Committee also
predetermines a minimum performance level at which such bonus is earned. The
performance goal at which the full target bonus is earned is determined by the
Chief Executive Officer based upon individual performance and other factors. In
the event the Company does not achieve the minimum performance level for any
quarter, or for the year, the Board will consider recommendations from the Chief
Executive Officer and the Compensation Committee, and will decide whether
bonuses shall be paid, and in what amounts. For 1996, annual bonuses were based
upon earnings' goals and also upon revenue goals for certain executive
officers. Based upon the Company's extraordinary performance in 1996, wherein
actual results substantially exceeded the maximum target performance levels set
for bonuses, the Committee, in its discretion, increased bonus amounts to
between 22% and 80% of base salary for executive officers.
STOCK OPTION PROGRAM
The stock option program is the Company's long-term incentive plan for
executive officers and other employees. The Committee strongly believes that by
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, the best interests of shareholders will be served.
13
<PAGE>
Generally, stock options are granted with exercise prices equal to the
prevailing market value of the Common Stock on the date of grant, have 10-year
terms and have equal quarterly vesting periods for four years. Awards are made
at a level calculated 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
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 is also evaluated by the
Committee.
Mr. Purcell's incentive compensation consisted solely of bonuses in 1996.
The Committee set a minimum performance level in terms of the Company's
attaining certain revenue and profitability goals. In the event the minimum
level was achieved, it was determined that Mr. Purcell would be awarded a target
bonus of 40% of his base salary.
The Committee, in its discretion, may increase Mr. Purcell's target bonus
percentage in the event performance levels exceed the Company's goals. In
1996, the Company's performance significantly exceeded the maximum target
performance levels established for bonuses. As a result, the Committee
increased Mr. Purcell's bonus to 80% of 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
Ronald J. Hall, Committee Chairman
Robert V. Adams, Committee Member
Charles E. Volpe, Committee Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1, 1996 until June 18, 1996, the Committee consisted of four
Directors: Ronald J. Hall (Chairman), Robert V. Adams, Howard L. Jenkins, and
Charles E. Volpe. On June 18, 1996 the Board appointed three Directors to serve
on the Committee: Ronald J. Hall (Chairman), Robert V. Adams, and Charles E.
Volpe. All three Directors served on the Committee through the end of 1996 and
are currently members of the Committee.
No member of the Committee for 1996 is a former or current 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.
14
<PAGE>
PERFORMANCE GRAPH
The following graph compares total shareholder returns 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
the Nasdaq Computer Manufacturer. The total return for each of the Company's
Common Stock, the Nasdaq Stock Market (U.S. Companies) Index and the Nasdaq
Computer Manufactures Index assumes the reinvestment of dividends, although
dividends have not been declared on the Company's 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 Company's Common Stock
is traded on the Nasdaq National Market. The Nasdaq Computer Manufacturer Index
consists of companies with a Standard Industrial Classification Code identifying
them as a Computer Manufacturer. The shareholder 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 shareholder returns.
COMPARISON OF CUMULATIVE TOTAL RETURN
[GRAPH]
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Articles of Incorporation and Restated Bylaws
provide that the Company shall indemnify its Directors and officers to the
fullest extent permitted under California law. The Company has entered into
indemnification agreements with its officers and Directors containing provisions
that may require the Company, among other things, to indemnify the officers and
Directors against certain liabilities that may arise by reason of their status
or service as Directors or officers (other than liabilities arising from
intentional or knowing
15
<PAGE>
and culpable violations of law), 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
Prior to his joining the Company as Vice President, Engineering and
Manufacturing, Mr. Francis J. Wypychowski, rendered consulting services to
the Company from January 1996 to May 1996 pursuant to an independent
contractor agreement between the Company and JTA, a partnership in which Mr.
Wypychowski owned a one-third interest. In 1996, the total amount paid to
JTA by the Company amounted to $64,071.
The Company extended a loan at a market rate of interest in the principal
amount of $100,000 to Mr. Richard A. 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.
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.
PROPOSAL 1
ELECTION OF DIRECTORS
A Board is to be elected at the Annual Meeting to hold office until their
term has expired or until their successors are duly elected and qualified. Under
the Company's Restated Bylaws, the number of Directors is not to be less than
five nor more than nine, with the actual number to be fixed from time to time by
resolution of the Board. The Board has fixed the authorized number of Directors
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 Shareholders or until their respective
successors are elected or appointed.
Unless individual shareholders 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 those named 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: 58
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 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 of
Ryno Electronics, Inc., an electronics distribution company ultimately acquired
by Western Microtechnology in 1986. Mr. Purcell served as a director of
16
<PAGE>
Bishop Electronics from 1976 to 1993 and of Ryno Electronics from 1978 to 1986.
Mr. Purcell attended Nasson College and California State College-Fresno.
RICHARD A. PLANTE
DIRECTOR AND PRESIDENT AND CHIEF OPERATING OFFICER
AGE: 44
Mr. Plante has served as a Director since June 1996 and as President and
Chief Operating Officer since joining the Company in June 1995. Prior to
joining the Company, Mr. Plante served as Vice President. Product 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 and Decker, Corp., 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.
ROBERT V. ADAMS
DIRECTOR
AGE: 65
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, 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: 44
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: 56
Mr. Hall has served as a Director since December 1993. Since December
1993 he has also served as Chairman of the Compensation Committee, and served on
the Audit Committee. Mr. Hall has been Managing General Partner of Hall Capital
Management of Mission Viejo, California, the General Partner of a former
principal shareholder of the Company, since 1990, and previously was 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: 60
Mr. Jenkins has been a Director since December 1993. Since December
1993 he has also served as Chairman of the Audit Committee and served on the
Compensation Committee. Mr. Jenkins is currently President of Jenkins
Machinery Co., a tractor and machinery dealership serving California and
Nevada, since 1976. He is also Managing General Partner of Jenkins Ranch.
Previously, Mr. Jenkins had been a
17
<PAGE>
board member of Alex Brown Financial Group. Mr. Jenkins holds an undergraduate
degree in Business Administration from Eastern Washington University.
CHARLES E. VOLPE
DIRECTOR
AGE: 59
Mr. Volpe has served as a Director and member of the Compensation
Committee since December 1995. Mr. Volpe currently serves as a director of
Kemet Electronics Corp and its parent Kemet Corporation where he held
numerous management positions since 1970, retiring as President and Chief
Operating Officer in 1996. Prior to joining Union Carbide/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
Corp., 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 SET FORTH IN ITEM 1
ON THE PROXY.
PROPOSAL 2
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, 1997.
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.
Ratification of the appointment of Deloitte & Touche LLP requires the
affirmative vote of a majority of the shares of Common Stock represented and
voting at the Meeting on this matter (which shares constitute at least a
majority of the required quorum of the Meeting). For purposes of calculating
the vote necessary for ratification of the selection of independent auditors,
abstentions and non-votes will not be not counted.
In the event that the shareholders 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 shareholders.
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.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR RATIFICATION OF THE SELECTION
OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
SET FORTH IN ITEM 2 ON THE PROXY.
PROPOSAL 3
APPROVAL OF AMENDMENT
TO 1993 EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE AUTHORIZED SHARES
18
<PAGE>
The shareholders are also being asked to vote on a proposal to approve
certain amendments to the Purchase Plan. The amendment ( "Purchase Plan
Amendment") was adopted by the Board on February 11, 1997, subject to
shareholder approval. The effect of the Purchase Plan Amendment will be to
increase the number of shares available for issuance under the Purchase Plan by
an additional 120,000 shares from total authorized shares of 400,000 (adjusted
for the 1996 Stock Dividend) to 520,000 shares.
The purpose of the Purchase Plan Amendment is to enable the Company to
continue to offer its employees and potential employees equity participation
packages comparable to those of the Company's competitors. Such packages serve
as a means to attract, motivate, and retain high-quality, key employees. Through
equity participation, employee compensation is correlated to the Company's
performance so that employees have a vested interest in applying their best
efforts toward making the Company as productive as possible. As a result,
equity participation through the Purchase Plan benefits both employees and
shareholders.
The Board is requesting the increase in shares authorized for issuance
under the Purchase 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 Purchase Plan was initially adopted by the Board on October 8, 1993 and
was approved by shareholders on October 8, 1993. The Purchase Plan was further
amended by a resolution adopted by the Board on March 12, 1996 and approved by
the shareholders on June 18, 1996, to increase the number of shares of stock
subject to the Purchase Plan by 100,000 shares for a total of 200,000 authorized
shares. In accordance with the terms of the Purchase Plan, the number of
authorized shares was increased to 400,000 as a result of the 1996 Stock
Dividend.
The terms and provisions of the Purchase Plan, as amended, are summarized
below. This summary, however, does not purport to be a complete description of
the Purchase Plan. Copies of the actual Purchase Plan may be obtained by any
shareholder upon written request to the Secretary of the Company at the
corporate offices in San Diego, California.
SUMMARY OF THE PURCHASE PLAN
SHARE RESERVE AND PLAN ADMINISTRATION
Currently, the maximum number of shares that may be sold to participants
over the term of the Purchase Plan may not exceed 400,000 shares of Common
Stock, adjusted for the 1996 Stock Dividend. As of March 31, 1997, 206,800
shares of Common Stock had been purchased under the Purchase Plan and 193,220
shares were available for future purchase. Assuming shareholder approval of the
Purchase Plan Amendment, the maximum number of authorized shares available in
the Purchase Plan will increase to 520,000 with 313,220 shares available for
future purchase. Appropriate adjustments will be made to (i) the class and
maximum number of securities purchasable under the Purchase Plan, (ii) the class
and maximum number of securities purchasable per participant during any one
purchase period and (iii) the class and number of securities and the price per
share in effect under each outstanding purchase right in order to preserve
participant rights should any change be made to the outstanding Common Stock by
reason of any stock dividend, stock split, combination of shares or other
similar change affecting the outstanding Common Stock as a class without the
Company's receipt of consideration.
The Purchase Plan is administered by the Compensation Committee of the
Board ("Purchase Plan Adminstrator"). The Compensation Committee, as Purchase
Plan Administrator, has full authority to adopt administrative rules and
procedures and to interpret the provisions of the Purchase Plan and any
outstanding purchase rights.
19
<PAGE>
ELIGIBILITY
Employees are eligible to participate if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per
week. As of March 31, 1997, approximately 367 employees (including 9 officers
of the Company) were eligible to participate in the Purchase Plan.
PLAN OPERATION
Employees eligible to participate in an offering can elect to have up to
10% of their base salary withheld pursuant to the Purchase Plan. The amount
withheld is then used to purchase shares of Common Stock at quarterly intervals.
The price of Common Stock purchased under the Purchase Plan is equal to 85% of
the lower of the fair market value of the Common Stock on (i) the commencement
date of the offering period or (ii) the purchase date. Employees may end their
participation in the offering at any time during the offering period, except the
last five days of that period, and participation ends automatically on
termination of employment with the Company. Employees who do not join an
offering period when first permitted to do so, may join in any subsequent
quarterly purchase period. Employees who elect to withdraw from a purchase
period may not participate again until the next offering period. Employees may
alter their level of participation on a limited basis. Offering periods
coincide with calendar years.
No participant may purchase more than 2,000 shares per quarter or accrue
rights to purchase more than $25,000 of stock in any calendar year. Upon an
acquisition of the Company, the outstanding payroll deductions will be
immediately applied to the purchase of Common Stock.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earlier of (i) December 31, 2003
or (ii) the date on which all shares available for issuance thereunder are sold
pursuant to exercised purchase rights. However, the Company has specifically
reserved the right, exercisable in the sole discretion of the Plan
Administrator, to terminate all outstanding purchase rights under the Purchase
Plan immediately following any quarterly purchase date. If such right is
exercised by the Company, then the Purchase Plan will terminate in its entirety,
and no further purchase rights will be granted or exercised thereunder.
The Board may amend or modify the provisions of the Purchase Plan at any
time. However, the Board may not, without shareholder approval, (i) materially
increase the number of shares issuable under the Purchase Plan or the maximum
number of shares which any one participant may purchase during a single offering
period, (ii) alter the purchase price formula so as to reduce the purchase
price, (iii) materially increase the benefits accruing to participants or (iv)
materially modify the requirements for eligibility to participate in the
Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is designed to qualify as an employee stock purchase plan
under Section 423 of the Internal Revenue Code.
20
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OUTSTANDING STOCK PURCHASES UNDER THE PURCHASE PLAN
The table below shows, as to each of the Named Executive Officers and the
various indicated groups, the number of shares of Common Stock purchased to
date under the Purchase Plan in the 1997 offering period ended December 31,
1997, and purchased under the Purchase Plan in the offering period ended
December 31, 1996 and for all other offering periods, together with the
weighted average purchase price paid per share.
<TABLE>
<CAPTION>
OFFERING PERIOD OFFERING PERIOD ALL OTHER
ENDING DECEMBER 31, 1997(1) ENDED DECEMBER 31, 1996 OFFERING PERIODS
--------------------------- ------------------------ ------------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED
PURCHASED AVERAGE PURCHASED AVERAGE PURCHASED AVERAGE
SHARES PURCHASE SHARES PURCHASE SHARES PURCHASE
(#) PRICE (#) PRICE (#) PRICE
--------- ----------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DAVID A. PURCELL - $ - - $ - - $ -
Chairman of the Board and
Chief Executive Officer
RICHARD A. PLANTE 182 $ 29.88 2,000 $ 7.44 - $ -
Director, President and Chief
Operating Officer
FRANCIS J. WYPYCHOWSKI - $ - - $ - - $ -
Vice President,
Engineering & Manufacturing
MARK C. LEWIS - $ - - $ - - $ -
Vice President,
Marketing
CLIFFORD R. MCCARNEY 89 $ 29.88 1,613 $ 7.44 1,656 $ 2.13
Vice President, Sales
All current directors who - $ - - $ - - $ -
are not executive officers
All current executive officers 736 $ 29.88 8,775 $ 7.44 16,733 $ 3.97
as a group
All employees who are 6,228 $ 29.88 54,158 $ 7.92 120,021 $ 3.43
not executive officers
</TABLE>
(1) Purchases made on March 31, 1997 in the current offering period ending
December 31, 1997.
NEW PLAN BENEFITS
As of March 31, 1997, no purchase rights had been granted under the Purchase
Plan on the basis of the proposed 120,000 share increase.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE
FOR THE PURCHASE PLAN AMENDMENT
AS SET FORTH IN ITEM 3 ON THE PROXY.
PROPOSAL 4
APPROVAL OF AMENDMENT TO 1993 EMPLOYEE STOCK PURCHASE PLAN
FOR AUTOMATIC INCREASE IN AUTHORIZED SHARES
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Subject to shareholder approval, the Board adopted a second amendment to
the Purchase Plan which is commonly referred to as an "Evergreen" provision.
This amendment (the "Purchase Plan Evergreen Amendment") provides for
automatic annual increases in the number of shares authorized for issuance under
the Purchase Plan in an amount equal to one percent (1%) of the then
outstanding shares of Common Stock of the Company. If the Purchase Plan
Evergreen Amendment is approved by the shareholders, these annual increases in
authorized Purchase Plan shares (rounded downward, if necessary, to eliminate
fractional shares) will commence on January 1, 1998 and continue on the first
day of January of each year thereafter.
The Board approved the Purchase Plan Evergreen Amendment because it
believes that the Purchase Plan is an important factor in attracting and
retaining highly-qualified individuals and in motivating such individuals to
devote their maximum efforts toward the advancement of the Company. The Board
believes that this amendment furthers these objectives by assuring continuing
availability of Common Stock to Company employees through the Purchase Plan
which will not only serve as a reward for the efforts of its employees, but will
also build an equity ownership interest in the Company which will align the
interests of the Company's employees with the Company's shareholders. An
Evergreen provision could also reduce costs to the Company by minimizing the
frequency with which amendments to the Purchase Plan must be submitted to
shareholders for the purpose of increasing authorized shares to accommodate the
Company's growth and the potential expansion of eligible employees under the
Purchase Plan.
The Board believes that this Evergreen feature will provide the Company
and its shareholders with the consistent and predictable source of Common Stock
needed to maintain employee equity participation comparable to businesses with
which the Company competes in recruiting and retaining highly-skilled employees.
An affirmative vote of at least a majority of the shares held by
shareholders present in person or by proxy at the Meeting is required to approve
the Purchase Plan Evergreen Amendment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR
THE PURCHASE PLAN EVERGREEN AMENDMENT
TO AUTOMATICALLY INCREASE AUTHORIZED SHARES
OF THE PURCHASE PLAN ON AN ANNUAL BASIS
AS SET FORTH IN ITEM 4 ON THE PROXY.
PROPOSAL 5
APPROVAL OF AMENDMENT
TO THE 1993 STOCK OPTION/STOCK ISSUANCE PLAN
TO INCREASE AUTHORIZED SHARES
Shareholders are being asked to consider and vote upon a proposal to
approve an amendment to the Option Plan (the "Option Plan Amendment") which will
increase the total number of shares authorized for issuance under the Option
Plan by 240,000 shares, from total authorized shares of 1,559,020 (adjusted for
the 1996 Stock Dividend) to 1,799,020 shares.
The Option Plan was originally adopted by the Board by written consent,
effective October 8, 1993, and was approved by shareholders on October 8, 1993.
An amendment was adopted by the Board on March 1, 1995 and ratified by the
shareholders on May 23, 1995. The amendment increased the total number of
shares authorized for issuance under the Option Plan by 250,000, from 529,510 to
779,510 shares, and increased the number of shares remaining in the Plan and
available for issuance from 109,256 shares to 359,256 shares. After the 1996
Stock Dividend, total shares available for issuance under the Option Plan
increased to 1,559,020.
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<PAGE>
For the reasons discussed under Proposal 4 above, the Board believes that
the Option Plan is instrumental to recruiting and retaining high caliber
personnel, and in eliciting maximum efforts from its employees. The Board is
requesting the increase in shares authorized for issuance under the Option 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 affirmative vote of a majority of the outstanding shares of Common
Stock is required for approval of the Option Plan Amendment. The Option Plan,
as amended, will become effective immediately upon approval by shareholders at
the Meeting.
The following is a summary of the material terms and provisions of the
Option Plan. The summary, however, does not purport to be a complete
description of all the provisions of the Option Plan. Copies of the actual plan
document may be obtained by any shareholder upon written request to the
Secretary of the Company at the corporate offices in San Diego, California.
SUMMARY OF THE OPTION PLAN
OPTION PLAN STRUCTURE
The Option Plan is divided into three separate components:
- The Discretionary Option Grant Program, under which employees and
consultants (other than non-employee Directors) may, at the discretion
of the Option Plan Administrator, be granted options to purchase
shares of Common Stock at an exercise price not less than 85% of the
fair market value of such shares on the grant date. The granted
options may be either incentive stock options which are designed to
meet the requirements of Section 422 of the Internal Revenue Code, or
non-qualified, not intended to satisfy such requirements.
- The Automatic Option Grant Program, under which non-employee board
members are automatically granted non-qualified options to purchase
shares of the Common Stock at a price equal to the fair market value
of the shares on the automatic option grant date.
- The Stock Issuance Program, under which eligible individuals are
allowed to effect immediate purchases of Common Stock at fair market
value or at discounts of up to 15%, including shares which may be
issued for past services without any cash payment from the
participant.
PLAN ADMINISTRATION
The Plan is administered either by the Board as a whole, or by a committee
(the "Option Plan Committee") appointed by the Board and consisting of two or
more non-employee Directors (the "Option Plan Administrator") who establish all
necessary rules and regulations for proper administration of the Plan. The
selected Option Plan Committee members serve for such period of time as the
Board may determine and are subject to removal by the Board at any time.
ELIGIBILITY
Officers and other key employees, consultants and independent consultants
are eligible to participate in the Discretionary Option Grant and Stock Issuance
Programs under the Option Plan. Non-employee Directors are NOT eligible to
participate in the Option Plan, or in any other stock option, stock purchase,
stock bonus or stock plan of the Company, except that the members of the Option
Plan Committee will receive option grants under the automatic Option Grant
Program.
