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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ENCAD, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 95-3672088
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
6059 CORNERSTONE COURT
WEST SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip code)
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1993 STOCK OPTION/STOCK ISSUANCE PLAN
1997 SUPPLEMENTAL STOCK OPTION PLAN
NON-STATUTORY STOCK OPTION AGREEMENT
(Full title of the Plan)
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DAVID A. PURCELL
CHIEF EXECUTIVE OFFICER AND DIRECTOR
ENCAD, INC.
6059 CORNERSTONE COURT, WEST SAN DIEGO, CALIFORNIA 92121
(619) 452-0882
(Telephone number, including area code, of agent for service)
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share Price Fee
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1993 STOCK OPTION/
STOCK ISSUANCE PLAN
Common Stock,
$0.001 par value 240,000 shares $24.94(2) $5,985,600(2) $1,765.75
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1997 SUPPLEMENTAL
STOCK OPTION PLAN
Common Stock,
$0.001 par value 140,000 shares $24.94(2) $3,491,600(2) $1,030.02
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NON-STATUTORY STOCK
OPTION AGREEMENT
Common Stock,
$0.001 par value 30,000 shares $24.94(2) $ 748,200(2) $ 220.72
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Aggregate Filing Fee $3,016.49
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(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1993 Stock Option/Stock
Issuance Plan or the 1997 Supplemental Stock Option Plan by reason of any
stock dividend, stock split, recapitalization or any other similar
transaction without receipt of consideration which results in an increase
in the number of outstanding shares of Common Stock of ENCAD, Inc.
(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the average of the high
and low selling prices per share of Common Stock of ENCAD, Inc. on January
23, 1998 as reported on the Nasdaq National Market.
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
ENCAD, Inc. (the "Registrant") hereby incorporates by reference into this
Registration Statement the following documents previously filed with the
Securities and Exchange Commission (the "SEC"):
(a) The Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as amended, filed with the SEC on March
28, 1997;
(b) The Registrant's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30,
1997, filed with the SEC on May 5, 1997, August 8, 1997 and
November 14, 1997, respectively; and
(c) The Registrant's Registration Statement No. 001-12652 on Form 8-A
filed with the SEC on December 6, 1993 in which the terms, rights
and provisions applicable to the Registrant's Common Stock are
described.
All reports and definitive proxy or information statements filed pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the
"1934 Act") after the date of this Registration Statement and prior to the
filing of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities then remaining unsold
shall be deemed to be incorporated by reference into this Registration Statement
and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Registration Statement to the extent that a statement contained herein or
in any subsequently filed document which also is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Registration Statement.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws (the "Bylaws") provide that the Registrant shall,
to the fullest extent authorized by Delaware law, indemnify any director who is
made, or is threatened to be made, a party to an action or proceeding, whether
civil or criminal, administrative or investigative, by reason of being a
director of the Registrant or a predecessor corporation of the Registrant, or is
or was serving at the request of the Registrant as a director or officer of
another corporation; provided, however, that the Registrant shall indemnify any
such agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Registrant's Board of Directors (the "Board").
The Bylaws further provide that such indemnification provisions shall: (i) not
be deemed to be exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement or vote of stockholder or disinterested
directors or otherwise, both as to action in their official capacities and as to
action in another capacity while holding such office, (ii) continue as to a
person who has ceased to be a director, and (iii) inure to the benefit of the
heirs, executors and administrators of such a person. The Bylaws provide that
the Registrant's obligation to
<PAGE>
provide indemnification shall be offset to the extent of any other source of
indemnification or any otherwise applicable insurance coverage under a policy
maintained by the Registrant or any other person. The Bylaws further provide
that the Board in its discretion shall have the power to indemnify any person,
other than a director, made a party to any action, suit or proceeding by reason
of the fact that he, his testator or intestate, is or was an officer or employee
of the corporation.
In addition, the Registrant's Certificate of Incorporation (the
"Certificate of Incorporation") provides that, pursuant to Delaware law, its
directors shall not be personally liable for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or involving intentional misconduct, (iii) for
knowing violations of law, (iv) for actions leading to improper personal benefit
to the director, and (iv) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of Delaware General
Corporation Law.
The Registrant maintains a directors' and officers' liability insurance
policy that, subject to certain limitations, terms and conditions, will insure
the directors and officers of the Registrant against losses arising from
wrongful acts (as defined by the policy) in his or her capacity as a director or
officer.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
ITEM 8. EXHIBITS
Exhibit No. Exhibit
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4 Instruments Defining Rights of Stockholders. Reference is made to
Registrant's Registration Statement No. 001-12652 on Form 8-A,
which is incorporated herein by reference pursuant to Item 3(d)
of this Registration Statement.
5 Opinion and Consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Deloitte & Touche, LLP, Independent Public
Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in
Exhibit 5.
24 Power of Attorney. Reference is made to page II-5 of this
Registration Statement.