Notwithstanding the above, members of the Board are not eligible to receive
any option grants under the Discretionary Option Grant Program or stock
issuances under the Stock Issuance Program unless and until the
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<PAGE>
Option Plan Administrator is a Committee composed exclusively of non-employee
Directors who qualify as disinterested persons under SEC Rule 16b-3(c)(2).
SHARE RESERVE
Shares of Common Stock will be available for issuance under the Option
Plan. Assuming that this Proposal 5 and Proposal 6 are approved by the
shareholders, the maximum number of shares of Common Stock reserved for issuance
over the 10 year term of the Option Plan, measured from the effective date of
the Option Plan, will not exceed 1,779,020 shares, plus an annual increase of 2%
of the then outstanding shares of Common Stock. The 1,779,020 share reserve is
comprised of (i) the number of shares issued under the predecessor plans,
(ii) the number of shares that remain available for issuance under the Option
Plan and its predecessor plans, including the shares subject to the outstanding
options under the Option Plan and any other shares that would have been
available for future option grant or share issuance under the Option Plan as
last approved by the shareholders, plus (iii) an additional 240,000 shares being
added to the Option Plan pursuant to this Proposal 5. The share reserve
available for issuance under the Option Plan will be subject to periodic
adjustment for changes in the outstanding Common Stock occasioned by stock
splits, stock dividends, recapitalizations, conversions or other changes
affecting the outstanding Common Stock as a class without the Company's receipt
of consideration. To the extent any of the options are subsequently exercised,
the number of shares issued under those options will reduce, on a share-for-
share basis, the number of shares available for issuance under the Option Plan.
TERMS OF THE DISCRETIONARY OPTION GRANT PROGRAM
OPTION TYPE
In the discretion of the Option Plan Administrator and subject to
applicable requirements of the Internal Revenue Code, options granted under the
Discretionary Option Grant Program may be either incentive stock options
(qualifying for certain favorable tax treatment under Section 422A of the
Internal Revenue Code) or non-qualified options.
OPTION PRICE
The option price per share for incentive stock options will not be less
than 100% of the fair market value of the Common Stock on the grant date. The
option price per share for non-qualified stock options may not be less than 85%
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 10 years measured from the
grant date.
VESTING OF OPTIONS
The vesting schedule for, and other conditions imposed on each granted
option will be determined by the Option Plan Administrator, and will be set
forth in the instrument evidencing such grant. The granted option may be (i)
immediately exercisable for vested shares, (ii) immediately exercisable for
unvested shares subject to repurchase rights or (iii) exercisable in
installments for vested shares over the optionee's period of service.
PAYMENT
Upon exercise of the option, the option price for the purchased shares
will become immediately payable in cash or in shares of Common Stock valued at
fair market value on the date of exercise. The option may also be exercised
through a cashless exercise procedure pursuant to which the optionee provides
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale all or any portion of the purchased shares and remit to the
Company, out of the sale proceeds, an amount equal to the aggregate option price
payable for the purchased shares plus all applicable withholding taxes.
24
<PAGE>
FINANCIAL ASSISTANCE
The Option Plan Administrator may also assist any optionee (including an
officer) in the exercise of one or more outstanding options under the Option
Plan by (i) authorizing a loan from the Company or (ii) permitting the optionee
to pay the option price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Option Plan Administrator in its sole discretion, but in no event will the
maximum credit extended to the optionee exceed the aggregate option price for
the purchased shares plus any Federal or State tax liability incurred in
connection with the option exercise.
TERMINATION OF SERVICE
Should the optionee cease to remain in the Company's service while holding
one or more options under the Option Plan, then those options will not remain
exercisable beyond the limited post-service period designated by the Option Plan
Administrator at the time of the option grant. Under no circumstances, however,
may any option be exercised after the specified expiration date of the option
term. Each such option will, during such limited period, be exercisable only to
the extent of the number of shares for which the option is exercisable on the
date of the optionee's cessation of service.
Should the optionee die while holding one or more outstanding options, then
the personal representative of the optionee's estate or the person or persons to
whom each such option is transferred pursuant to the optionee's will or in
accordance with the laws of inheritance will have the right to exercise such
option for any or all of the shares for which the option is exercisable on the
date of the optionee's cessation of service, less any option shares subsequently
purchased by the optionee prior to death. Such right will lapse, and the option
will terminate, upon the earlier of (i) the end of the limited post-service
period designated by the Option Plan Administrator at the time of the option
grant or (ii) the specified expiration date of the option term.
The Option Plan Administrator will have complete discretion to extend the
period following the optionee's termination of service during which his or her
outstanding options may be exercised and/or to accelerate the right to exercise
of such options in whole or in part. Such discretion may be exercised at any
time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
REPURCHASE RIGHTS
The Option Plan Administrator will have complete discretion at the time of
grant to establish the vesting schedule for any unvested shares issued pursuant
to the exercise of an option and will have full authority to impose, exercise or
cancel any repurchase rights with respect to one or more unvested shares.
SHAREHOLDER RIGHTS
No optionee is to have any shareholder rights with respect to the option
shares until such optionee has exercised the option, paid the option price for
the purchased shares and been issued a stock certificate for such shares.
NONTRANSFERABILITY OF OPTIONS
Options will not be assignable or transferable other than by will or by the
laws of inheritance following the optionee's death.
ACCELERATION OF OPTIONS
Outstanding options under the Option Plan will be subject to acceleration
upon certain changes in the ownership or control of the Company as follows:
25
<PAGE>
CORPORATE TRANSACTIONS. In the event of any Corporate Transaction to
which the Company is a party, each option outstanding at the time of the
Corporate Transaction will automatically become exercisable immediately prior
thereto as to all of the option shares. For this purpose, a "Corporate
Transaction" means (i) a merger or consolidation in which the Company is not the
surviving entity, (ii) the sale, transfer or other disposition of substantially
all of the Company's assets in liquidation or dissolution of the Company or
(iii) any reverse merger in which the Company is the surviving entity but in
which more than 50% of the Company's outstanding voting securities are
transferred to persons other than those who held such securities immediately
prior to the merger.
Notwithstanding the above, no option will accelerate if and to the
extent: (i) such option is either to be assumed by the successor corporation (or
parent thereof) or is otherwise to be replaced by a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or (ii) the acceleration of such option is subject to other limitations
imposed by the Option Plan Administrator at the time of grant.
Any outstanding repurchase rights under the Discretionary Option Grant
Program will also terminate, and the shares subject to such terminated rights
will become fully vested at the same time that options granted under the
Discretionary Option Grant Program are accelerated.
Upon the consummation of the Corporate Transaction, all outstanding
options, to the extent not exercised by the optionees or assumed in the
transaction, will terminate and cease to be exercisable.
CHANGE IN CONTROL. The Option Plan Administrator has full power and
authority, exercisable either in advance of any actually-anticipated Change in
Control or at the time of an actual Change in Control, to provide for the
automatic acceleration of one or more outstanding options under the Option Plan
so that each such option will, immediately prior to the Change in Control,
become exercisable for the total number of shares of the Common Stock at the
time subject to such option and may be exercised for any or all of such shares.
The Option Plan Administrator will have complete discretion in establishing the
specific terms and conditions upon which one or more outstanding options are to
accelerate in connection with the Change in Control or upon which any of the
Company's outstanding repurchase rights under the Option Plan are to terminate.
Alternatively, the Option Plan Administrator may condition such accelerated
option vesting and termination of the repurchase rights upon the optionee's
cessation of service under certain prescribed circumstances following the Change
in Control.
A Change in Control will be deemed to occur (i) should a person or
related group of persons (other than the Company or its affiliates) acquire
ownership of more than 50% of the Company's outstanding voting stock pursuant to
a tender or exchange offer made directly to the Company's shareholders which the
Board does not recommend such shareholders to accept; or (ii) on the first date
within any period of twenty-four consecutive months or less on which there is
effected a change in the composition of the Board such that a majority of the
Board members (rounded up to the next whole number) cease, by reason of one or
more contested elections for Board members, to be comprised of individuals who
either (A) have been members of the Board continuously since the beginning of
such period or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in
clause (A) who were still in office at the time such election or nomination was
approved by the Board.
Upon a Change in Control, each outstanding option will remain
exercisable until the expiration or sooner termination of the option term
specified in the instrument evidencing such grant.
The acceleration of options in the event of a Corporate Transaction or
Change in Control 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.
26
<PAGE>
STOCK APPRECIATION RIGHTS
At the discretion of the Option Plan Administrator, options may be granted
with stock appreciation rights. The stock appreciation rights which are
authorized for issuance under the Option Plan give the optionees the right to
surrender, with the approval of the Option Plan Administrator, the underlying
option for shares of Common Stock in exchange for an appreciation distribution
equal to the excess of (i) the fair market value (on the surrender date) of the
shares of Common Stock for which the underlying option is at the time
exercisable over (ii) the aggregate exercise price payable for such shares.
Such appreciation distribution may, at the discretion of the Option Plan
Administrator, be made in cash or in Common Stock.
In addition, one or more officers of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, in the discretion of the
Option Plan Administrator, be granted limited stock appreciation rights in
connection with their option grants under the Option Plan. Any option with such
a limited stock appreciation right in effect for at least six months will
automatically be canceled upon the occurrence of a Hostile Take-Over, to the
extent the option is at the time exercisable for one or more option shares. In
return for the canceled option (or canceled portion), the officer will be
entitled to a cash distribution from the Company in an amount per canceled
option share equal to the excess of (i) the Take-Over Price per share over (ii)
the option exercise price. The balance of the option (if any) will continue to
remain outstanding and exercisable in accordance with the agreement evidencing
such grant.
For purposes of such limited stock appreciation right, the following
definitions are in effect under the Option Plan:
- HOSTILE TAKE-OVER: the acquisition by any person or related
group of persons (other than the Company or its affiliates) of
securities possessing more than 50% of the combined voting power
of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's shareholders which
the Board does not recommend such shareholders to accept,
provided at least 50% of the securities so acquired in such
tender or exchange offer are obtained from holders other than the
officers and directors of the Company participating in the Option
Plan.
- TAKE-OVER PRICE: the greater of (A) the fair market value of the
shares subject to the canceled option, measured on the option
cancellation date in accordance with the valuation provisions of
the Option Plan described above, or (B) the highest reported
price per share paid by the tender offerer in effecting the
Hostile Take-Over.
The Option Plan Administrator will have discretion under the Option Plan to
grant these new limited rights with respect to any or all options already held
by officers under prior plans as well as with respect to new option grants under
the Option Plan. Currently outstanding options held under prior plans do not
provide such individuals with any form of stock appreciation right.
CANCELLATION/REGRANT
The Option Plan Administrator will have the authority to effect, on one or
more separate occasions, the cancellation of outstanding options under the
Discretionary Option Grant Program which have exercise prices in excess of the
then current market price of the Common Stock and to issue replacement options
with an exercise price based on the lower market price of the Common Stock at
the time of grant.
27
<PAGE>
TERMS OF THE AUTOMATIC OPTION GRANT PROGRAM
OPTIONEES
Each individual elected or reelected to the Board, as a non-employee member
thereof, after the effective date will receive option grants under the Automatic
Option Grant Program to purchase shares of the Common Stock.
OPTION GRANTS
The first time an individual is elected as a non-employee Director after
the effective date of the Automatic Option Grant Program, such individual
will be automatically granted an option to acquire a number of shares of
Common Stock equal to the greater of (i) 5,000 shares or (ii) 15,000 shares
minus the number of shares of Common Stock received for services rendered to
the Company which are, at the time of election or appointment, owned by such
individual or available to such individual through then outstanding stock
options. Each time a non-employee Director is re-elected to the Board after
the effective date, such individual will receive an additional option to
acquire 1,000 of shares of Common Stock.
GRANT DATES
Each option under the Automatic Option Grant Program will be granted as of
the date of the individuals election or re-election to the Board.
OPTION PRICE
The option price per share for all options granted under the Automatic
Option Grant Program will be equal to the fair market value of the Common Stock
on the grant date.
OPTION TERM
Each option granted under the Automatic Option Grant Program will have a
term of 10 years measured from the grant date.
PAYMENT
Upon exercise of the option, the option price for the purchased shares will
become immediately payable in cash or in shares of Common Stock valued at fair
market value on the date of exercise. The option may also be exercised through
a cashless exercise procedure pursuant to which the optionee provides
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of all or a portion of the purchased shares and remit to the
Company, out of the sale proceeds, an amount equal to the aggregate option price
payable for the purchased shares.
VESTING
Each option grant will become exercisable in three equal annual
installments on the anniversary of the grant date. No options shall become
exercisable after the option holder has ceased to be a member of the Board.
EXERCISE AFTER TERMINATION OF BOARD SERVICE
Once a holder of an option under the Automatic Option Grant Program has
ceased to be a Director, no additional options will thereafter become
exercisable. Options which are exercisable at the time that Board service
terminated will remain exercisable only during the six month period commencing
with the date such membership ceased.
28
<PAGE>
SHAREHOLDER RIGHTS
No optionee is to have any shareholder rights with respect to the option
shares until such optionee has exercised the option, paid the option price for
the purchased shares and been issued a stock certificate for such shares.
ACCELERATION OF VESTING
The right to exercise options granted under the Automatic Option Grant
Program shall be accelerated upon the occurrence of a Corporate Transaction
or a Change in Control in the same manner as set forth above for options
granted under the Discretionary Option Grant Program.
TERMS OF STOCK ISSUANCE PROGRAM
ISSUE PRICE
The purchase price per share will not be less than 85% of the fair
market value of the Common Stock on the date the Option Plan Administrator
authorizes the issuance.
VESTING OF SHARES
The vesting schedule for each share issuance will be determined by the
Option Plan Administrator and set forth in the issuance agreement. The shares
may be fully and immediately vested upon issuance or may vest in one or more
installments, subject to the Company's repurchase right, over the participant's
period of service and subject to such conditions as the Option Plan
Administrator may establish.
SHAREHOLDER RIGHTS
The recipient of the share issuance will have full shareholder rights,
including voting and dividend rights, with respect to the issued shares, whether
or not the shares are vested. However, the recipient may not sell, transfer or
assign any unvested shares issued under the Option Plan, except for certain
limited family transfers.
REPURCHASE RIGHTS
Should the recipient of unvested shares cease to remain in the Company's
service before vesting in such shares, then those unvested shares are to be
immediately surrendered to the Company for cancellation, and the recipient will
have no further shareholder rights with respect to those shares. To the extent
the surrendered shares were previously issued to the recipient for consideration
paid in cash or promissory note, the Company will refund the cash consideration
paid for the surrendered shares and cancel the principal balance of the note to
the extent attributable to such surrendered shares.
PAYMENT
The issue price for the purchased shares will be immediately payable in
cash, in shares of Common Stock valued at fair market value on the date of
issuance, or by promissory note payable to the Company's order. The promissory
note may, at the discretion of the Option Plan Administrator, be subject to
cancellation over the participant's period of service. Shares may also be
issued for past services, without any cash or other payment required of the
participant.
ACCELERATION OF VESTING
In the event the Company is acquired through a Corporate Transaction, all
repurchase rights which are not to be assigned to the successor corporation will
automatically terminate and the shares subject to such
29
<PAGE>
repurchase rights will vest in full. In connection with a Change in Control of
the Company, the Option Plan Administrator will have the discretionary
authority, exercisable either in advance or at the time of such Change in
Control, to provide for the automatic termination of one or more of the
Company's repurchase rights outstanding at the time of such Change in Control.
Alternatively, the Option Plan Administrator may condition the termination of
such repurchase rights upon the termination of the participant's service within
a specified period following such Change in Control. Finally, the Option Plan
Administrator will have full power and discretion to accelerate the vesting of
outstanding shares under the Option Plan in whole or in part at any time.
SPECIAL TAX WITHHOLDING ELECTION
The Option Plan Administrator may provide one or more participants in the
Option Plan with the election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the exercise of non-qualified options or
the vesting of unvested shares, a portion of those shares in satisfaction of the
tax liability incurred in connection with their acquisition or vesting. Any
election so made will be subject to the approval of the Option Plan
Administrator, and no shares will be accepted in satisfaction of such tax
liability except to the extent the Option Plan Administrator approves the
election. Alternatively, one or more participants may be granted the right,
subject to the Option Plan Administrator's approval, to deliver existing shares
of Common Stock in satisfaction of such tax liability. The withheld or
delivered shares will be valued at their then current fair market value.
AMENDMENT AND TERMINATION
The Board may amend or modify the Option Plan in any or all respects
whatsoever. However, no such amendment may adversely affect the rights of
existing optionees without their consent and unless otherwise necessary to
comply with applicable tax laws and regulations. In addition, the Board may not
(i) materially increase the maximum number of shares issuable under the Option
Plan, (ii) materially modify the eligibility requirements for option grants or
(iii) otherwise materially increase the benefits accruing to participants under
the Option Plan without the approval of shareholders. Finally, neither the
Automatic Option Grant Program nor the options granted thereunder may be amended
more frequently than once each six months unless necessary to comply with
changes in the Federal income tax law.
The Board may terminate the Option Plan at any time, and the Option Plan
will in all events terminate on the tenth anniversary of the effective date.
Each stock option outstanding at the time of such termination will remain in
force in accordance with the provisions of the instruments evidencing such
grant.
ACCOUNTING TREATMENT
Under currently applicable accounting rules, option grants to employees of
the Company with exercise prices less than the fair market value of the option
shares on the grant date and direct stock issuances at purchase prices less than
the fair market value of the issued shares will result in a compensation expense
to the Company's earnings equal to the difference between such exercise or
purchase prices and the fair market value of the shares on the option grant date
or (for direct stock issuances) the fair market value on the issue date. Such
expense will be accrued by the Company over the period the optionee or share
recipient vests in the option shares or directly-issued shares. Option grants
to employees of the Company and direct stock issuances at 100% of fair market
value will not result in any charge to the Company's earnings. The Company will
be required to treat the value of any option (rather than the difference between
the value of the stock and the exercise price payable under the option) granted
to a non-employee as compensation. Whether or not granted at a discount, the
number of outstanding options may be a factor in determining the Company's
earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon the right to exercise other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against the Company's earnings. Accordingly, at the end of each
quarter, the amount (if any) by which the fair market value of the shares of
Common Stock subject to such outstanding stock
30
<PAGE>
appreciation rights has increased from the prior quarter-end will be accrued as
compensation expense, to the extent such amount is in excess of the aggregate
exercise price in effect for such rights.
FEDERAL TAX CONSEQUENCES
Options granted under the Option Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-qualified options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
INCENTIVE 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 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. In addition, under recent legislation, if
certain "qualifying small business stock" is held for more than five years, then
one-half of such gain may be excluded from income. Whether stock issued under
the Option Plan, including stock acquired on the exercise of stock options,
will be qualifying small business stock, and whether the Optionee or Participant
otherwise qualifies for the new exclusion will depend on the facts and
circumstances at the time the shares are issued, and throughout the period they
are owned by the Optionee or the Participant.
NON-QUALIFIED OPTIONS
No taxable income is recognized by an optionee upon the grant of a non-
qualified 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, and the Optionee will be required to satisfy the tax
withholding requirements applicable to such income.
31
<PAGE>
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-qualified option, if the purchased shares are subject
to repurchase by the Company. These special provisions may be summarized as
follows:
If the shares acquired upon exercise of the non-qualified option are
subject to repurchase by the Company at the original exercise price in the event
of the Optionee's termination of service prior to vesting in such shares, the
Optionee will not recognize any taxable income at the time of exercise, but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of (i) the fair market value of the shares
on the date the Company's repurchase right lapses with respect to such shares
over (ii) the exercise price paid for the shares.
The Optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the non-
qualified option an amount equal to the excess of (i) the fair market value of
the purchased shares on the date of exercise (determined as if the shares were
not subject to the Company's repurchase right) over (ii) the exercise price paid
for such shares. If the Section 83(b) election is made, the Optionee will not
recognize any additional income as and when the Company's repurchase right
lapses.
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-qualified 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 above.
STOCK APPRECIATION RIGHTS
An Optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to a business expense deduction
equal to the appreciation distribution for the taxable year of the Company in
which the ordinary income is recognized by the Optionee.
DIRECT STOCK ISSUANCES
The tax consequences of individuals who receive direct stock issuances
under the Option Plan will be substantially the same as the treatment described
above for the exercise of non-qualified stock options.
32
<PAGE>
OUTSTANDING OPTION GRANTS UNDER THE OPTION PLAN
The table below shows, as to the Named Executive Officers and as to the
various indicated groups, the following information with respect to stock
options granted during 1996 and 1995 and during all other Option Plan years
which were outstanding as of December 31, 1994, as well as options which the
Company has determined to grant under the Option Plan to the extent currently
known or determinable: (i) the number of shares of Common Stock subject to
options granted and (ii) the weighted average exercise price per share for such
options.
<TABLE>
<CAPTION>
1997 1996 ALL OTHER PLAN YEARS
-------------------------- ------------------------- -------------------------
SHARES WEIGHTED SHARES WEIGHTED SHARES WEIGHTED
UNDERLYING AVERAGE UNDERLYING AVERAGE UNDERLYING AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(#) PRICE (#) PRICE (#) PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
DAVID A. PURCELL 40,000 $ 39.50 - $ - - $ -
Chairman of the Board and
Chief Executive Officer
RICHARD A. PLANTE 160,000 $ 12.24 135,000 $ 7.19 190,000 $ 7.19
President and Chief
Operating Officer
FRANCIS J. WYPYCHOWSKI 90,000 $ 11.50 90,000 $ 11.50 - $ -
Vice President of
Engineering & Manufacturing
MARK C. LEWIS 37,000 $ 11.50 37,000 $ 11.50 - $ -
Vice President of
Marketing
CLIFFORD R. MCCARNEY 25,988 $ 8.00 27,920 $ 7.53 10,300 $ 1.17
Vice President of Sales
All current directors who 159,000 $ 6.84 159,000 $ 6.84 125,000 $ 5.53
are not executive officers
All current executive officers 527,298 $ 13.68 472,632 $ 9.27 292,240 $ 3.21
as a group
All employees who are 301,065 $ 8.22 310,410 $ 7.76 171,874 $ 5.30
not executive officers
</TABLE>
NEW OPTION PLAN BENEFITS
As of March 31, 1997, no options have been granted under the Option Plan on
the basis of the proposed 240,000 share increase.
THE BOARD UNANIMOUSLY RECOMMENDS
A VOTE FOR THE OPTION PLAN AMENDMENT
TO INCREASE AUTHORIZED SHARES AS SET FORTH IN ITEM 5 ON THE PROXY.
33
<PAGE>
PROPOSAL 6
APPROVAL OF AMENDMENT TO
1993 EMPLOYEE STOCK OPTION/STOCK ISSUANCE PLAN
FOR AUTOMATIC INCREASE IN AUTHORIZED SHARES
Subject to shareholder approval, the Board adopted a second amendment to
the Option Plan which is commonly referred to as an "Evergreen" provision.
This amendment (the "Option Plan Evergreen Amendment") provides for automatic
annual increases in the number of shares authorized for issuance under the
Option Plan in an amount equal to two percent (2%) of the then outstanding
shares of Common Stock of the Company. If this amendment is approved by the
shareholders, these increases in authorized Option Plan shares (rounded
downward, if necessary, to eliminate fractional shares) will commence on
January 1, 1998 and continue on the first day of January of each year
thereafter.
For the same reasons as discussed with respect to Proposal 4 above, the
Board approved the Option Plan Evergreen Amendment. Like the Purchase Plan, the
Board believes that the Company's Option Plan is an important factor in
recruiting and retaining top quality employees whose interest in the advancement
of the Company will be aligned with its shareholders as a result of equity
participation through the Option Plan. The proposed amendment will also
preclude the necessity of repeated and costly applications to the Company's
shareholders for approval of increases in shares authorized for issuance under
the Option Plan.
The Board believes that the Option Plan Evergreen Amendment will be of
significant value in maintaining a consistent level of authorized shares in the
Option Plan sufficient to afford the Company the ability to offer competitive
compensation packages to key employees.
An affirmative vote of at least a majority of the shares held by the
shareholders present in person or by proxy at the Meeting is required to
approve the Option Plan Evergreen Amendment.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR
THE OPTION PLAN EVERGREEN AMENDMENT TO AUTOMATICALLY INCREASE AUTHORIZED SHARES
UNDER THE OPTION PLAN ON AN ANNUAL BASIS
AS SET FORTH IN ITEM 6 OF THE PROXY.
PROPOSAL 7
APPROVAL OF REINCORPORATION IN DELAWARE
WITH AUTHORIZED SHARES OF COMMON STOCK
INCREASED TO SIXTY MILLION
GENERAL
The Board has unanimously approved a proposal to change the Company's state
of incorporation from California to Delaware. The Board believes the change in
domicile to be in the best interests of the Company and its shareholders for
several reasons. Principally, the Board believes that reincorporation will
enhance the Company's ability to attract and retain qualified members of the
Board as well as encourage Directors to continue to make independent decisions
in good faith on behalf of the Company. The Company believes that the more
favorable corporate environment afforded by Delaware will enable it to compete
more effectively with other public companies, most of which are incorporated in
Delaware, to attract new Directors and to retain its current Directors. To
date, the Company has not experienced difficulty in retaining Directors.
Reincorporation in Delaware will allow the Company the increased flexibility and
predictability afforded by Delaware law. Concurrent with the reincorporation,
the Company proposes to adopt or maintain certain measures designed to make
hostile takeovers of the Company more difficult. The Board believes that
adoption of these measures will
34
<PAGE>
enable the Board to consider fully any proposed takeover attempt and to
negotiate terms that maximize the benefit to the Company and its shareholders.
In recent years, a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware. For the reasons
explained below, the Company believes it is beneficial and important that the
Company likewise avail itself of Delaware law.
For many years Delaware has followed a policy of encouraging incorporation
in that state. In furtherance of that policy, Delaware has adopted
comprehensive corporate laws which are revised regularly to meet changing
business circumstances. The Delaware legislature is particularly sensitive to
issues regarding corporate law and is especially responsive to developments in
modern corporate law. The Delaware courts have developed considerable expertise
in dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, it is
anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under California law.
In 1986, Delaware amended its corporate law to allow corporations to
limit the personal monetary liability of its directors for their conduct as
directors under certain circumstances. The Board has elected to adopt such a
provision in the Delaware certificate and bylaws. It should be noted that
Delaware law does not permit a Delaware corporation to limit or eliminate the
liability of its directors for intentional misconduct, bad faith conduct, or
any transaction from which the director derives an improper personal benefit
or for violations of federal laws such as the federal securities laws. The
Board believes that Delaware incorporation will enhance the Company's ability
to recruit and retain directors in the future; however, the shareholders
should be aware that such a provision inures to the benefit of the Directors,
and the interest of the Board in recommending the reincorporation may
therefore be in conflict with the interests of the shareholders. See
"Indemnification and Limitation of Liability" for a more complete discussion
of these issues.
In 1987, California amended its corporate law in a manner similar to
Delaware to permit a California corporation to limit the personal monetary
liability of its directors for their conduct as directors under certain
circumstances. Nonetheless, the Board believes that the protection from
liability for directors is somewhat greater under the Delaware law than under
the California law and therefore that the Company's objectives in adopting this
type of provision can be better achieved by reincorporation in Delaware.
The interests of the Board, management and affiliated shareholders in
voting on the reincorporation proposal may not be the same as those of
unaffiliated shareholders. Delaware law does not afford minority shareholders
some of the rights and protections available under California law.
Reincorporation of the Company in Delaware may make it more difficult for
minority shareholders to elect directors and influence Company policies. A
discussion of the principal differences between California and Delaware law as
they affect shareholders begins on page 37 of this Proxy Statement.
In addition, portions of the reincorporation proposal may have the effect
of deterring hostile takeover attempts. A hostile takeover attempt may have a
positive or a negative effect on the Company and its shareholders, depending on
the circumstances surrounding a particular takeover attempt. Takeover attempts
that have not been negotiated or approved by the board of directors of a
corporation can seriously disrupt the business and management of a corporation
and generally present to the shareholders the risk of terms which may be less
than favorable to all of the shareholders than would be available in a board-
approved transaction. Board-approved transactions may be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the
corporation and all of its shareholders with due consideration to matters such
as the recognition or postponement of gain or loss for tax purposes, the
management and business of the acquiring corporation and maximum strategic
deployment of corporate assets.
The Board recognizes that hostile takeover attempts do not always have the
unfavorable consequences or effects described above and may frequently be
beneficial to the shareholders, providing all of the shareholders with
considerable value for their shares. However, the Board believes that the
potential disadvantages of unapproved takeover attempts are sufficiently great
that prudent steps to reduce the likelihood of such takeover
35
<PAGE>
attempts are in the best interests of the Company and its shareholders.
Accordingly, the reincorporation plan includes certain proposals that may have
the effect of discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board as to the benefits to shareholders
of the changes, shareholders should recognize that one of the effects of such
changes may be to discourage a future attempt to acquire control of the Company
which is not presented to and approved by the Board, but which a substantial
number and perhaps even a majority of the Company's shareholders might believe
to be in their best interests or in which shareholders might receive a
substantial premium for their shares over the current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so.
The proposed reincorporation would be accomplished by merging the Company
into a newly-formed Delaware corporation which, just before the merger, will be
a wholly-owned subsidiary of the Company (the "Delaware Company"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached as Exhibit A to this Proxy Statement. Upon the effective date of the
merger, the Delaware Company's name will be ENCAD, Inc. The reincorporation
will not result in any change in the Company's business, assets or liabilities,
will not cause its corporate headquarters to be moved and will not result in any
relocation of management or other employees.
The Board believes that the additional authorized shares of Common Stock in
the Delaware Company are desirable to enhance the Delaware Company's flexibility
in handling future needs of the Delaware Company which may entail the use of
stock for such actions as equity financing, acquisition opportunities,
management incentive and employee benefit plans, a shareholder rights plan, or
for other corporate purposes. The proposed increase in the number of authorized
shares will also expedite a stock split or stock dividend which could be
beneficial to the Delaware Company and shareholders by broadening the potential
market for the Common Stock of the Delaware Company and creating a wider
distribution of shares.
On the effective date of the proposed reincorporation, each outstanding
share of Common Stock of the Company will automatically convert into one
share of Common Stock of the Delaware Company, and shareholders of the
Company will automatically become shareholders of the Delaware Company. On
the effective date of the reincorporation, the number of outstanding shares
of Common Stock of the Delaware Company will be equal to the number of shares
of Common Stock of the Company outstanding immediately prior to the effective
date of the reincorporation. In addition, each outstanding option or right
to acquire shares of Common Stock will be converted into an option or right
to acquire an equal number of shares of Common Stock of the Delaware Company,
under the same terms and conditions as the original options or rights. All
of the Company's employee benefit plans, including the 1993 Employee Stock
Purchase Plan, the 1993 Stock Option/Stock Issuance, 401(k) Plan, Profit
Sharing Plan, Cafeteria Plan, and Select Compensation Non-Qualified Deferred
Compensation Plan will be adopted and continued by the Delaware Company
following the reincorporation. Shareholders should recognize that approval of
the proposed reincorporation will constitute approval of the adoption and
assumption of those plans by the Delaware Company.
No action need be taken by shareholders to exchange their stock
certificates now; this will be accomplished at the time of the next transfer by
the shareholder. Certificates for shares in the Company will automatically
represent an equal number of shares in the Delaware Company upon completion of
the merger.
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock present in person or represented by proxy and voting at the
Annual Meeting is required for approval of the reincorporation. For purposes of
the vote, abstentions and broker non-votes will not be counted for any purpose
in determining whether this matter has been approved. If approved by the
shareholders, it is anticipated that the reincorporation would be completed as
soon thereafter as practicable. The reincorporation may be abandoned or the
Merger Agreement may be amended (with certain exceptions), either before or
after shareholder approval has been obtained, if in the opinion of the Board,
circumstances arise that make such action advisable; provided that any
amendment that would effect a material change from the charter provisions
discussed in this Proxy Statement would require further approval by the holders
of a majority of the outstanding shares of the Common Stock.
36
<PAGE>
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by the
corporate law of California, the Company's State of incorporation, and by the
California Articles and the Company's Amended and Restated Bylaws (the
"California Bylaws"), which have been adopted pursuant to California law. The
California Articles and California Bylaws are available for inspection during
business hours at the principal executive offices of the Company. In addition,
copies may be obtained by writing to the Company at ENCAD, Inc., 6059
Cornerstone Court West, San Diego, California 92121, Attention: Thomas L.
Green.
If the reincorporation proposal is adopted, the Company will merge into,
and its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "Application of California
Law After Reincorporation"). The California Articles and California Bylaws,
will, in effect, be replaced by the Certificate of Incorporation of the Delaware
Company (the "Delaware Certificate") and the bylaws of the Delaware Company (the
"Delaware Bylaws"), copies of which are attached as Exhibits B and C to this
Proxy Statement. Accordingly, the differences among these documents and between
Delaware and California law are relevant to your decision whether to approve the
reincorporation proposal.
A number of differences between California and Delaware law and among the
various charter documents are summarized in the chart below. Shareholders are
requested to read the following chart in conjunction with the discussion
following the chart and the Merger Agreement, the Delaware Certificate and the
Delaware Bylaws attached to this Proxy Statement. For each item summarized in
the chart, there is a reference to a page of this Proxy Statement on which a
more detailed discussion appears.
<TABLE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
<S> <C> <C>
Limitation of Liability Delaware law permits the limitation of California law contains additional
of Directors and liability of directors and officers to the exceptions to the liability limitations
Officers Company except in connection with (i) of directors and officers.
(see page 39). breaches of the duty of loyalty; (ii) acts or
omissions not in good faith or involving
intentional misconduct or knowing
violations of law; (iii) the payment of
unlawful dividends or unlawful stock
repurchases or redemptions; or (iv)
transactions in which a director received
an improper personal benefit.
Indemnification of Delaware law permits somewhat broader California Law permits
Directors and Officers indemnification and could result in indemnification under certain
(see page 40). indemnification of directors and officers in circumstances, subject to certain
circumstances where California law would limitations.
not permit indemnification.
Cumulative Voting for Cumulative voting not available under Cumulative voting is mandatory
Directors Delaware law because not provided in the upon notice given by a shareholder at
(see page 42). Delaware Certificate. a shareholders' meeting at which
directors are to be elected. California
law permits Nasdaq National Market
System ("Nasdaq") corporations with
over 800 equity security holders to
eliminate cumulative voting.
37
<PAGE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
<S> <C> <C>
Number of Directors Determined solely by resolution of the Determined by the board of directors
(see page 42). Board of Directors. within a range set in the California
Bylaws. Changes in the authorized
range must be approved by the
shareholders.
Filling Board Vacancies Delaware law provides for the Delaware California law permits (a) any holder
(see page 43). Court of Chancery to order an election to of 5% or more of the corporation's
fill vacancies or newly created voting stock ("Voting Stock") or (b)
directorships upon the application of the the superior court of the appropriate
holders of 10% of the outstanding shares county to call a special meeting of
having a right to vote for such directors if, shareholders to elect the entire board
at the time of filling such vacancies or if, after filling any vacancy, the
directorships, the directors then in office directors then in office who have
constitute less than a majority of the entire been elected by the shareholders
board as constituted immediately prior to constitute less than a majority of the
any increase. directors then in office.
Removal of Directors Removal with or without cause Removal with or without cause by
by Shareholders by affirmative vote of a majority of the affirmative vote of a majority of the
(see page 43). outstanding shares. outstanding shares, provided that
shares voting against removal could
not elect such director under
cumulative voting.
Who May Call Special The Board of Directors, the Chairman of The Board of Directors, the
Shareholder Meeting the Board or the Chief Executive Officer. Chairman of the Board, the President,
(see page 44). or holders of 10% of the shares
entitled to vote at the special
meeting.
Action by Written Action by written consent not permitted by Action by written consent not
Consent of Delaware Certificate. All shareholder permitted by California Articles. All
Shareholders in Lieu of a action must take place by a shareholder shareholder action must take place by
Shareholder Vote at vote at a meeting of shareholders. a shareholder vote at a meeting of
Shareholder Meeting shareholders.
(see page 44).
Tender Offer Statute Restricts hostile two-step takeovers. No comparable statute. The
(see page 45). California Articles include a Fair
Price provision similar in effect to the
Delaware statute.
Amendment of Certificate Amendments to provisions relating to the Amendments to provisions relating to
(see page 47). establishment of the number of directors, the establishment of the number of
advance notice of shareholder proposals directors, advance notice of
and nominations, shareholder action shareholder proposals and
without a meeting and cumulative voting nominations, shareholder action
38
<PAGE>
<CAPTION>
ISSUE DELAWARE CALIFORNIA
<S> <C> <C>
require approval by a simple majority of the without a meeting, cumulative voting
Voting Stock of the Delaware and the Fair Price provision require
Company. approval by a simple majority of the
Voting Stock of the Company.
Loans to Officers and Board of Directors may authorize if Provided that the Company has 100
Directors expected to benefit the Company. or more shareholders of record,
(see page 47). Board of Directors may authorize if
expected to benefit the Company,
otherwise loans must be approved or
ratified by a majority of the
outstanding shares.
Class Vote for Generally not required unless a A reorganization transaction must
Reorganizations reorganization adversely affects a specific generally be approved by a majority
(see page 47). class of shares. vote of each class of shares
outstanding.
Right of Shareholders Permitted for any purpose reasonably Permitted for any purpose reasonably
to Inspect Shareholder related to such shareholder's interest as a related to such shareholder's interest
List shareholder. as a shareholder. Also, an absolute
(see page 47). right to 5% shareholders and certain
1% shareholders.
Appraisal Rights Generally available if shareholders receive Available in certain circumstances if
(see page 48). cash in exchange for the shares and in the holders of 5% of the class assert
certain other circumstances. such rights.
Dividends Paid from surplus (including paid-in and Generally limited to the greater of (i)
(see page 48). earned surplus or net profits). retained earnings or (ii) an amount
which would leave the Company with
assets of 125% of liabilities and
current assets of 100% of current
liabilities.
Other Responsive legislature and larger body of
corporate case law in Delaware provides
more predictable corporate legal
environment in Delaware.
</TABLE>
INDEMNIFICATION AND LIMITATION OF LIABILITY
LIMITATIONS ON DIRECTOR LIABILITY.
Both California and Delaware permit a corporation to limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of certain duties as a director. The California and Delaware
laws adopt a self-governance approach by enabling a corporation to take
advantage of these provisions only if an amendment to the charter limiting such
liability is approved by a majority of the outstanding shares or such language
is included in the original charter.
39
<PAGE>
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (a) intentional misconduct or knowing and culpable violation of
law; (b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director; (c) receipt of an improper personal
benefit; (d) acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders: (f) interested
transactions between the corporation and a director in which a director has a
material financial interest: and (g) liability for improper distributions, loans
or guarantees.
The Delaware Certificate also eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for (a) breaches of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
Shareholders should recognize that the proposed reincorporation and
associated measures are designed to shield a director from suits by the Delaware
Company or its shareholders for monetary damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care.
As a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if the Delaware Company or
its shareholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a shareholder who is dissatisfied with the Board's decisions.
Although an aggrieved shareholder could sue to enjoin or rescind an action taken
or proposed by the Board, such remedies may not be timely or adequate to prevent
or redress injury in all cases.