99.1 1993 Stock Option/Stock Issuance Plan, as amended.
99.2 1997 Supplemental Stock Option Plan.
99.3 Form of Notice of Grant of Stock Option.
99.4 Form of Stock Option Agreement.
99.5 Form of Non-Statutory Stock Option Agreement
ITEM 9. UNDERTAKINGS
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A. The undersigned Registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as amended (the "1933 Act"),
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration Statement,
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement; PROVIDED,
however, that clauses (1)(i) and (1)(ii) shall not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the 1934 Act that are incorporated by reference into this
Registration Statement; (2) that for the purpose of determining any liability
under the 1933 Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (3) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold upon the termination of the Registrant's 1993 Stock Option/Stock Issuance
Plan or the Registrant's 1997 Supplemental Stock Option Plan.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is
incorporated by reference into this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers or controlling persons of the Registrant
pursuant to the indemnity provisions summarized in Item 6 or otherwise, the
Registrant has been informed that in the opinion of the SEC such indemnification
is against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West San Diego, State of California on January 26,
1998.
ENCAD, INC.
By: /s/ DAVID A PURCELL
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David A. Purcell
Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of ENCAD, Inc., a Delaware
corporation, do hereby constitute and appoint David A. Purcell and Richard A.
Plante and each of them, the lawful attorneys-in-fact and agents, with full
power and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either one of them, determine
may be necessary or advisable or required to enable said corporation to comply
with the Securities Act of 1933, as amended, and any rules or regulation or
requirements of the Securities and Exchange Commission in connection with this
Registration Statement. Without limiting the generality of the foregoing power
and authority, the powers granted include the power and authority to sign the
names of the undersigned officers and directors in the capacities indicated
below to this Registration Statement, to any and all amendments, both
pre-effective and post-effective, and supplements to this Registration Statement
and to any and all instruments or documents filed as part of or in conjunction
with this Registration Statement or amendments or supplements thereto, and each
of the undersigned hereby ratifies and confirms all that said attorneys and
agents, or either one of them, shall do or cause to be done by virtue hereof.
This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signatures Title Date
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/s/ DAVID A. PURCELL
- -------------------- Chief Executive Officer January 26, 1998
David A. Purcell and Director (Principal
Executive Officer)
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Signatures Title Date
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/s/ RICHARD A. PLANTE
- ------------------- President and January 26, 1998
Richard A. Plante Chief Operating Officer
/s/ TODD W. SCHMIDT
- ------------------- Vice President and January 26, 1998
Todd W. Schmidt Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ ROBERT V. ADAMS
- ------------------- Director January 26, 1998
Robert V. Adams
/s/ RONALD J.HALL
- ------------------- Director January 26, 1998
Ronald J. Hall
/s/ HOWARD L. JENKINS
- --------------------- Director January 26, 1998
Howard L. Jenkins
/s/ CHARLES E. VOLPE
- -------------------- Director January 26, 1998
Charles E. Volpe
/s/ CRAIG S. ANDREWS
- -------------------- Director January 26, 1998
Craig S. Andrews
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM S-8
UNDER
SECURITIES ACT OF 1933
ENCAD, INC.
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EXHIBIT INDEX
Exhibit
No. Exhibit
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4 Instruments Defining Rights of Stockholders. Reference is made to
Registrant's Registration Statement No. 00-112652 on Form 8-A,
which is incorporated herein by reference pursuant to Item 3(d)
of this Registration Statement.
5 Opinion and Consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Deloitte & Touche LLP, Independent Public Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in
Exhibit 5.
24 Power of Attorney. Reference is made to page II-5 of this
Registration Statement.
99.1 1993 Stock Option/Stock Issuance Plan, as amended.
99.2 1997 Supplemental Stock Option Plan.
99.3 Form of Notice of Grant of Stock Option.
99.4 Form of Stock Option Agreement.
99.5 Form of Non-Statutory Stock Option Agreement.
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EXHIBIT 5
Opinion and Consent of Brobeck, Phleger & Harrison LLP
January 26, 1998
ENCAD, Inc.
6059 Cornerstone Court
West San Diego, CA 92121
Re: ENCAD, Inc. (the "Company")
Registration Statement for Registration
of 410,000 Shares of Common Stock
---------------------------------
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration
Statement") under the Securities Act of 1933, as amended, of 410,000 shares
of Common Stock for issuance under the Company's 1993 Stock Option/Stock
Issuance Plan, as amended, 1997 Supplemental Stock Option Plan, and Non-
Statutory Stock Option Agreement. We advise you that, in our opinion, when
such shares have been issued and sold pursuant to the applicable provisions of
the Company's 1993 Stock Option/Stock Issuance Plan, 1997 Supplemental Stock
Option Plan and Non-Statutory Stock Option Agreement, and in accordance with
the Registration Statement, such shares will be validly issued, fully paid and
non-assessable shares of the Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
BROBECK, PHLEGER & HARRISON LLP
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EXHIBIT 23.1
Consent of Deloitte & Touche LLP,
Independent Public Accountants
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
ENCAD, Inc. on Form S-8 of our report dated February 4, 1997, appearing in the
Annual Report on Form 10-K of ENCAD, Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
San Diego, California
January 22, 1998
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EXHIBIT 99.1
1993 Stock Option/Stock Issuance Plan, as amended
ENCAD, INC.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
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(As amended through July 17, 1997)
ARTICLE ONE
GENERAL
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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 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.