The Company believes that directors are motivated to exercise due care in
managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board's continued high standard of corporate
governance without any decrease in accountability of its Directors to the
Company and its shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The California Bylaws and Delaware Bylaws relating to indemnification
similarly require that the Company and the Delaware Company, respectively,
indemnify its directors and its executive officers and officers to the fullest
extent permitted by the respective state law, provided that the Company may
modify the extent of such indemnification by individual contracts with its
directors and executive officers, and provided, further, that the Company will
not be required to indemnify any director or executive officer in connection
with a proceeding initiated by such person, with certain exceptions. Such
Bylaws permit the Company and the Delaware Company to provide indemnification to
their other officers, employees and agents as set forth in the respective state
law. Such indemnification is intended to provide the full flexibility available
under such laws. The Delaware Bylaws contain provisions similar to the
California Bylaws with respect to advances in that the Delaware Company is
required to advance expenses related to any proceeding contingent on such
persons' commitment to repay any advances unless it is determined ultimately
that such persons are entitled to be indemnified.
40
<PAGE>
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (b) no indemnification
may be made under California law without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without court approval. Delaware allows
indemnification of such expenses without court approval.
Indemnification is permitted by both California and Delaware law providing
the requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
the corporation. Without court approval, however, no indemnification may be
made in respect of any derivative action in which such person is adjudged liable
for negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended the action on the merits
or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
California Articles include such a provision.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, rights to indemnification and expenses are non-exclusive, in that
they need not be limited to those expressly provided by statute. California law
is similar in that it permits non-exclusive indemnification if authorized in the
Company's charter. The California Articles contain such an enabling provision.
Under Delaware law and the Delaware Bylaws, the Delaware Company is permitted to
indemnify its directors, officers, employees and other agents, within the limits
established by law and public policy, pursuant to an express contract, bylaw
provision, shareholder vote or otherwise, any or all of which could provide
indemnification rights broader than those currently available under the
California Bylaws or the California indemnification statutes. If the
reincorporation is approved, the Company intends to enter into indemnification
agreements with its officers and Directors.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of the Company made prior to the proposed reincorporation. Nevertheless, the
Board has recognized in considering this reincorporation proposal that the
individual directors have a personal interest in obtaining the application of
Delaware law to such indemnity and limitation of liability issues affecting them
and the Company in the event they arise from a potential future case, and that
the application of Delaware law, to the extent that any director or officer is
actually indemnified in circumstances
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where indemnification would not be available under California law, would result
in expense to the Company which the Company would not incur if the Company were
not reincorporated. The Board believes, however, that the overall effect of
reincorporation is to provide a corporate legal environment that enhances the
Company's ability to attract and retain high quality outside Directors and thus
benefits the interests of the Company and its shareholders.
There is no pending or, to the Company's knowledge, threatened litigation
to which any of its Directors is a party in which the rights of the Company or
its shareholders would be affected if the Company currently were subject to the
provisions of Delaware law rather than California law.
California and Delaware corporate law, the California Bylaws and the
Delaware Bylaws, as well as any indemnity agreements, may permit indemnification
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Board has been advised that, in the opinion of the
Securities and Exchange Commission (the "SEC"), indemnification for liabilities
arising under the Securities Act is contrary to public policy and is therefore
unenforceable, absent a decision to the contrary by a court of appropriate
jurisdiction.
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes
represented by a share to a single candidate or may allocate those votes among
as many candidates as he chooses. Thus, a shareholder with a significant
minority percentage of the outstanding shares may be able to elect one or more
directors if voting is cumulative. In contrast, under non-cumulative voting,
the holder or holders of a majority of the shares entitled to vote in an
election of directors will be able to elect all the directors of the Company.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by
amending its articles of incorporation or bylaws, to eliminate cumulative voting
when the Company's shares are listed on a national stock exchange or traded on
the Nasdaq and are held by at least 800 equity security holders. The Company
has such a provision in the California Articles.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's certificate of incorporation. The Delaware Certificate does
not provide for cumulative voting.
The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company with a view toward obtaining a board seat and
influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a basis
which some shareholders might deem favorable.
OTHER MATTERS RELATING TO DIRECTORS
NUMBER OF DIRECTORS
California law allows the number of persons constituting the board of
directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors may
vary within a specified range, the exact number to be determined by the Board of
Directors. California law further provides that, in the case of a variable
board, the maximum number of directors may not exceed two times the minimum
number minus one. The California Bylaws provide for a Board of Directors that
may vary between five and nine members, inclusive, and the Board has fixed the
exact number of Directors at seven.
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California law also requires that any change in the range of a variable Board of
Directors specified in the articles and bylaws must be approved by a majority in
interest of the outstanding shares entitled to vote (or such greater proportion
of the outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
five cannot be adopted if votes cast against its adoption are equal to more than
16 2/3% of the outstanding shares entitled to vote.
Delaware law permits a board of directors to change the authorized number
of directors by amendment to the bylaws unless the number of directors is fixed
in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that the
exact number of directors shall be fixed from time to time exclusively by the
Board of Directors by resolution.
REMOVAL OF DIRECTORS.
Under California law, a director may be removed with or without cause by
the affirmative vote of a majority of the outstanding shares, provided that the
shares voted against removal would not be sufficient to elect the director by
cumulative voting. Under Delaware law, unless the board is classified or
cumulative voting is permitted, a director can be removed from office during his
term by shareholders with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors. The Delaware
Certificate provides that the Company's Directors may be removed from office at
any time with or without cause by the affirmative vote of the holders of a
majority of the voting power of the then-outstanding shares of Voting Stock of
the Company. The term "cause" with respect to the removal of directors is not
defined in the Delaware General Corporation Law and its meaning has not been
precisely delineated by the Delaware courts.
FILLING BOARD VACANCIES.
Under California law, if, after the filling of any vacancy by the directors
of a corporation, the directors then in office who have been elected by the
corporation's shareholders constitute less than a majority of the directors then
in office, then: (i) any holder of more than 5% of the corporation's Voting
Stock may call a special meeting of shareholders, or (ii) the superior court of
the appropriate county may order a special meeting of the shareholders to elect
the entire board of directors of the corporation. Delaware law provides that
if, at the time of filling any vacancy or newly created directorship, the
directors then in office constitute less than a majority of the entire board of
directors as constituted immediately prior to any increase, the Delaware Court
of Chancery may, upon application of any shareholder or shareholders holding at
least 10% of the total number of shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships or to replace the directors chosen
by the directors then in office.
The California Bylaws provide that vacancies may be filled by either the
affirmative vote of a majority of (i) the shareholders or (ii) the remaining
directors then in office, even though less than a quorum. The proposed Delaware
Certificate and Delaware Bylaws provide that vacancies shall, unless the Board
of Directors determines by resolution that any such vacancies be filled by the
shareholders or as otherwise provided by law, be filled only by the affirmative
vote of a majority of directors then in office, even if such directors comprise
less than a quorum of the Board of Directors.
CAPITALIZATION
Currently, the Company's capital stock consists of 15,000,000 authorized
shares of Common Stock, no par value, of which 11,295,918 shares were issued
and outstanding as of December 31, 1996, and 5,000,000 authorized shares of
Preferred Stock, no par value, none of which were issued and outstanding as
of December 31, 1996.
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Upon the effectiveness of the reincorporation, the Delaware Company will
have the same number of outstanding shares of Common Stock that the Company had
outstanding immediately prior to the reincorporation.
The Delaware Company will have 60,000,000 shares of Common Stock
authorized, an increase of 45,000,000 shares from the 15,000,000 shares
currently authorized in the Company's Restated Articles of Incorporation, as
amended (the "California Articles"). The Delaware Company's authorized but
unissued shares of Preferred Stock will be available for future issuance.
Under the Delaware Certificate, as under the California Articles, the Board
of Directors has the authority to determine or alter the rights, preferences,
privileges and restrictions to be granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares constituting any such
series and to determine the designation thereof.
The Board may authorize the issuance of Preferred Stock for the purpose of
adopting shareholder rights plans or in connection with various corporate
transactions, including corporate partnering arrangements. If the
reincorporation is approved, it is not the present intention of the Board to
seek shareholder approval prior to any issuance of Preferred Stock, except as
required by law or regulation. See "Anti-Takeover Measures."
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
Under California law, a special meeting of shareholders may be called by
the Board of Directors, the Chairman of the Board of Directors, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of shareholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and
Delaware Bylaws provide that such a meeting may be called by the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Pursuant to the Delaware Certificate and Delaware Bylaws, if the
meeting is called by a person or persons other than the Board of Directors,
(i.e., by the Chairman of the Board of Directors or the Chief Executive Officer)
the Board of Directors shall determine the time and the place of such meeting
which shall be from 35 to 120 days after the receipt of the request for the
meeting.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Under California and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both California and Delaware
law permits a corporation to eliminate such actions by written consent in its
charter. The Delaware Certificate, like the California Articles, continues to
prohibit actions by written consent of shareholders.
Prohibition of such shareholder written consents may lengthen the amount of
time required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirement of a shareholders'
meeting. The prohibition of shareholder written consents may deter hostile
takeover attempts because of the lengthened shareholder approval process.
Without the ability to act by written consent, a holder or group of holders
controlling a majority in interest of the Delaware Company's capital stock will
not be able to amend the Delaware Bylaws or remove directors pursuant to a
written consent. Any such holder or group of holders would have to wait until a
shareholders' meeting was held to take any such action. The Board believes this
provision, like the other provisions to be included in the Delaware Certificate
and Delaware Bylaws, will enhance the Board's opportunity to fully consider and
effectively negotiate in the context of a takeover attempt.
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ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date stated in the proxy
statement released in connection with the previous year's annual meeting.
The Delaware Bylaws provide that, in order for director nominations or
shareholder proposals to be properly brought before the annual meeting, the
shareholder must have delivered timely notice to the Secretary of the
corporation. To be timely under the Delaware Bylaws, notice must be delivered
not less than 120 days prior to the date stated in the Company's proxy statement
released to stockholders in connection with the previous year's annual meeting.
If no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, the Delaware Bylaws will provide
that notice must be given not more than 90 days nor less than 60 days prior to
the annual meeting. Proper notice under the federal securities laws for a
proposal to be included in the Company's proxy materials will constitute proper
notice under the Delaware Bylaws. These notice requirements help ensure that
shareholders are aware of all proposals to be voted on at the annual meeting and
have the opportunity to consider each proposal in advance of the annual meeting.
ANTI-TAKEOVER MEASURES
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the establishment of a
classified board of directors and the elimination of the right of shareholders
to call special shareholders' meetings, each of which is described above. In
addition, certain types of "poison pill" defenses (such as shareholder rights
plans) have been upheld by Delaware courts, while California courts have yet to
decide on the validity of such defenses, thus rendering their effectiveness in
California less certain.
As discussed above, numerous differences between California and Delaware
law, effective without additional action by the Delaware Company, could have a
bearing on unapproved takeover attempts. One such difference is the existence
of a Delaware statute regulating tender offers, which statute is intended to
limit coercive takeovers of companies incorporated in that state. California
has no comparable statute, but the California Articles include a Fair Price
provision similar to the Delaware statute, which prevents potential acquirors
who purchase a controlling interest in the Company for a certain price from
acquiring the remainder of the shares at a lesser price. Delaware law provides
that a corporation may not engage in any business combination with any
interested shareholder for a period of three years following the date that such
shareholder became an interested shareholder, unless (i) prior to the date the
shareholder became an interested shareholder the Board of Directors approved the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder, or (ii) upon consummation of the transaction
which resulted in the shareholder becoming an interested shareholder, the
interested shareholder owned at least 85% of the Voting Stock, or (iii) the
business combination is approved by the Board of Directors and authorized by 66
2/3% of the outstanding Voting Stock which is not owned by the interested
shareholder. An interested shareholder means any person that is the owner of
15% or more of the outstanding Voting Stock, however, the statute provides for
certain exceptions to parties who otherwise would be designated interested
shareholders, including an exception for parties that held 15% or more of the
outstanding Voting Stock as of December 23, 1987. Any corporation may decide to
opt out of the statute in its original certificate of incorporation or, at any
time, by action of its shareholders. The Company has no present intention of
opting out of the statute.
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There can be no assurance that the Board would not adopt any further
anti-takeover measures available under Delaware law (some of which may not
require shareholder approval). Moreover, the availability of such measures
under Delaware law, whether or not implemented, may have the effect of
discouraging a future takeover attempt which a majority of the Delaware
Company's shareholders may deem to be in their best interests or in which
shareholders may receive a premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such
transactions may not have the opportunity to do so. Shareholders should
recognize that, if adopted, the effect of such measures, along with the
possibility of discouraging takeover attempts, may be to limit in certain
respects the rights of shareholders of the Delaware Company compared with the
rights of shareholders of the Company.
The Board recognizes that hostile takeover attempts do not always have the
unfavorable consequences or effects described above and may frequently be
beneficial to the shareholders, providing all of the shareholders with
considerable value for their shares. However, the Board believes that the
potential disadvantages of unapproved takeover attempts (such as disruption of
the Company's business and the possibility of terms which may be less than
favorable to all of the shareholders than would be available in a board-approved
transaction) are sufficiently great such that prudent steps to reduce the
likelihood of such takeover attempts and to enable the Board to fully consider
the proposed takeover attempt and actively negotiate its terms are in the best
interests of the Company and its shareholders.
In addition to the various anti-takeover measures that would be available
to the Delaware Company after the reincorporation due to the application of
Delaware law, the Delaware Company would retain the rights currently available
to the Company under California law to issue shares of its authorized but
unissued capital stock. Following the effectiveness of the proposed
reincorporation, shares of authorized and unissued Common Stock and Preferred
Stock of the Delaware Company could (within the limits imposed by applicable
law) be issued in one or more transactions, or Preferred Stock could be issued
with terms, provisions and rights which would make more difficult and,
therefore, less likely, a takeover of the Delaware Company. Any such issuance
of additional stock could have the effect of diluting the earnings per share and
book value per share of existing shares of Common Stock and Preferred Stock, and
such additional shares could be used to dilute the stock ownership of persons
seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of Preferred Stock of the Delaware Company ("Delaware Preferred Stock")
remain to be fixed by the Delaware Board of Directors. Accordingly, if the
Delaware Board of Directors so authorizes, the holders of Delaware Preferred
Stock may be entitled to vote separately as a class in connection with approval
of certain extraordinary corporate transactions in circumstances where Delaware
law does not ordinarily require such a class vote, or might be given a
disproportionately large number of votes. Such Delaware Preferred Stock could
also be convertible into a large number of shares of Common Stock of the
Delaware Company under certain circumstances or have other terms which might
make acquisition of a controlling interest in the Delaware Company more
difficult or more costly, including the right to elect additional directors to
the Delaware Board of Directors. Potentially, the Delaware Preferred Stock
could be used to create voting impediments or to frustrate persons seeking to
effect a merger or otherwise to gain control of the Delaware Company. Also, the
Delaware Preferred Stock could be privately placed with purchasers who might
side with the management of the Delaware Company in opposing a hostile tender
offer or other attempt to obtain control.
If the reincorporation is approved it is not the present intention of the
Board to seek shareholder approval prior to any issuance of the Preferred Stock
or Common Stock of the Delaware Company, except as required by law or
regulation. Frequently, opportunities arise that require prompt action, and it
is the belief of the Board that the delay necessary for shareholder approval of
a specific issuance would be a detriment to the Delaware Company and its
shareholders. The Board does not intend to issue any Preferred Stock except on
terms which the Board deems to be in the best interests of the Delaware Company
and its then existing shareholders.
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AMENDMENT OF CERTIFICATE
Both the California Articles and the Delaware Certificate provide that the
provisions relating to the (i) establishment of the number of directors, (ii)
advance notice of shareholder proposals and nominations, (iii) shareholder
action without a meeting and (iv) cumulative voting can only be amended by the
affirmative vote of the holders of a majority of the Voting Stock of the Company
and the Delaware Company, respectively.
AMENDMENT OF BYLAWS
Both the California Bylaws and the Delaware Bylaws provide that the
provisions relating to the (i) establishment of the number of directors, (ii)
advance notice of shareholder proposals and nominations, (iii) shareholder
action without a meeting, (iv) shareholder voting procedures, (v) filling
vacancies on the Board of Directors, (vi) excessive compensation and (vii) loans
to officers can only be amended by the affirmative vote of the holders of
66-2/3% of the Voting Stock of the Company and the Delaware Company,
respectively.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
Except where there are 100 or more shareholders of record and the
corporation's bylaws provide that its board of directors may approve loans to
the corporation's officers or directors or employee benefit plans that the board
of directors reasonably expects to benefit the corporation, California law
provides that any loan or guaranty (other than loans to permit the purchase of
shares under certain stock purchase plans) for the benefit of any officer or
director, or any employee benefit plan authorizing such loan or guaranty (except
certain employee stock purchase plans), must be approved by the shareholders of
a California corporation. The California Bylaws provide for Board approval of
loans to the Company's officers or directors or employee benefit plans under the
circumstances described above.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. Delaware law generally
does not require class voting for such transactions, except in certain
situations involving an amendment to the certificate of incorporation which
adversely affects a specific class of shares.
California law also requires that holders of a California corporation's
common stock receive nonredeemable common stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its common stock, unless all of the holders of its common stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may have
the effect of making a cash "freezeout" merger by a majority shareholder more
difficult to accomplish. A cash freezeout merger is a transaction whereby a
minority shareholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters
rights. Delaware law has no comparable provision.
INSPECTION OF SHAREHOLDER LISTS
California law provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's Voting
Stock or shareholders holding 1% or more of such shares who have filed a
Schedule 14B with the SEC. Delaware law provides no such absolute right of
shareholder
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inspection. However, both California and Delaware law permit any shareholder of
record to inspect the shareholder list for any purpose reasonably related to
that person's interest as a shareholder.
APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders are denied
dissenters' rights under California law. For this reason, appraisal rights will
not be available to shareholders in connection with the reincorporation
proposal.
Under Delaware law appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
VOTING AND APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide shareholders with voting or appraisal rights
when a corporation acquires another business through the issuance of its stock,
whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
DIVIDENDS
Under California law, any dividends or other distributions to shareholders,
such as redemptions, are limited to the greater of (i) retained earnings or (ii)
an amount which would leave the corporation with assets (excluding certain
intangible assets) equal to at least 125% of its liabilities (excluding certain
deferred items) and current assets equal to at least 100% (or, in certain
circumstances, 125%) of its current liabilities. Delaware law allows the
payment of dividends and redemption of stock out of surplus (including paid-in
and earned surplus) or out of net profits for the current and immediately
preceding fiscal years. The Company has never paid cash dividends and has no
present plans to do so.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of the
Delaware Company's business is conducted in California, and in a particular
fiscal year more than 50% of the Delaware Company's outstanding voting
securities are held of record by persons having addresses in California, and
(ii) the Company's shares are traded in the Nasdaq and are held by
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fewer than 800 equity security holders, as of its most recent annual meeting of
shareholders, then the Delaware Company would become subject to certain
provisions of California law regardless of its state of incorporation. The
Company does not currently meet all of the above requirements.
Because the Company's Common Stock is traded in the Nasdaq and the
Company's shares are held by at least 800 equity security holders, as of its
most recent annual meeting of shareholders, California law will not initially
apply to the Delaware Company if the reincorporation is approved. The Company
would not be subject to California law as long as it continued to meet both of
these requirements.
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation provided for in the Merger Agreement is intended to be
a tax free reorganization under the Internal Revenue Code. Assuming the
reincorporation qualifies as a reorganization, no gain or loss will be
recognized to the holders of capital stock of the Company as a result of
consummation of the reincorporation, and no gain or loss will be recognized by
the Company or the Delaware Company. Each former holder of capital stock of the
Company will have the same basis in the capital stock of the Delaware Company
received by such holder pursuant to the reincorporation as such holder has in
the capital stock of the Company held by such holder at the time of consummation
of the reincorporation. Each shareholder's holding period with respect to the
Delaware Company's capital stock will include the period during which such
holder held the corresponding Company capital stock, provided the latter was
held by such holder as a capital asset at the time of consummation of the
reincorporation. The Company has not obtained a ruling from the Internal
Revenue Service or an opinion of legal or tax counsel with respect to the
consequences of the reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE PROPOSED REINCORPORATION, INCLUDING THE
APPLICABILITY OF THE LAWS OF ANY STATE OR OTHER JURISDICTION.
BOARD RECOMMENDATION
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Delaware and California and does not
purport to be an exhaustive discussion of all of the differences. Such
differences can be determined in full by reference to the California
Corporations Code and to the Delaware General Corporation Law. In addition,
both California and Delaware law provide that some of the statutory provisions
as they affect various rights of holders of shares may be modified by provisions
in the charter or bylaws of the corporation.
A vote FOR the reincorporation proposal will constitute approval of the
merger, the Delaware Certificate, the Delaware Bylaws, assumption of the
indemnification agreements, the adoption and assumption by the Delaware Company
of each of the Company's stock option, stock purchase and employee benefit plans
and all other aspects of this Proposal 7.
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THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR REINCORPORATION
OF THE COMPANY IN DELAWARE WITH INCREASED AUTHORIZED SHARES OF 60,000,000,
AS SET FORTH IN ITEM 6 OF THE PROXY.
PROPOSAL 8
APPROVAL OF AMENDMENT
OF THE COMPANY'S RESTATED ARTICLES OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES
OF COMPANY'S COMMON STOCK TO 60,000,000
In the event Proposal 7 is not approved by the required vote of the
shareholders of the Company, the Board has adopted an amendment to the Company's
Restated Articles of Incorporation to increase the number of authorized shares
of Common Stock from 15,000,000 to 60,000,000 shares, subject to ratification of
the amendment by the shareholders. This proposed amendment is an alternative to
Proposal 7 and will not be considered at the Meeting if Proposal 7 is approved
by the shareholders.
The proposed amendment will be implemented by deleting paragraph (A) of
Article III of the Restated Articles of Incorporation of the Company and
substituting a new paragraph (A) that reads in full as follows:
ARTICLE III
(A) CLASSES OF STOCK. The corporation is authorized to issue
two classes of stock to be designated, respectively, "Common
Stock" and "Preferred Stock." The total number of shares which
the corporation is authorized to issue is sixty million
(60,000,000) shares of Common Stock and five million (5,000,000)
shares of Preferred Stock.
The Board believes that the additional authorized shares of Common Stock
are desirable to enhance the Company's flexibility in handling future needs of
the Company which may entail the use of stock for such actions as equity
financing, acquisition opportunities, management incentive and employee benefit
plans, a shareholder rights plan, or for other corporate purposes. The proposed
increase in the number of authorized shares will also expedite a stock split or
stock dividend which could be beneficial to the Company and shareholders by
broadening the potential market for the Common Stock and creating a wider
distribution of shares.
Delay in implementing these actions could result in lost opportunities or
reduce anticipated benefits. In addition, the Company would be subject to the
added cost of holding a special meeting of shareholders to vote on an increase
in authorized shares. If the proposed amendment is approved by the
shareholders, the additional shares of Common Stock would be available for
issuance at the discretion of the Board without the delay and expense incidental
to obtaining shareholder approval for an increase of authorized shares.
The Board's discretion in issuing authorized shares without shareholder
approval is, however, subject to the applicable rules of the National
Association of Securities Dealers, Inc. ("NASD") or any stock exchange on
which the Company's securities may then be listed. Under existing NASD
regulations, approval by a majority of the holders of Common Stock would
nevertheless be required prior to the original issuance of additional shares
of Common Stock, other than in a public offering for cash, (i) if the Common
Stock (including securities convertible into or exercisable for Common
Stock) has, or will have upon issuance, voting power equal to or in excess of
20% of the voting power outstanding before the issuance of the Common Stock;
or (ii) if the number of shares of Common Stock to be issued is or will be
equal to or in excess of 20% of the number of shares outstanding before the
issuance of the Common Stock; or (iii) if the issuance would result in a
change in control of the Company.
50
<PAGE>
Shareholder approval would also be required under NASD regulations for any
issuance, other than an issuance under a plan of stock or stock purchase rights
to officers or directors representing less than 25,000 shares or if the plan or
arrangement involves the issuance of less than 1% of the number of shares of
Common Stock or 1% of the voting power outstanding. In any event, the issuance
of Common Stock other than on a pro-rata basis to all holders of such stock
would reduce the proportionate interests of such shareholders.
Although the increase in authorized Common Stock will not have any
immediate effect on the rights of existing shareholders, the additional
authorized shares could be used in the future to discourage or frustrate a
hostile takeover of the Company. Issuance of the additional shares of Common
Stock could (within the limits imposed by applicable law) be used to make a
takeover of the Company more difficult, and therefore less likely, by diluting
the stock ownership or voting rights of persons seeking to obtain control of the
Company. Under certain circumstances, an attempt to effect a takeover or
otherwise gain control of the Company could be favorable to the interests of
shareholders.
The Board is not aware of any specific effort by any person or group to
obtain control of the Company and does not intend to issue any shares of
Common Stock except on terms which the Board deems to be in the best interests
of the Company and its shareholders. Except as described above with respect to
existing stock option and stock purchase plans, the Board at this time has no
other agreement, arrangement, plan or understanding with respect to the issuance
of any of the additional authorized shares.
The holders of any additional shares of Common Stock issued in the future
would generally have the same rights and privileges as the holders of the shares
of Common Stock currently authorized and outstanding. Those rights do not
include preemptive rights or cumulative voting rights with respect to the future
issuance of any of the Common Stock authorized by this proposed amendment.
Approval of this proposed amendment to the Company's Restated Articles of
Incorporation requires the affirmative vote of at least a majority of the
outstanding shares of Common Stock issued and outstanding on the Record Date.
If this proposed amendment is approved by the shareholders, it will become
effective upon filing and recording of the Amendment to the Restated Articles of
Incorporation (described above) with the Secretary of State of California.
IN THE EVENT PROPOSAL 7 IS NOT APPROVED BY THE SHAREHOLDERS,
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENT
OF THE RESTATED ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK, AS SET FORTH IN ITEM 8 OF THE PROXY.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders are advised that any shareholder proposal intended for
consideration at the next Annual Meeting of Shareholders must be received by
the Company on or before January 16, 1998. Under the present rules of the
SEC, the deadline for shareholders to submit proposals for inclusion in the
Proxy Statement for next year's Annual Meeting of Shareholders is 120 days in
advance of May 16, 1998. Such proposals may be included in the next year's
Proxy Statement only if they comply with certain rules and regulations
promulgated by the SEC. It is recommended that shareholders submitting
proposals direct them to the Secretary of the Company and utilize Certified
Mail-Return Receipt Requested.
FINANCIAL STATEMENTS AUTHORIZED
Financial statements for the Company are included in the Company's Annual
Report to Shareholders for the year ended December 31, 1996. Additional copies
of these statements, and the Annual Report to the SEC on Form 10-K are available
without charge to shareholders (excluding exhibits, unless such exhibits have
been
51
<PAGE>
specifically incorporated by reference therein) and may be obtained by writing
the Company's 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 its review of the forms which it received and of written
representations furnished to the Company, no other reports were required during
the year ended December 31, 1996, and all Section 16(a) requirements applicable
to its officers, Directors and greater than 10% beneficial owners were complied
with, except with regard to Mr. Lewis who filed a late Form 3 (Initial Statement
of Beneficial Ownership of Securities).
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,
Thomas L. Green, Esq.
Corporate Secretary
SAN DIEGO, CALIFORNIA
[TBD]
52
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
ENCAD, INC.
(A DELAWARE CORPORATION)
AND
ENCAD, INC.
(A CALIFORNIA CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER dated as of ________________, 1997 (this
"Agreement") is between ENCAD, Inc., a Delaware corporation ("ENCAD Delaware"),
and ENCAD, Inc., a California corporation ("ENCAD California"). ENCAD Delaware
and ENCAD California are sometimes referred to herein as the "Constituent
Corporations."
R E C I T A L S
- - - - - - - -
A. ENCAD Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has a total authorized capital stock of
Sixty-Five Million (65,000,000) shares. The number of shares of Preferred Stock
authorized to be issued is Five Million (5,000,000), par value $.001. No shares
of Preferred Stock were outstanding as of the date hereof and prior to giving
effect to the transactions contemplated hereby. The number of shares of Common
Stock authorized to be issued is Sixty Million (60,000,000), par value $.001.
As of the date hereof, and before giving effect to the transactions contemplated
hereby, _________ shares of Common Stock were issued and outstanding, all of
which were held by ENCAD California.
B. ENCAD California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital stock of
Twenty Million (20,000,000) shares. The number of shares of Preferred Stock
authorized to be issued is Five Million (5,000,000), no par value, none of which
are currently outstanding. The number of shares of Common Stock authorized to
be issued is Fifteen Million (15,000,000), no par value.
C. The Board of Directors of ENCAD California has determined that, for
the purpose of effecting the reincorporation of ENCAD California in the State of
Delaware, it is advisable and in the best interests of ENCAD California that
ENCAD California merge with and into ENCAD Delaware upon the terms and
conditions herein provided.
D. The respective Boards of Directors of ENCAD Delaware and ENCAD
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
E. ENCAD Delaware is a wholly-owned subsidiary of ENCAD California.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, ENCAD Delaware and ENCAD California hereby agree, subject to the
terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 MERGER. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the General Corporation Law of the State of
California, ENCAD California shall be merged with and into ENCAD Delaware (the
"Merger"), the separate existence of ENCAD California shall cease and ENCAD
Delaware shall be, and is herein sometimes referred to as, the "Surviving
Corporation," and the name of the Surviving Corporation shall be ENCAD, Inc.
<PAGE>
1.2 FILING AND EFFECTIVENESS. The Merger shall not become effective until
the following actions shall be completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the stockholders of ENCAD California and the sole stockholder
of ENCAD Delaware in accordance with the requirements of the Delaware
General Corporation Law and the General Corporation Law of the State of
California;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the Delaware General Corporation
Law shall have been filed with the Secretary of State of the State of
Delaware; and
(d) An executed counterpart of this Agreement, a Certificate of
Ownership or any other document filed with the Secretary of State of the
State of Delaware pursuant to section (c) above, shall have been filed with
the Secretary of State of the State of California.
The date and time when the Merger shall become effective as aforesaid,
is herein called the "Effective Date of the Merger."
1.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of ENCAD California shall cease and ENCAD Delaware, as the
Surviving Corporation (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) shall be subject to all actions previously taken by its and
ENCAD California's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of ENCAD California
in the manner more fully set forth in Section 259 of the General Corporation Law
of the State of Delaware, (iv) shall continue to be subject to all of the debts,
liabilities and obligations of ENCAD Delaware as constituted immediately prior
to the Effective Date of the Merger, and (v) shall succeed, without other
transfer, to all of the debts, liabilities and obligations of ENCAD California
in the same manner as if ENCAD Delaware had itself incurred them, all as more
fully provided under the applicable provisions of the General Corporation Law of
the State of Delaware and the General Corporation Law of the State of
California.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
ENCAD Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 BYLAWS. The Bylaws of ENCAD Delaware as in effect immediately prior
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of ENCAD Delaware
immediately prior to the Effective Date of the Merger shall be the directors and
officers of the Surviving Corporation until their successors shall have been
duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
A-2
<PAGE>
III. MANNER OF CONVERSION OF STOCK
III.1 ENCAD CALIFORNIA COMMON SHARES. Upon the Effective Date of the
Merger, each share of ENCAD California Common Stock, no par value, issued and
outstanding immediately prior thereto shall by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such share or any
other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of Common Stock, par value $.001 per share, of the Surviving
Corporation.
III.2 ENCAD CALIFORNIA OPTIONS AND STOCK PURCHASE RIGHTS. Upon the
Effective Date of the Merger, the Surviving Corporation shall assume and
continue the employee benefits plans (including the 401(k) Plan, the Deferred
Compensation Plan, the 1993 Employee Stock Purchase Plan and the 1993 Stock
Option/Stock Issuance Plan) and all other employee benefit plans of ENCAD
California. Each outstanding and unexercised option, or other right to purchase
ENCAD California Common Stock shall become an option, or right to purchase the
Surviving Corporation's Common Stock on the basis of one (1) share of the
Surviving Corporation's Common Stock for each share of ENCAD California Common
Stock issuable pursuant to any such option, or stock purchase right on the same
terms and conditions and at an exercise price per share equal to the exercise
price per share applicable to any such ENCAD California option or stock purchase
right at the Effective Date of the Merger. There are no options or purchase
rights for Preferred Stock of ENCAD California.
A number of shares of the Surviving Corporation's Common Stock shall
be reserved for issuance upon the exercise of options and stock purchase rights
equal to the number of shares of ENCAD California Common Stock so reserved
immediately prior to the Effective Date of the Merger.
III.3 ENCAD DELAWARE COMMON STOCK. Upon the Effective Date of the
Merger, each share of Common Stock, par value $.001 per share, of ENCAD Delaware
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by ENCAD Delaware, the holder of such shares or any other
person, be cancelled and returned to the status of authorized but unissued
shares.
III.4 EXCHANGE OF CERTIFICATES. After the Effective Date of the
Merger, each holder of an outstanding certificate representing shares of ENCAD
California Common Stock may be asked to surrender the same for cancellation to
an exchange agent, whose name will be delivered to such holders prior to any
requested exchange (the "Exchange Agent"), and each such holder shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock
into which the surrendered shares were converted as herein provided. Until so
surrendered, each outstanding certificate theretofore representing shares of
ENCAD California Common Stock shall be deemed for all purposes to represent the
number of shares of the Surviving Corporation's Common Stock into which such
shares of ENCAD California Common Stock were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving
Corporation so issued in the Merger shall bear the same legends, if any, with
respect to the restrictions on transferability as the certificates of ENCAD
California so converted and given in exchange therefore, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws, or other such additional legends as agreed upon by the
holder and the Surviving Corporation.
If any certificate for shares of ENCAD Delaware stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other
A-3
<PAGE>
than that of the registered holder of the certificate surrendered or establish
to the satisfaction of ENCAD Delaware that such tax has been paid or is not
payable.
IV. GENERAL
IV.1 COVENANTS OF ENCAD DELAWARE. ENCAD Delaware covenants and agrees that
it will, on or before the Effective Date of the Merger:
IV.1.1 Qualify to do business as a foreign corporation in the State
of California.
IV.1.2 File any and all documents with the California Franchise Tax
Board necessary for the assumption by ENCAD Delaware of all of the franchise tax
liabilities of ENCAD California.
IV.1.3 Take such other actions as may be required by the General
Corporation Law of the State of California.
IV.2 FURTHER ASSURANCES. From time to time, as and when required by ENCAD
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of ENCAD California such deeds and other instruments, and there shall
be taken or caused to be taken by it such further and other actions as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by ENCAD Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of ENCAD California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of ENCAD Delaware are fully authorized
in the name and on behalf of ENCAD California or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
IV.3 ABANDONMENT. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either ENCAD California or of ENCAD
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of ENCAD California.
IV.4 AMENDMENT. The Boards of Directors of the Constituent Corporations
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholder or shareholders of either Constituent Corporation
shall not: (1) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such Constituent
Corporation, (2) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger or (3) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class or series of capital stock of
any Constituent Corporation.
IV.5 REGISTERED OFFICE. The registered office of the Surviving Corporation
in the State of Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent
and the registered agent of the Surviving Corporation at such address is
CorpAmerica, Inc.
IV.6 AGREEMENT. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 6059 Cornerstone
Court West, San Diego, CA 92121, and copies thereof will be furnished to any
stockholder or shareholder of either Constituent Corporation, upon request and
without cost.
IV.7 GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
General Corporation Law of the State of California.
IV.8 COUNTERPARTS. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
A-4
<PAGE>
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of ENCAD, Inc., a Delaware corporation,
and ENCAD, Inc., a California corporation, is hereby executed on behalf of each
of such two corporations and attested by their respective officers thereunto
duly authorized.
ENCAD, INC., a Delaware corporation
By:
------------------------------------
David A. Purcell,
Chairman of the Board and
Chief Executive Officer
ATTEST:
- - ---------------------------
Todd W. Schmidt,
Chief Financial Officer
ENCAD, INC., a California corporation
By:
------------------------------------
David A. Purcell,
Chairman of the Board and
Chief Executive Officer
ATTEST:
- - ---------------------------
Todd W. Schmidt,
Chief Financial Officer
[COUNTERPART SIGNATURE PAGE
TO AGREEMENT AND PLAN OF MERGER]
<PAGE>
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF ENCAD, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
ARTICLE I
The name of this corporation is ENCAD, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent. The name of its
registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
ARTICLE IV
(A) CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock, denominated Common Stock and Preferred Stock. The Common Stock shall
have a par value of $0.001 per share and the Preferred Stock shall have a par
value of $0.001 per share. The total number of shares of Common Stock which the
Corporation is authorized to issue is Sixty Million (60,000,000), and the total
number of shares of Preferred Stock which the Corporation is authorized to issue
is Five Million (5,000,000), which shares of Preferred Stock shall be
undesignated as to series.
(B) ISSUANCE OF PREFERRED STOCK. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby
authorized, by filing one or more certificates pursuant to the Delaware General
Corporation Law (each, a "Preferred Stock Designation"), to fix or alter from
time to time the designations, powers, preferences and rights of each such
series of Preferred Stock and the qualifications, limitations or restrictions
thereof, including without limitation the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly-unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be decreased in accordance with the
foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
(C) RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior or equal rights of holders
of all classes of stock at the time outstanding having prior or equal rights as
to dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
<PAGE>
2. REDEMPTION. The Common Stock is not redeemable upon demand of any
holder thereof or upon demand of this corporation.
3. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
(A) EXCULPATION. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (seq level4 \*romani) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(seq level4 \*romanii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (seq level4
\*romaniii) under Section 174 of the Delaware General Corporation Law or (seq
level4 \*romaniv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further reduce or to authorize, with the approval of the
corporation's stockholders, further reductions in the liability of the
corporation's directors for breach of fiduciary duty, then a director of the
corporation shall not be liable for any such breach to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
(B) INDEMNIFICATION. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
(C) EFFECT OF REPEAL OR MODIFICATION. Any repeal or modification of any
of the foregoing provisions of this Article V shall be prospective and shall not
adversely affect any right or protection of a director, officer, agent or other
person existing at the time of, or increase the liability of any director of the
corporation with respect to any acts or omissions of such director occurring
prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. The number of directors shall
be as specified in the Bylaws of the corporation. In no event will the number
of directors be less than three. Directors need not be stockholders.
ARTICLE VII
No holder of shares of stock of the corporation shall have any preemptive
or other right, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series thereof,
of stock of the corporation, whether now or hereafter authorized, or any
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such warrants,
options, bonds, debentures or other securities convertible into, exchangeable
for or carrying any right to purchase any shares of any class, or series
thereof, of stock may be issued or disposed of by the Board of Directors to such
persons, and on such terms and for such lawful consideration as in its
discretion it shall deem advisable or as the corporation shall have by contract
agreed.
B-2
<PAGE>
ARTICLE VIII
The corporation is to have a perpetual existence.
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate of Incorporation and/or any provision
contained in any amendment to or restatement of this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of directors as set forth in
the Bylaws; provided, however, that the stockholders may change or repeal any
bylaw adopted by the Board of Directors by the requisite affirmative vote of
stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XII
Advance notice of stockholder nominations for the election of directors and
of business to be brought by stockholders before any meeting of the stockholders
of the corporation shall be given in the manner provided in the Bylaws of the
corporation.
ARTICLE XIII
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
Ross L. Burningham Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
B-3
<PAGE>
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed
this _____ day of _________________, 1997 by the undersigned who affirms that
the statements made herein are true and correct.
----------------------------------------
Ross L. Burningham, Sole Incorporator
[SIGNATURE PAGE OF CERTIFICATE OF INCORPORATION OF ENCAD, INC.]
<PAGE>
EXHIBIT C
BYLAWS
OF
ENCAD, INC.,
a Delaware corporation
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in the City
of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors shall be held in the City of San Diego, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or
(C) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation no
later than the date specified in the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting of
stockholders, which date shall be not less than one hundred twenty (120)
calendar days in advance of the date of such proxy statement; provided, however,
that in the event that no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than thirty (30) days from
the date contemplated at the time of the previous year's proxy statement, notice
by the stockholder to be timely must be so received a reasonable time before the
solicitation is made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business and (v) any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his
capacity as a proponent to a stockholder proposal. In addition to the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of
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proxy for a stockholder's meeting, stockholders must provide notice as required
by the regulations promulgated under the 1934 Act to the extent such regulations
require notice that is different from the notice required above.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b) of this Section 2. The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 2. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
that are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
subitems (ii), (iii) and (iv) of paragraph (b) of this Section 2. At the
request of the Board of Directors, any person nominated by a stockholder for
election as a director shall furnish to the Secretary of the corporation that
information required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the
facts warrant, determine and declare at the meeting that a nomination was not
made in accordance with the procedures prescribed by these Bylaws, and if he
should so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
Section 3. NOTICE OF ANNUAL MEETING. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, or have prepared and made, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time, may only be called
as provided in this Section 5 by the Chief Executive Officer or Chairman of the
Board and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting. The place, date and time of any
special meeting shall be determined by the Board of Directors. Such
determination shall include the record date for determining the stockholders
having the right of and to vote at such meeting.
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Section 6. NOTICE OF SPECIAL MEETING. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting, to each stockholder entitled to
vote at such meeting.
Section 7. ACTION AT SPECIAL MEETING. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 8. QUORUM AND ADJOURNMENTS.
(a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation, as amended. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
(b) When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, as amended, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 9. VOTING RIGHTS. Unless otherwise provided in the Certificate of
Incorporation, as amended, each stockholder shall at every meeting of the
stockholders be entitled to one (1) vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three (3) years from its date, unless the proxy provides
for a longer period.
Section 10. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
Section 11. INSPECTORS OF ELECTION. Before any meeting of stockholders,
the Board of Directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any stockholder or a stockholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request
of one or more stockholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any stockholder or a stockholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(A) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies;
(B) Receive votes, ballots, or consents;
(C) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
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(D) Count and tabulate all votes or consents;
(E) Determine when the polls shall close;
(F) Determine the result; and
(G) Do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
ARTICLE III
DIRECTORS
Section 1. NUMBER, TERM OF OFFICE AND QUALIFICATION. The number of
directors which shall constitute the whole Board of Directors shall be fixed by
resolution of the Board of Directors, with the number initially fixed at seven
(7). The number of directors shall be determined by resolution of a simple
majority of the directors then in office and each director elected shall hold
office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. VACANCIES. Vacancies may be filled only by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until a successor is duly
elected and shall qualify or until his earlier death, resignation or removal.
If there are no directors in office, then an election of directors may be held
in the manner provided by statute. If, at the time of filling any vacancy, the
directors then in office shall constitute less than a majority of the whole
Board of Directors (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies, or to replace the directors
chosen by the directors then in office.
Section 3. POWERS. The business of the corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation, as amended, or by these Bylaws directed
or required to be exercised or done by the stockholders.
Section 4. REGULAR AND SPECIAL MEETINGS. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of California.
Section 5. ANNUAL MEETING. The annual meeting of each newly elected Board
of Directors shall be held without notice other than this Bylaw immediately
after, and at the same place as, the annual meeting of stockholders. In the
event the annual meeting of any newly elected Board of Directors shall not be
held immediately after, and at the same place as, the annual meeting of
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 6. NOTICE OF REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 7. NOTICE OF SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chief Executive Officer or President on no less
than forty-eight (48) hours notice to each director either personally, or by
telephone, mail, telegram or facsimile; special meetings shall be called by the
Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of two directors unless the Board of Directors
consists of only one director, in which case special meetings shall be called by
the Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of the sole director. A written waiver of notice,
signed by the person entitled thereto, whether before or after the time of the
meeting stated therein, shall be deemed equivalent to notice.
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Section 8. QUORUM. At all meetings of the Board of Directors a majority
of the directors shall constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation, as
amended. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation, as amended, or these Bylaws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 10. MEETINGS BY TELEPHONE CONFERENCE CALLS. Unless otherwise
restricted by the Certificate of Incorporation, as amended, or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
Section 11. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, as amended,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation, as amended, expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
Section 12. FEES AND COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation, as amended, or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
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Section 13. REMOVAL. Subject to any limitations imposed by law or the
Certificate of Incorporation, as amended, the Board of Directors, or any
individual director, may be removed from office at any time only with cause by
the affirmative vote of the holders of at least a majority of shares entitled to
vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. NOTICE. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation, as amended, or of these Bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telephone, telegram and
facsimile.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation, as
amended, or of these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. ENUMERATION. The officers of the corporation shall be chosen
by the Board of Directors and shall be a Chief Executive Officer, a Chief
Financial Officer and a Secretary. The Board of Directors may elect from among
its members a Chairman of the Board. The Board of Directors may also choose a
President, one or more Vice Presidents and one or more Assistant Secretaries.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation, as amended, or these Bylaws otherwise provide.
The compensation of all officers and agents of the corporation
shall be fixed by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his also being a director of the
corporation.
Section 2. ELECTION OR APPOINTMENT. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a Chief Executive
Officer, Chief Financial Officer and a Secretary and may choose a President, one
or more Vice Presidents and one or more Assistant Secretaries.
The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
Section 3. TENURE, REMOVAL AND VACANCIES. The officers of the corporation
shall hold office until their successors are chosen and qualified. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the corporation shall be filled by the Board of Directors.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. He shall have and may exercise such powers as
are, from time to time, assigned to him by the Board of Directors and as may be
provided by law.
Section 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. He shall preside at all meetings of the stockholders and, in
the absence or nonexistence of a
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Chairman of the Board at all meetings of the Board of Directors. He shall have
the general powers and duties of management usually vested in the Chief
Executive Officer of a corporation, including general supervision, direction and
control of the business and supervision of other officers of the corporation,
and shall have such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 6. PRESIDENT. Subject to such supervisory powers as may be given
by these Bylaws or the Board of Directors to the Chairman of the Board or the
Chief Executive Officer, if there be such officers, the President shall have
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws. In the event a
Chief Executive Officer shall not be appointed, the President shall have the
duties of such office.
Section 7. VICE PRESIDENTS. The Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Board of Directors,
shall, in the absence or disability of the President, act with all of the powers
and be subject to all the restrictions of the President. The Vice Presidents
shall also perform such other duties and have such other powers as the Board of
Directors, the President or these Bylaws may, from time to time, prescribe.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors, all meetings of the committees thereof and all meetings of
the stockholders and record all the proceedings of the meetings in a book or
books to be kept for that purpose. Under the Chief Executive Officer's or
President's supervision, the Secretary shall give, or cause to be given, all
notices required to be given by these Bylaws or by law; shall have such powers
and perform such duties as the Board of Directors, the Chief Executive Officer,
the President or these Bylaws may, from time to time, prescribe; and shall have
custody of the seal of the corporation. The Secretary, or an Assistant
Secretary, shall have authority to affix the seal of the corporation to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
Section 9. ASSISTANT SECRETARY. The Assistant Secretary, if any, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, shall, in the absence, disability or refusal to act of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors,
the Chief Executive Officer, the President, the Secretary or these Bylaws may,
from time to time, prescribe.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
act as Treasurer and shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
He shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the President and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the corporation.
If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
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Section 11. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the Board of Directors, the Chief
Executive Officer or the President.
Section 12. ABSENCE OR DISABILITY OF OFFICERS. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may delegate the powers and duties of such
officer to any officer or to any director, or to any other person who it may
select.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the Chairman of the Board of Directors, or the President
or a Vice President and the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the corporation, certifying the number of
shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. EXECUTION OF CERTIFICATES. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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Section 4. TRANSFER OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. FIXING RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholder or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS. The
corporation shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, and (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
Section 2. INDEMNIFICATION OF OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
The corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
Section 3. GOOD FAITH.
(a) For purposes of any determination under this Bylaw, a
director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(1) one or more officers or employees of the corporation
whom the director or executive officer believed to be reliable
and competent in the matters presented;
(2) counsel, independent accountants or other persons as to
matters which the director or executive officer believed to be
within such person's professional competence; and
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(3) with respect to a director, a committee of the Board of
Directors upon which such director does not serve, as to matters
within such committee's designated authority, which committee the
director believes to merit confidence; so long as, in each case,
the director or executive officer acts without knowledge that
would cause such reliance to be unwarranted.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his consent was unlawful.
(c) The provisions of this Section 3 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 4. EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined
pursuant to Section 4 of this Bylaw, no advance shall be made by the corporation
if a determination is reasonably and promptly made (i) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
the proceeding, or (ii) if such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, that the facts known to the decision-making party
at the time such determination is made demonstrate clearly and convincingly that
such person acted in bad faith or in a manner that such person did not believe
to be in or not opposed to the best interests of the corporation.
Section 5. ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, as amended, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
Section 7. SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs,
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executors and administrators of such a person.
Section 8. INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
Section 9. AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
Section 10. SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
Section 11. CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(d) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(e) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE VIII
LOANS TO OFFICERS
Section 1. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan,
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guarantee or other assistance may be with or without interest and may be
unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this Bylaw shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
ARTICLE IX
EXCESSIVE COMPENSATION
If the Internal Revenue Service disallows as a business deduction to the
corporation any part of the salary or other compensation paid by it to any
officer, director or employee, as being excessive compensation, that part
disallowed shall be repaid to the corporation by the officer, director or
employee.
ARTICLE X
GENERAL PROVISIONS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
as amended, if any, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation, as amended.
Section 2. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. EXECUTION OF CORPORATE INSTRUMENTS. All checks or demands for
money and notes of the corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE XI
AMENDMENTS
Section 1. AMENDMENTS.
(a) Except as otherwise set forth in Section 9 of Article
VII of these Bylaws, the Bylaws may be altered or amended or new Bylaws adopted
by the affirmative vote of a majority of the voting power of all of the
then-outstanding shares of capital stock of the corporation entitled to vote
generally in the election of Directors (the "Voting Stock"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, as amended, to adopt, amend or
repeal Bylaws by a vote of the majority of the Board of Directors unless a
greater or different vote is required pursuant to the provisions of the Bylaws,
the Certificate of Incorporation or any applicable provision of law.
(b) Notwithstanding any other provisions of these Bylaws or
any provision of law which
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might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the Voting
Stock required by law, the Certificate of Incorporation, as amended, or any
Preferred Stock Designation (as the term is defined in the Certificate of
Incorporation, as amended), the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal this paragraph (b) or Section 2,
Section 9 or Section 10 of Article II or Section 1, Section 2 or Section 13 of
Article III or Article VIII or Article IX of these Bylaws.
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The following is being submitted pursuant to Instruction 3 of Item 10 and is
not to be considered part of the Proxy Statement.
<PAGE>
ENCAD, INC.
AMENDED
1993 EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE FEBRUARY 11, 1997
I. PURPOSE
This ENCAD, Inc. 1993 Employee Stock Purchase Plan (the "Plan") is intended
to provide Qualifying Employees with the opportunity to acquire a proprietary
interest in the Company by accumulating amounts for the Employee's Account
through payroll deductions and the periodic application of such amounts to the
purchase of shares of the Company's Common Stock.
II. DEFINITIONS
For the purposes of plan administration, the following terms shall have the
meanings indicated:
ACT shall mean the Securities Act of 1933 (as amended).
ACCOUNT means the amount held for the benefit of a Participant hereunder
which Account shall be increased by any payroll deductions from the Participant
and will be decreased by amounts applied to the purchase of shares or refunded
to or for the benefit of the Participant hereunder.
BASE SALARY means the basic earnings paid to a Participant by Participating
Companies plus any pre-tax contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 Cafeteria benefit
program (now existing or hereafter established). Base Salary shall not include
(I) overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments or (II) contributions (other than Code Section
401(k) or Code Section 125 contributions) made on the Participant's behalf under
any employee benefit or welfare plan (now existing or hereafter established).
BOARD means the Company's Board of Directors.
CODE means the Internal Revenue Code of 1986, as amended from time to time.
COMPANY means ENCAD, Inc., a California corporation, and any corporate
successor to all or substantially all of the assets or voting stock of ENCAD,
Inc. which adopts the Plan.
COMMON STOCK means shares of the Company's Common Stock.
1.
<PAGE>
CORPORATE AFFILIATE means any company which is a parent or subsidiary
corporation of the Company (as determined in accordance with Code Section 424),
including any parent or subsidiary corporation which becomes such after the
Effective Date.
EFFECTIVE DATE means the first day of the term of this Plan as set forth in
Article XI.A which is scheduled to commence upon the effective date of the S-8
Registration Statement covering the shares of Common Stock issuable under the
Plan. However, for any Corporate Affiliate which becomes a Participating
Company in the Plan after the first day of the initial option period, a
subsequent Effective Date shall be designated with respect to participation by
its Qualifying Employees.
ENTRY DATE means the date on which a Participant first joins the option
period in effect under the Plan.
PARTICIPANT means any Eligible Employee of a Participating Company who has
enrolled and is actively participating in the Plan.
PARTICIPATING COMPANY means the Company and any Corporate Affiliate
designated from time to time by the Board.
QUALIFYING EMPLOYEE means any person who is engaged, on a
regularly-scheduled basis of at least twenty (20) hours per week, in the
rendition of personal services to the Company, or any Participating company in
exchange for amounts which constitute wages under Section 3121(a) of the Code,
provided that no person who owns (within the meaning of Code Section 424(d)) or
holds outstanding options or other rights to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Corporate affiliates shall be a Qualifying
Employee.
QUARTER means a calendar quarter and (except for the first Quarter of the
initial option period or as otherwise designated by the Plan Administrator),
each Quarter shall begin on the first business day of the Quarter and shall end
on the last business day of such Quarter. The first Quarter of the initial
option period under this Plan shall commence on the Effective Date and shall end
on March 31, 1994.
SERVICE means the period during which an individual remains a Qualifying
Employee and all periods of Service shall be measured from such individual's
most recent date of hire by the Company or such Corporate Affiliate.
III. ADMINISTRATION
The Plan shall be administered by the Board or by a committee comprised of
two (2) or more Board members appointed from time to time by the Board (the
"Plan Administrator"). The Plan Administrator shall have full authority to
administer the Plan, including authority to interpret and construe any provision
of the Plan. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan.
2.
<PAGE>
IV. OPTION PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive option periods during the term of the Plan until
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been issued.
B. The initial option period will begin on the Effective Date and will
end on the last business day in December, 1994. Subsequent option periods shall
coincide with calendar years.
C. Each Participant will have purchase rights as set forth in Article VII
for each option period, the purchase price for which shall be collected through
payroll deductions and which purchase rights shall be exercised in successive
installments each Quarter within the option period.
D. the acquisition of Common Stock through participation in the Plan for
any option period shall neither limit nor require the acquisition of Common
Stock by the Participant in any subsequent option period.
V. ELIGIBILITY AND PARTICIPATION
A. Each Qualifying Employee shall be eligible to participate in an option
period under the Plan in accordance with the following provisions:
- All Qualifying Employees on the Effective Date may enter the
initial option period on the Effective Date by enrolling in accordance with
Section V.C. below.
- A Qualifying Employee who was not previously eligible to enter an
option period may enter that option period on the first day of any of the
Quarters following the date such Qualifying Employee becomes eligible by
enrolling in accordance with Section V.C. below.
B. A Qualifying Employee who does not enroll for an option period on the
first date such Qualifying Employee is permitted to enroll hereunder may
subsequently enroll in the option period on the first day of any subsequent
Quarter.
C. To enroll in the Plan, a Qualifying Employee must complete the
enrollment forms prescribed by the Plan Administrator and file such forms with
the Plan Administrator (or its designate) on or before the date such Qualifying
Employee is first permitted to enter the Option Period.
D. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each Quarter of
the option period, up to a maximum of ten percent (10%) of Base Salary. The
deduction rate so authorized shall continue
3.
<PAGE>
in effect for the remainder of the option period, except to the extent such rate
is changed in accordance with the following guidelines:
- The Participant may, at any time during a Quarter, reduce the
rate of payroll deduction. Such reduction shall become effective as soon
as possible after filing of the requisite reduction form with the Plan
Administrator (or its designate), but the Participant may not effect more
than one such reduction during the same Quarter.
- The Participant may, prior to the commencement of any new Quarter
within the option period, increase or decrease the rate of payroll
deduction for the new Quarter by filing the appropriate form with the Plan
Administrator (or its designate). The new rate shall become effective as
of the first day of the next Quarter.
Payroll deductions will automatically cease upon the termination of
the Participant's purchase right in accordance with the applicable provisions of
Section VII below.
VI. STOCK SUBJECT TO PLAN
A. The maximum number of shares of Common Stock which may be issued under
the Plan shall be 520,000 shares of Common Stock (subject to adjustment under
Section VI.B below).
B. Commencing January 1, 1998, and on each January 1 thereafter during
the term of the Plan, the maximum number of shares of Common Stock which may be
issued under the Plan shall be increased by a number of shares equal to 1% of
the total number of issued and outstanding shares of the Company as of the date
of such adjustment as shown on the books and records of the Company.
C. In the event any change is made to the Company's outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other change affecting such outstanding Common Stock as a class without receipt
of consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during any one option period, and (iii) the class and number of
shares and the price per share in effect under each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.
VII. PURCHASE RIGHTS
Each Participant in a particular option period shall have the right to
purchase shares of Common Stock in a series of successive quarterly installments
during such option period on the terms and conditions set forth below (the
"Purchase Rights"). Each Participant shall execute a purchase agreement
embodying such terms and conditions and such other provisions (not inconsistent
with the Plan) as the Plan Administrator may require.
4.
<PAGE>
PURCHASE PRICE. The Purchase Rights shall be exercised at the end of each
Quarter at a purchase price equal to eighty-five percent (85%) of the LOWER of
(i) the fair market value per share of the Common Stock on the Participant's
Entry Date or (ii) the fair market value per share of the Common Stock on the
last business day of the Quarter. However, for each Participant whose Entry
Date is other than the first day of the option period, the amount determined
under clause (I) shall not be less than the fair market value of the Common
Stock on the first day of such option period.
VALUATION. For purposes of determining the fair market value per share of
Common Stock on any relevant date, the following procedures shall be in effect:
- If fair market value is to be determined on or after the date of
the Common Stock is first registered under Section 12(g) of the Securities
Exchange Act of 1934, then the fair market value shall be the closing
selling price on that date, as officially quoted on the NASDAQ National
Market System, or if there is no quoted selling price for such date, then
the closing selling price on the next preceding day for which there does
exist such a quotation.
- If fair market value is to be determined prior to such Section
12(g) registration of the Common Stock, then the fair market value of the
Common Stock on such date shall be determined by the Plan Administrator
after taking into account such factors as the Plan Administrator deems
appropriate.
NUMBER OF PURCHASABLE SHARES. The number of shares purchasable by a
Participant each Quarter shall be the number of whole shares obtained by
dividing the amount in Participant's Account at the end of such Quarter by the
purchase price in effect for the Quarter. However, no Participant may, during
any one option period, purchase more than 2,000 shares of Common Stock (subject
to adjustment under Section VI.B).
Notwithstanding the above, no participant shall have the right to purchase
shares of Common Stock to the extent that, immediately after the grant, such
Participant would own (within the meaning of Code Section 424(d)) or hold
outstanding options or other rights to purchase, stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of stock
of the Company or any of its Corporate Affiliates.
PAYMENT. Payment for the Common Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin on the first pay day coincident with or immediately
following the Participant's Entry Date into the option period and shall (unless
sooner terminated by the Participant) continue through the pay day ending with
or immediately prior to the last day of the option period. The amounts so
collected shall be credited to the Participant's Account under the Plan, but no
interest shall be paid on the balance from time to time outstanding in such
Account. The amounts collected from a Participant may be comingled with the
general assets of the Company and may be used for general corporate purposes.
TERMINATION OF PURCHASE RIGHT. The following provisions shall govern the
termination of outstanding purchase rights:
5.
<PAGE>
(i) A participant may, at any time prior to the last five (5)
business days of the Quarter, terminate his/her outstanding purchase right
under the Plan by filing the prescribed notification form with the Plan
Administrator (or its designate). Nor further payroll deductions shall be
collected from the Participant with respect to the terminated purchase
right, and any payroll deductions collected for the current Quarter shall,
at the Participant's election, be immediately refunded or held for the
purchase of shares on the end of the Quarter. If no such election is made,
then such funds shall be refunded as soon as possible after the close of
such Quarter.
(ii) After the termination of purchase rights for an option
period, the Participant may not subsequently rejoin that option period. In
order to resume participation in any subsequent option period, such
individual must re-enroll in the Plan for that option period.
(iii) If a Participant ceases to be a Qualifying Employee during
an option period then all payroll deductions shall terminate and the
Participant (or the personal representative of the estate of a deceased
Participant) shall have the following election, exercisable up until the
end of the Quarter in which the Participant ceases to be a Qualifying
Employee:
- to withdraw in cash all of the Participant's payroll
deductions for such Quarter, or
- to have such funds held for the purchase of shares at the
end of the Quarter.
If no such election is made, then all funds in the Participant's
account shall be refunded at the close of such Quarter.
STOCK PURCHASE. Subject to the limitations set forth herein, funds held
in a Participant's Account at the end of a Quarter (and which are not required
to be refunded hereunder) shall be applied to the purchase of whole shares of
Common Stock for the Participant on the last business day of the Quarter at the
purchase price in effect for such Quarter. Any payroll deductions not applied
to such purchase because they are not sufficient to purchase a whole share shall
be held for the purchase of Common Stock in the next Quarter. Any payroll
deductions not applied to the purchase of Common Stock for any other reason
shall be promptly refunded to the Participant.
PRORATION OF PURCHASE RIGHTS. If the total number of shares of Common
Stock which would otherwise be purchased hereunder on any date exceed the number
of shares then available for issuance under the Plan, the Plan Administrator
shall make a pro-rata allocation of the available shares to Participants on a
uniform and nondiscriminatory basis.
RIGHTS AS STOCKHOLDER. A Participant shall have no stockholder rights with
respect to the shares subject to his/her outstanding purchase right until the
shares are actually purchased on the Participant's behalf in accordance with the
applicable provisions of the Plan. No adjustments shall be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
6.
<PAGE>
A Participant shall not be entitled to receive a stock certificate for the
number of shares purchased, or sell any shares purchased, within a period of
less than six (6) months from the time of purchase. Such certificate may, upon
the Participant's request, be issued in the names of the Participant and his/her
spouse as community property or as joint tenants with right of survivorship.
ASSIGNABILITY. No purchase right granted under the Plan shall be
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only the
Participant.
CHANGE IN OWNERSHIP. Should the Company or its stockholders enter into an
agreement to dispose of all or substantially all of the assets or outstanding
capital stock of the Company by means of:
(i) a sale, merger or other reorganization in which the Company will
not be the surviving corporation (other than a reorganization effected
primarily to change the State in which the Company is incorporated), or
(ii) a reverse merger in which the Company is the surviving
corporation but in which more than 50% of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to the reverse merger,
then all outstanding purchase rights under the Plan shall automatically be
exercised immediately prior to the consummation of such sale, merger,
reorganization or reverse merger by applying the amounts in each Participant's
Account to the purchase of whole shares of Common Stock at eighty-five percent
(85%) of the LOWER of (i) the fair market value of the Common Stock on the
Participant's Entry Date into the option period in which such transaction occurs
or (ii) the fair market value of the Common Stock immediately prior to the
consummation of such transaction. However, the applicable share limitations of
Articles VII and VIII shall continue to apply to any such purchase, and the
clause (i) amount above shall not, for any Participant whose Entry Date for the
option period is other than the start date of such option period, be less than
the fair market value of the Common Stock on such start date.
The Company shall use its best efforts to provide at least ten (10) days
advance written notice of the occurrence of any such sale, merger, reorganiation
or reverse merger, an Participants shall, following the receipt of such notice,
have the right to terminate their outstanding purchase rights in accordance with
the applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Section 423 of the Code) of the
7.
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Company or its Corporate Affiliates, would otherwise permit such Participant to
purchase more than $25,000 worth of stock of the Company or any Corporate
Affiliate (determined on the basis of the fair market value of such stock on the
date or dates such rights are granted to the Participant) for each calendar year
such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the right to
acquire Common Stock pursuant to each purchase right outstanding under the Plan
shall accrue as follows:
(i) The right to acquire Common Stock under each such purchase right
shall accrue in a series of successive quarterly installments as and when
the purchase right first becomes exercisable for each quarterly installment
on the last business day of each Quarter for which the right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire $25,000 worth of Common Stock
(determined on the basis of the fair market value on the date or dates of
grant) pursuant to one or more purchase rights held by the Participant
during such calendar year.
(iii) If, by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Quarter, then the
payroll deductions which the Participant made during that Quarter with
respect to such purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of this
Article VIII and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article VIII shall be controlling.
IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS
The Plan is designed to qualify as an employee stock purchase plan under
Code Section 423.
X. AMENDMENT AND TERMINATION
A. The Board may alter, amend, suspend or discontinue the Plan following
the close of any quarter. However, the Board may not, without the approval of
the Company's stockholders:
(i) materially increase the number of shares issuable under the Plan
or the maximum number of shares which may be purchased per Participant
during any one option period under the Plan, except that the Plan
Administrator shall have the authority, exercisable without such
stockholder approval, to effect adjustments to the extent necessary to
reflect changes in the Company's capital structure pursuant to Section
VI.B;
8.
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(ii) alter the purchase price formula so as to reduce the purchase
price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to Participants
under the Plan or materially modify the requirements for eligibility to
participate in the Plan.
B. The Company shall have the right, exercisable in the sole discretion
of the Plan Administrator, to terminate all outstanding purchase rights under
the Plan immediately following the close of any Quarter. Should the Company
elect to exercise such right, then the Plan shall terminate in its entirety. No
further purchase rights shall thereafter be granted or exercised, and no further
payroll deductions shall thereafter be collected, under the Plan.
XI. GENERAL PROVISIONS
A. The term of this Plan shall commence on the effective date of the S-8
Registration Statement covering the Common Stock issuable under the Plan,
PROVIDED that the term shall not commence, and no shares of the Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders; (ii) the Company shall have complied with all applicable
requirements, all applicable listing requirements of any securities exchange on
which shares of the Common Stock are listed and all other applicable
requirements established by law or regulation and the Plan Administrator shall
have determined to commence granting Purchase Rights hereunder. In the event
stockholder approval is not obtained, or Company compliance with the Act is not
effected, within twelve (12) months after the date on which the Plan is adopted
by the Board, the Plan shall terminate and have no further force or effect.
B. The Plan shall terminate on December 31, 2003.
C. All costs and expenses incurred in the administration of the Plan
shall be paid by the Company.
D. Neither the action of the Company in establishing the Plan, nor any
action taken under the Plan by the Board or the Plan Administrator, nor any
provision of the Plan itself shall be construed so as to grant any person the
right to remain in the employ of the Company or any Corporate Affiliate for any
period, and such person's employment may be terminated at any time, with or
without cause.
9.
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ENCAD, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
(As amended through February 11, 1997)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
This 1993 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of ENCAD, Inc., a California corporation (the
"Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) Directors and (iii) consultants and other
independent contractors who provide valuable services to the Corporation (or its
parent or subsidiary corporations) with the opportunity to acquire a proprietary
or increase their proprietary interest in the Corporation as an incentive for
them to remain in the service of the Corporation (or its parent or subsidiary
corporations).
II. GENERAL
A. The Plan shall become effective on the first date on which shares
of the Corporation's common stock are registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the "Effective Date" of this Plan.
B. This Plan shall serve as the successor to the Corporation's
Incentive Stock Option Plan (the "ISO Plan") and 1986 Non-Qualified Stock Option
Plan (the "Non-Qualified Plan") (such Plans are hereinafter referred to as the
"Predecessor Plans"), and no further option grants or share issuances shall be
made under the Predecessor Plans from and after the Effective Date. Each
outstanding option or share issuances under the Predecessor Plans immediately
prior to the Effective Date are hereby incorporated into this Plan and shall
accordingly be treated as outstanding options or share issuance under this Plan.
However, each such option or share issuance shall continue to be governed solely
by the terms and conditions of the instrument evidencing such grant or issuance,
and, except as otherwise expressly provided herein, no provision of this Plan
shall affect or otherwise modify the rights or obligations of the holders of
such incorporated options or shares with respect to their acquisition of shares
of the Corporation's common stock or otherwise modify the rights or obligations
of the holders of such options or shares.
C. For purposes of this Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:
Any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation shall be considered to be a
parent of
<PAGE>
the Corporation, provided each such 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.
Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to
be a subsidiary of the Corporation, provided each such 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.
D. Neither the grant of options nor the issuance of any shares
pursuant to this Plan shall in any 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.
E. The holder of an option grant under this Plan shall have none of
the rights of a stockholder with respect to any shares subject to such option
until such individual shall have exercised the option, paid the exercise price
for the purchased shares and been issued a stock certificate for such shares.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate components: the
Discretionary Option Grant Program specified in Article Two; the Automatic
Option Grant Program specified in Article Three and the Stock Issuance Program
specified in Article Four. Under the Discretionary Option Grant Program,
eligible individuals may be granted options to purchase shares of the
Corporation's common stock at not less than 85% of the fair market value of such
shares on the grant date. Under the Automatic Option Grant Program,
non-employee Directors will automatically be granted options to purchase Common
Stock of the Company at 100% of the fair market value on the grant date. Under
the Stock Issuance Program, eligible individuals may be allowed to purchase
shares of the Corporation's common stock at discounts from the fair market value
of such shares of up to 15%. Such shares may be issued as fully-vested shares
or as shares to vest over time.
B. The provisions of Articles One and Five of the Plan, except as
otherwise expressly provided, shall apply to both the Discretionary Option Grant
Program, the Automatic Option Grant Program and the Stock Issuance Program and
shall accordingly govern the interests of all individuals in the Plan.
IV. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered by the Board or by a committee
("Committee") of two (2) or more Board members who assume full responsibility
for the administration of the Plan (the "Plan Administrator"). Members of any
Committee shall serve for such period of time as the Board may determine and
shall be subject to removal by the Board
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at any time.
B. The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
Plan and any outstanding option grants or stock issuances as it may deem
necessary or advisable. Decisions of the Plan Administrator shall be final and
binding on all parties who have an interest in the Plan or any outstanding
option or stock issuance.
C. Notwithstanding the above, the administration of the Automatic
Option Grant Program under Article Three shall be self executing in accordance
with the terms and conditions thereof and the Plan Administrator shall not
exercise any discretionary functions in respect to matters governed by Article
Three.
V. OPTION GRANTS AND STOCK ISSUANCES
A. Subject to Section V.B below, the persons eligible to receive
stock issuances under the Stock Issuance Program ("Participant") and/or option
grants pursuant to the Discretionary Option Grant Program ("Optionee") are as
follows:
(i) officers and other key employees of the Corporation (or
its parent or subsidiary corporations) who render services which contribute
to the management, growth and financial success of the Corporation (or its
parent or subsidiary corporations);
(ii) those consultants or other independent contractors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations).
B. Notwithstanding any other provision of this Plan, no option
grants under the Discretionary Option Grant Program or stock issuances under the
Stock Issuance Program shall be made to any director hereunder unless, at the
time of such option or issuance, the Plan Administrator is a Committee composed
entirely of non-employee Board members none of whom have received an option
grant or stock issuance under this Plan or any other stock plan of the
Corporation (or any parent or subsidiary corporation) other than under the
Automatic Option Grant Program during the one year prior to service on the
Committee or during such service.
C. The individuals who will receive option grants under the
Automatic Option Grant Program are (i) those individuals who are first elected
or appointed as non-employee Board members on or after the Effective Date of
this Plan, whether through appointment by the Board or election by the
Corporation's stockholders, provided they have not otherwise been in the prior
employ of the Corporation (or any parent or subsidiary corporation) and (ii)
those individuals who are re-elected as non-employee Board member at one or more
stockholder meetings held after the Effective Date, whether or not such
individuals are otherwise serving as non-employee Board members on the Effective
Date.
Except for option grants under the Automatic Option Grant Program,
non-
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employee members of the Board shall NOT be eligible to participate in the
Discretionary Option Grant or Stock Issuance Programs under the Plan or in any
other stock option, stock purchase, stock bonus or other stock plan of the
Corporation (or its parent or subsidiary corporations).
D. The Plan Administrator shall have full authority to determine,
(I) with respect to the option grants made under the Discretionary Option Grant
Program, which eligible individuals are to receive option grants, the number of
shares to be covered by each such grant, whether the granted option is to be an
incentive stock option ("Incentive Option") which satisfies the requirements of
Section 422 of the Internal Revenue Code or a non-statutory option not intended
to meet such requirements, the time or times at which and the circumstances
under which each granted option is to become exercisable and the maximum term
for which the option may remain outstanding and (II), with respect to stock
issuances under the Stock Issuance Program, the number of shares to be issued to
each Participant, the vesting schedule and conditions to vesting (if any) to be
applicable to the issued shares, and the consideration to be paid by the
individual for such shares. The Plan Administrator shall have no discretion
with regard to the Automatic Option Grant Program. The Plan Administrator shall
not have the discretion to affect in material fashion any option grants or the
terms of any option under the Automatic Option Grant Program.
VI. STOCK SUBJECT TO THE PLAN
A. Shares of the Corporation's 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 which may be issued over
the term of the Plan shall not exceed 1,559,020 shares, subject to adjustment
from time to time in accordance with the provisions of this Section VI.
B. Notwithstanding Paragraph A of the Section VI, on January 1,
1998, and on each January 1 thereafter during the term of the Plan, the maximum
number of shares of Common Stock available for issuance under the Plan shall be
increased by a number of shares of Common Stock equal to 2% of the issued and
outstanding shares of the Common Stock of the Company as of the date of such
adjustment as determined from the books and records of the Company.
C. Should one or more outstanding options under this Plan (including
outstanding options under the Predecessor Plans incorporated into this Plan)
expire or terminate for any reason prior to exercise in full (including any
option cancelled in accordance with the cancellation-regrant provisions of
Section III of Article Two of the Plan), then the shares subject to the portion
of each option not so exercised shall be available for subsequent option grant
or share issuance under this Plan. Shares subject to any option or portion
thereof surrendered or cancelled in accordance with Section IV.D of Article Two
or Section II.A of Article Three and all shares issuances under the Plan,
whether or not such shares are subsequently repurchased by the Corporation
pursuant to its repurchase rights under the Plan or otherwise surrendered for
cancellation, shall reduce on a share-for-share basis the number of shares of
the same class of Common Stock available for subsequent option grant or stock
issuance under the Plan. In addition, should the exercise price of an
outstanding option under the Plan be paid with shares of
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<PAGE>
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an outstanding option under the Plan, 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.
D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares, conversion or other change affecting
the outstanding Common Stock, or any class of Common Stock as a class, without
the Corporation's receipt of consideration, then appropriate adjustments shall
be made to (i) the number and/or class of shares issuable under the Plan, (ii)
the number and/or class of shares and price per share in effect under each
outstanding option under this Plan (including outstanding options incorporated
into this Plan from the Predecessor Plans). 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.
E. Common Stock issuable under the Discretionary Option Grant
Program or the Stock Issuance Program may be subject to such restrictions on
transfer, repurchase rights or such other restrictions as determined by the Plan
Administrator.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted to Employees of the Corporation or its parent or
subsidiary corporations pursuant to this Article Two shall be authorized by
action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not Employees of the Corporation or its parent or subsidiary
corporations may only be granted non-statutory options. Each granted option
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. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. OPTION PRICE.
(i) IN GENERAL. The option price per share shall be fixed by
the Plan Administrator. In no event, however, shall the price for any share be
less than eighty-five percent (85%) of the fair market value of that share on
the date of the option grant.
(ii) 10% STOCKHOLDER. If any individual to whom an option is
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing 10% or more of the total combined voting power
of all classes of stock of the
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<PAGE>
Corporation or any one of its parent or subsidiary corporations, then the option
price per share shall not be less than one hundred and ten percent (110%) of the
fair market value per share of Common Stock on the grant date.
(iii) HOW PAYABLE. The option price shall become immediately due
upon exercise of the option and, subject to the provisions of Article Five,
Section III and the instrument evidencing the grant, shall be payable in one of
the following alternative forms specified below:
- full payment in cash or check drawn to the
Corporation's order;
- full payment in shares of Common Stock held for at
least six (6) months and valued at fair market value on the Exercise Date
(as such term is defined below);
- full payment in a combination of shares of Common Stock
held for at least six (6) months and valued at fair market value on the
Exercise Date and cash or check; or
- full payment through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (I) shall provide
irrevocable written instructions to a 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
all applicable Federal and State income and employment taxes required to be
withheld by the Corporation in connection with such purchase and (II) shall
provide written directives to the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale transaction.
For purposes of this subparagraph (3), the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure is utilized
in connection with the exercise of the option, payment of the option price for
the purchased shares must accompany such notice.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under this
Article Two shall have such term as may be fixed by the Plan Administrator, be
exercisable at such time or times and during such period, and on such
conditions, as is determined by the Plan Administrator and set forth in the
stock option agreement evidencing the grant; provided that options granted under
this Plan must become exercisable at a rate of at least 20% per year over no
more than five (5) years from the date such option is granted. No such option,
however, shall have a maximum term in excess of ten (10) years from the grant
date and no option granted to a 10% shareholder shall have a maximum term in
excess of five (5) years from the grant date. During the lifetime of the
Optionee, the option (together with any related stock appreciation right) shall
be exercisable only by the Optionee and shall not be assignable or transferable
by the Optionee otherwise than by will or by the laws of descent and
distribution following the
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<PAGE>
Optionee's death.
C. TERMINATION OF SERVICE.
(i) Except to the extent otherwise provided pursuant to Section
V of this Article Two, the following provisions shall govern the exercise period
applicable to any outstanding options under this Article Two which are held by
the Optionee at the time of his or her cessation of Service or death.
- Should an Optionee's Service terminate for any reason
(including death or permanent disability as defined in Section 22(e)(3) of
the Internal Revenue Code) while the holder of one or more outstanding
options under the Plan, then none of those options shall (except to the
extent otherwise provided pursuant to Section V of this Article Two) remain
exercisable beyond the later of (i) the limited post-Service period
designated by the Plan Administrator at the time of the option grant and
set forth in the option agreement; or (ii) (A) 30 days from the date of
termination if termination was caused by other than the death or disability
(as defined in Section 22(e)(3) of the Internal Revenue Code) of such
Optionee or (B) six (6) months from the date of termination if termination
was caused by death or disability of Optionee.
- Any option granted to an Optionee under this Article Two and
exercisable in whole or in part on the date of the Optionee's 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, PROVIDED AND ONLY IF such exercise occurs prior to the
EARLIER of (i) the third anniversary of the date of the Optionee's death or
(ii) the specified expiration date of the option term. Upon the occurrence
of the earlier event, the option shall terminate and cease to be
exercisable.
- Under no circumstances, however, shall any such option be
exercisable after the specified expiration date of the option term.
- During the limited post-Service period of exercisability,
the option may not be exercised for more than the number of shares for
which the option is exercisable on the date the Optionee's Service
terminates. Upon the expiration of such limited exercise period or (if
earlier) upon the expiration of the option term, the option shall terminate
and cease to be exercisable.
(ii) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while
the option remains outstanding, to permit one or more options held by the
Optionee under this Article Two to be exercised, during the limited period
of exercisability provided under subparagraph (1) above, not only with
respect to the number of shares for which each such option is exercisable
at the time of the Optionee's cessation of Service but also with respect to
one or more subsequent installments
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<PAGE>
of purchasable shares for which the option would otherwise have become
exercisable had such cessation of Service not occurred.
(iii) For purposes of the foregoing provisions of this Section
I.C of Article Two (and for all other purposes under the Plan):
- The Optionee shall (except to the extent otherwise
specifically provided in the applicable option or issuance agreement) be
deemed to remain in the SERVICE of the Corporation for so long as such
individual renders services on a periodic basis to the Corporation (or any
parent or subsidiary corporation) in the capacity of an Employee, a
non-employee member of the Board or an independent consultant or advisor.
- The Optionee shall be considered to be an Employee for so
long as he or she remains in the employ of the Corporation or one or more
parent or subsidiary corporations, subject to the control and direction of
the employer entity not only as to the work to be performed but also as to
the manner and method of performance.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive 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. The option price per share of any share of Common
Stock subject to an Incentive 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.
B. DOLLAR LIMITATION. The aggregate fair market value (determined
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee after December 31, 1986 under this Plan
(or any other option plan of the Corporation or its parent or subsidiary
corporations) 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 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 Five of the Plan shall apply to all
Incentive Options granted hereunder.
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from
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time to time, with the consent of the affected Optionees, the cancellation of
any or all outstanding options under this Article Two (including outstanding
options under the Predecessor Plans incorporated into this Plan) and to grant in
substitution new options under this Article Two covering the same or different
numbers of shares of Common Stock but having an option price for each share
which is not less than (i) eighty-five percent (85%) of the fair market value of
such share on the new grant date or (ii) one hundred percent (100%) of such fair
market value in the case of an Incentive Option.
IV. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section IV, one or more Optionees under the Discretionary Option Grant Program
may be granted the right, exercisable upon such terms and conditions as the Plan
Administrator may establish, to surrender all or part of an unexercised option
under this Article Two in exchange for a distribution from the Corporation in an
amount equal to the excess of (i) the fair market value (on the option surrender
date) of the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion thereof) over (ii) the aggregate
option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall accordingly become
entitled under this Section IV may be made in shares of any class of Common
Stock valued at fair market value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the LATER of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over (as defined in Section II.B of Article Five)
effected at any time when the Corporation's outstanding Common Stock is
registered under Section 12(g) of the 1934 Act, each outstanding option with
such a limited stock appreciation right in effect for at least six (6) months
shall automatically be cancelled, to the extent such option is at the time
exercisable for fully-vested shares of Common Stock. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the vested shares of Common
Stock at the time subject to the cancelled option (or cancelled portion of such
option) over (ii) the aggregate exercise price payable for such shares. The
cash distribution payable upon such cancellation shall be made
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within five (5) days following the consummation of the Hostile Take-Over.
Neither the approval of the Plan Administrator nor the consent of the Board
shall be required in connection with such option cancellation and cash
distribution. The balance of the option (if any) shall continue to remain
outstanding and exercisable in accordance with the terms of the instrument
evidencing such grant.
E. The shares of Common Stock subject to any option surrendered
or cancelled for an appreciation distribution pursuant to this Section V shall
not be available for subsequent option grant under the Plan.
V. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority to extend
the period of time for which any option granted under this Article Two is to
remain exercisable following the Optionee's cessation of Service or death from
the limited period in effect under Section I.C.(i) of this Article Two to such
greater period of time as the Plan Administrator shall deem appropriate;
PROVIDED, however, that in no event shall such option be exercisable after the
specified expiration date of the option term.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. GRANT DATES. Option grants will be made under this Article Three
on the dates specified below:
(i) Each individual who first becomes a
non-employee Board member on or after the Effective Date of this 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, a non-statutory stock option to purchase a number
of shares of Common Stock equal to the greater of (a) 15,000 shares minus
the number of shares of Common Stock already owned by or available to such
individual under currently outstanding options, or (b) 5,000 shares.
(ii) Each individual re-elected as a non-employee
Board member at any stockholder meeting held after the Effective Date shall
automatically be granted, at each such meeting at which he or she is so
re-elected, a non-statutory stock option to purchase 1,000 shares of Common
Stock. There shall be no limit on the number of option grants any one
non-employee Board member may receive over the period of Board service.
For purposes of this Section IA, the shares of Common Stock already owned
by or
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available to an individual under currently outstanding options shall include
only those shares issued or available under the Plan, the Predecessor Plans or
written compensation agreements. The number of shares granted pursuant to this
Automatic Grant Program shall be subject to periodic adjustment pursuant to the
applicable provisions of Section VI.C of Article One.
B. EXERCISE PRICE. The exercise price per share of each automatic
option grant made under this Article Three shall be equal to one hundred percent
(100%) of the fair market value per share of Common Stock on the grant date.
C. PAYMENT.
The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check drawn to the
Corporation's order;
(ii) full payment in shares of Common Stock held for at
least six (6) months and valued at fair market value on the Exercise Date
(as such term is defined below);
(iii) full payment in a combination of shares of Common
Stock held for at least six (6) months and valued at fair market value on
the Exercise Date and cash or check; or
(iv) full payment through a broker-dealer sale and
remittance procedure pursuant to which the non-employee Board member (A)
shall provide irrevocable written instructions to a 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 all applicable Federal and state income taxes
required to be withheld by the Corporation in connection with such purchase
and (B) shall provide written directives to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
For purposes of this Section I.C. of Article Three, the Exercise
Date shall be the date on which written notice of the option exercise is
delivered to the Corporation, and the fair market value per share of Common
Stock on any relevant date shall be determined in accordance with the provisions
of Section II.A of Article Five. Except to the extent the sale and remittance
procedure is utilized in connection with the exercise of the option, payment of
the option price for the purchased shares must accompany such notice.
D. OPTION TERM. Each automatic grant under this Article Three shall
have a maximum term of ten (10) years measured from the automatic grant date.
E. EXERCISABILITY. Each automatic grant shall become exercisable in
a series
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of three (3) 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 automatic grant date. The option shall not become exercisable for any
additional option shares following the optionee's cessation of Board service for
any reason.
F. NON-TRANSFERABILITY. During the lifetime of the optionee, each
automatic option grant, together with the limited stock appreciation right
pertaining to such option, if any, shall be exercisable only by the optionee and
shall not be assignable or transferable by the optionee other than a transfer of
the option effected by will or by the laws of descent and distribution following
optionee's death.
G. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
Should the optionee cease to serve as a Board member for any
reason (other than death) while holding one or more automatic option grants
under this Article Three, then such optionee shall have a six (6) month period
following the date of such cessation of Board membership 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 Board service. Each such
option shall immediately terminate and cease to be outstanding, at the time of
such cessation of Board service, with respect to any shares for which the option
is not otherwise at that time exercisable.
Should the optionee die while serving as a member of the Board or
within six (6) months after cessation of Board service, then each outstanding
automatic option grant 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 Board
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 automatic option grant shall immediately terminate and cease
to be outstanding, at the time of the optionee's cessation of Board service,
with respect to any option shares for which it is not otherwise at such time
exercisable.
In no event shall any automatic grant 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 subparagraphs 1 and 2 above or (if earlier) upon the expiration
of the ten (10) year option term, the automatic grant 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 Board service.
II. LIMITED STOCK APPRECIATION RIGHT.
A. Upon the occurrence of a Hostile Take-Over (as defined in Section
II.B of Article Five), each non-employee Board member holding an automatic
option grant which has been outstanding under this Article Three for a period of
at least six (6) months shall have the
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unconditional right (exercisable for a thirty (30)-day period following such
Hostile Take-Over) to surrender such option in return for a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over Price
of the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for such shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the option surrender
date. Neither the approval of the Plan Administrator nor the consent of the
Board shall be required in connection with such option surrender and cash
distribution.
B. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall not be available for subsequent
issuance under this Plan.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate purchases without any intervening stock
option grants. The issued shares shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") that complies with the terms and conditions of
this Article Four.
A. CONSIDERATION
Shares of Common Stock shall be issued under the Plan for one or
more of the following items of consideration, which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or cash equivalents (such as a personal check
or bank draft) paid the Corporation;
(ii) in common stock of the Company valued at fair
market value on the date of issuance;
(iii) a promissory note payable to the Corporation's
order in one or more installments, which may be subject to cancellation in
whole or in part upon terms and conditions established by the Plan
Administrator;
(iv) past services rendered to the Corporation or any
parent or subsidiary corporation;
(v) any combination of the above approved by the Plan
Administrator.
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Shares may, in the absolute discretion of the Plan Administrator,
be issued for consideration with a value less than one-hundred percent (100%) of
the fair market value of such shares, but in no event less than eighty-five
percent (85%) of such fair market value. Notwithstanding the foregoing, in the
case of 10% shareholders, Shares must be issued at one hundred percent (100%) of
fair market value of such shares.
B. VESTING PROVISIONS
1. Shares of Common Stock issued under this Article Four may, in the
absolute discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the Participant's
period of Service (as such term is defined in Section I.C.(iii) of Article Two);
provided, that such vesting must be at a rate of at least 20% per year over no
more than five years from the date such shares are issued. The elements of the
vesting schedule applicable to any unvested shares of Common Stock issued under
the Plan, namely:
(i) the Service period to be completed by the Participant
or the performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to
lapse between installments,
(iv) any conditions or contingencies to vesting, and
(v) the effect which death, disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with respect
to any shares of Common Stock issued to him or her under this Article Four,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
reclassification of Common Stock or other similar change in the Corporation's
capital structure or by reason of any Corporate Transaction under Section I of
this Article Five shall be issued, subject to (i) the same vesting requirements
applicable to his or her unvested shares and (ii) such escrow arrangements as
the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock under this Article Four, then those
shares shall be
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immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. The
Corporation shall repay to the Participant the cash consideration paid for the
surrendered shares and shall cancel the principal balance of any outstanding
purchase-money note of the Participant to the extent attributable to such
surrendered shares. The surrendered shares may, at the Plan Administrator's
discretion, be retained by the Corporation as Treasury Shares or may be retired
to authorized but unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares under this Article Four may, in the Plan
Administrator's discretion, be held in escrow by the Corporation until the
Participant's interest in such shares vests or may be issued directly to the
Participant with restrictive legends on the certificates evidencing such
unvested shares. To the extent an escrow arrangement is utilized, the unvested
shares and any securities or other assets issued with respect to such shares
(other than regular cash dividends) shall be delivered in escrow to the
Corporation to be held until the Participant's interest in such shares (or other
securities or assets) vests. Alternatively, if the unvested shares are issued
directly to the Participant, the restrictive legend on the certificates for such
shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE
ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS AND TO (II)
CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR
HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE
CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND
CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A
STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED __________, 19__,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under this Article Four. For
purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift, or other
disposition of such shares, whether voluntary or involuntary. Upon any such
attempted
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transfer, the unvested shares shall immediately be cancelled, and neither the
Participant nor the proposed transferee shall have any rights with respect to
those shares. However, the Participant shall have the right to make a gift of
unvested shares acquired under the Plan to his or her spouse or issue, including
adopted children, or to a trust established for such spouse or issue, provided
the donee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Plan and the Issuance Agreement applicable to
the gifted shares.
ARTICLE FIVE
MISCELLANEOUS
I. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each outstanding option which is assumed in connection with a
Corporate Transaction or is otherwise to continue in effect following a
Corporate Transaction (as defined below) shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply and pertain to the number
and class of securities which would be issuable, in consummation of such
Corporate Transaction, to an actual holder of the same number of shares of
Common Stock as are subject to such option immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
securities shall remain the same. Appropriate adjustments shall also be made to
the class and number of securities available for issuance under the Plan
following the consummation of such Corporate Transaction.
B. In the event of any Corporate Transaction (as defined below) the
exercisability of each option grant at the time outstanding under this Plan
which is not continued under paragraph A hereof shall automatically accelerate
so that each such option shall, immediately prior to the specified effective
date for 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 all or any portion of such shares. Upon the consummation
of the Corporate Transaction, all option grants under this Plan shall terminate
and cease to be outstanding. The Plan Administrator may, in its discretion,
extend the provisions of this Paragraph B to options outstanding under the
Predecessor Plans.
C. A Corporate Transaction means:
(i) a merger or consolidation in which the Corporation is
not the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Corporation's incorporation,
(ii) the sale, transfer or disposition of all or
substantially all of the assets of the Corporation in liquidation or
dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the
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surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities are transferred to holders different from those who held such
securities immediately prior to such merger.
D. Except as otherwise provided by the Plan Administrator in
agreements governing the grant of discretionary option grants or stock
issuances, in connection with any Change in Control of the Corporation, the
exercisability of each option grant at the time outstanding under this Plan
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Change in Control, 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 all or any portion of such
shares. Similarly, all unvested shares issued under the Plan shall
automatically vest immediately prior to the effective date of the Change in
Control. For purposes of this Article Five, a Change in Control shall be deemed
to occur in the event:
(i) 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) directly
or indirectly acquires beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934, as amended) 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 which the
Board does not recommend such stockholders to accept; or
(ii) there is 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 members (rounded up to the next whole number) cease,
by reason of one or more proxy contests for the election of Board members,
to be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
The provisions of this Paragraph D shall apply to option grants and/or stock
issuances under the Predecessor Plans only to the extent expressly extended
thereto by the Plan Administrator.
II. CERTAIN DEFINITIONS
A. FAIR MARKET VALUE. The fair market value of a share of Common
Stock shall be determined in accordance with the following provisions:
- If shares of the Class of Common Stock to be valued are not
at the time listed or admitted to trading on any national stock exchange
but is traded on the NASDAQ National Market System, the fair market value
shall be
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the closing selling price per share of a share of that class on the date in
question, as such price is reported by the National Association of
Securities Dealers through the NASDAQ National Market System or any
successor system. If there is no reported closing selling price for the
series on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of
fair market value.
- If shares of the class of common stock to be valued are at
the time listed or admitted to trading on any national stock exchange, then
the fair market value of a share of that class shall be the closing selling
price per share 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 reported sale of a share of the class on
such exchange on the date in question, then the fair market value shall be
the closing selling price on the exchange on the last preceding date for
which such quotation exists.
- If shares of the series of common stock to be valued at the time
are neither listed nor admitted to trading on any stock exchange nor traded
on the NASDAQ National Market System, then the fair market value shall be
determined by the Plan Administrator after taking into account such factors
as the Plan Administrator shall deem appropriate, which may include
independent professional appraisals, in a manner consistent with the
provisions of Section 260.140.50 of the Rules of the California
Corporations Commissioner.
B. HOSTILE TAKE-OVER. A Hostile Take-Over shall be deemed to occur
in the event (i) 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) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) 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 which the Board does not recommend such
stockholders to accept.
C. TAKE-OVER PRICE. The Take-Over Price per share shall be deemed
to be equal to the GREATER of (a) the fair market value per share on the option
surrender date, as determined pursuant to the valuation provisions of Section
II.A of this Article Five, or (b) the highest reported price per share paid by
the tender offeror in effecting such Hostile Take-Over.
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III. LOANS OR GUARANTEE OF LOANS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Article Two Discretionary Option Grant Program or the
purchase of one or more shares issued to such Participant under the Article Four
Stock Issuance Program, including the satisfaction of any Federal and State
income and employment tax obligations arising therefrom by (i) authorizing the
extension of a loan from the Corporation to such Optionee or Participant or
(ii) permitting the Optionee or Participant to pay the option price or purchase
price for the purchased Common Stock in installments over a period of years.
The terms of any loan or installment method of payment (including the interest
rate and terms of repayment) will be upon such terms as the Plan Administrator
specifies in the applicable option or issuance agreement or otherwise deems
appropriate under the circumstances. Loans and installment payments may be
granted with or without security or collateral (other than to individuals who
are consultants or independent contractors, in which event the loan must be
adequately secured by collateral other than the purchased shares). However, the
maximum credit available to the Optionee or Participant may not exceed the
option or purchase price of the acquired shares (less the par value of such
shares) plus any Federal and State income and employment tax liability incurred
by the Optionee or Participant in connection with the acquisition of such
shares.
B. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
IV. TAX WITHHOLDING
A. The Company's obligation to deliver shares or cash upon the
exercise of stock options or stock appreciation rights granted under the
Discretionary Option Grant Program or the Automatic Option Grant Program or upon
direct issuance under the Stock Issuance Program shall be subject to the
satisfaction of all applicable Federal, State and local 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 any or all holders of
outstanding option grants under the Discretionary Option Grant Program with the
election to have the Company withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such options, 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 the Federal and State income taxes ("Taxes")
incurred in connection with the acquisition of such shares. In lieu of such
direct withholding, one or more option holders 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 the Fair Market Value on the
applicable determination date for such Taxes.
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V. AMENDMENT OF THE PLAN AND AWARDS
A. Except as herein provided, the Board has complete and exclusive
power and authority to amend or modify the Plan (or any component thereof) in
any or all respects whatsoever. No amendment or modification may adversely
affect the rights and obligations of an Optionee with respect to options at the
time outstanding under the Plan, nor adversely affect the rights of any
Participant with respect to Common Stock issued under the Plan prior to such
action, unless the Optionee or Participant consents to such amendment. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan (except for permissible adjustments under Article
One, Section VI) or (ii) materially modify the eligibility requirements for
participation in the Plan or materially increase the benefits accruing to
Optionees or Participants under the Plan.
B. Notwithstanding Article Five, Section V.A, neither the provisions
of the Automatic Option Grant Program nor the options outstanding under Article
Three may be amended at intervals more frequently than once every six (6)
months, other than to the extent necessary to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act or any rules
thereunder.
C. (i) Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and (ii) shares of Common Stock may
be issued under the Stock Issuance Program, which are in both instances in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the Option Grant Program or the
Stock Issuance Program 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 option grants or excess share
issuances are made, 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 the applicable Short Term Federal
Rate) for the period the shares were held in escrow.
VI. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan, as successor to the Company's Predecessor Plans, shall
become effective as of the Effective Date, and no further option grants shall be
made under the Option Plan nor shall any further shares be issued under the
Stock Plan from and after such Effective Date. If stockholder approval of this
Plan is not obtained within twelve months after the date this Plan is adopted by
the Board, then each option granted under this Plan from and after the Effective
Date shall terminate without ever becoming exercisable for the option shares and
all shares issued hereunder shall be repurchased by the Corporation at the
purchase price paid, together with interest (at the applicable Short Term
Federal Rate). However, in the event such stockholder approval is not obtained,
the Predecessor Plans shall continue in effect in accordance with the terms and
provisions last approved by the Corporation's stockholders, and all outstanding
options and unvested stock issuances under the Predecessor Plans shall remain in
full
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force and effect in accordance with the instruments evidencing such options and
issuances.
B. Each outstanding option and share issuance under the Predecessor
Plans immediately prior to the Effective Date of this Plan are hereby
incorporated into this Plan and shall accordingly be treated as an outstanding
option or share issuance under this Plan. However, each such option or share
issuance shall continue to be governed solely by the terms and conditions of the
instrument evidencing such grant or issuance, and except as otherwise expressly
provided in this Plan, no provision of this Plan shall affect or otherwise
modify the rights or obligations of the holders of such options or shares with
respect to their acquisition of shares of Common Stock, or otherwise modify the
rights or obligations of the holders of such options or shares.
C. The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options granted
under this Plan on or after the Effective Date and for all non-statutory options
outstanding under the Option Plan and incorporated into this Plan. The Plan
Administrator may also allow such procedure to be utilized in connection with
one or more disqualifying dispositions of Incentive Option shares effected after
the Effective Date, whether such Incentive Options were granted under this Plan
or the Option Plan.
D. The Plan shall terminate upon the EARLIER of (i) the tenth
anniversary of the Effective Date or (ii) the date on which all shares available
for issuance under the Plan shall have been issued or cancelled pursuant to the
exercise, surrender or cash-out of the options granted under the Discretionary
Option Grant Program or the issuance of shares (whether vested or unvested)
under the Stock Issuance Program. If the date of termination is determined
under clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.
VII. USE OF PROCEEDS
Cash proceeds received by the Company from the sale of shares under
the Plan shall be used for general corporate purposes.
VIII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Discretionary Option Grant Program, the issuance of any shares under the
Stock Issuance Program, and the issuance of Common Stock upon the exercise or
surrender of the option grants made hereunder shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the 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 this Plan unless and until there shall have 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
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applicable listing requirements of any securities exchange on which stock of the
same class is then listed.
IX. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
X. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
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