<PAGE>
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 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).
-2-
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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-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 1,799,020 shares, subject to adjustment
from time to time in accordance with the provisions of this Section VI.
B. 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 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.
C. 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
-3-
<PAGE>
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.
D. 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 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.
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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 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 of purchasable shares for which the
option would
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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 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.
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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 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
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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 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 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.
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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 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
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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.
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
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of Common Stock under this Article Four, then those shares shall be 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 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
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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
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
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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 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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<PAGE>
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.
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.
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<PAGE>
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 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.
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<PAGE>
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 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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<PAGE>
EXHIBIT 99.2
1997 Supplemental Stock Option Plan
ENCAD, INC.
1997 SUPPLEMENTAL STOCK OPTION PLAN
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1997 Supplemental Stock Option Plan ("the Plan") is intended
to promote the interests of ENCAD, Inc., ("the Corporation") a California
corporation, by authorizing shares of the Corporation's Common Stock for
issuance through long-term option grants to be made from time to time to
individuals in the employ or service of the Corporation (or any Parent or
Subsidiary) who are neither officers of the Corporation nor members of the Board
and who are not otherwise Section 16 Insiders.
B. The Plan shall become effective immediately upon adoption by the
Board on October 13, 1997.
C. This Plan is independent of the Corporation's 1993 Stock
Option/Stock Issuance Plan, and share issuances under this Plan shall not reduce
or otherwise affect the number of shares of the Corporation's Common Stock
available for issuance under the 1993 Stock Option/Stock Issuance Plan. In
addition, share issuances under the 1993 Stock Option/Stock Issuance Plan shall
not reduce or otherwise affect the number of shares of the Corporation's Common
stock available for issuance under this Plan.
D. Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan Administrator shall have full power and discretion
(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
provisions of the Plan and any outstanding option grants thereunder 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 thereunder.
B. The individual serving as Plan Administrator shall serve for such
period as the Board may determine and shall be subject to removal by the Board
at any time.
<PAGE>
C. Service as Plan Administrator shall constitute service as a Board
member, and each Board member serving as Plan Administrator shall accordingly be
entitled to full indemnification and reimbursement as a Board member for such
service. No individual serving as Plan Administrator shall be liable for any
act or omission made in good faith with respect to the Plan or any option
granted under the Plan.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan shall be limited
to those Employees, independent consultants and advisors in the service of the
Corporation (or any Parent or Subsidiary) who are neither officers of the
Corporation nor members of the Board and who are not otherwise Section 16
Insiders at the time of the option grant.
B. The Plan Administrator shall have full authority to determine
which eligible individuals are to receive option grants under the Plan, the
time or times when such grants are to be made, the number of shares to be
covered by each such grant, the time or times when each granted option is to
become exercisable and the maximum term for which the option may remain
outstanding. All options granted under the Plan shall be Non-Statutory
Options.
IV. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock reserved for issuance over the term of the Plan shall be
limited to 140,000 shares, subject to adjustment from time to time in accordance
with the provisions of this Section IV.
B. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full, then the
shares subject to the portion of each option not so exercised
shall be available for subsequent issuance under the Plan.
Should the exercise price of an outstanding option under the Plan
be paid with shares of Common Stock, then the number of shares of
Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is
exercised, and not by the net number of shares of Common Stock
actually issued to the holder of such option.
C. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan and (ii) the number and/or class of
securities and price per share in effect under each option outstanding under the
Plan. Such adjustments to the outstanding options are to be effected in a
manner which shall preclude the enlargement or dilution of rights and benefits
under such options. The adjustments determined by the Plan Administrator shall
be final, binding and conclusive.
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Options granted under the Plan shall be authorized by action of the
Plan Administrator and shall be evidenced by one or more instruments in the form
approved by the Plan Administrator; PROVIDED, however, that each such instrument
shall comply with the terms and conditions specified below. All such granted
options shall be Non-Statutory Options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the grant date.
2. Full payment of the exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the forms
specified below:
a. cash or check made payable to the Corporation's order,
b. shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
c. a combination of such shares, and cash or check made payable
to the Corporation's order, or
d. full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the optionee (a) shall concurrently
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 by reason of such purchase and (b) shall provide written
directives to the Corporation to deliver the purchased shares directly to such
brokerage firm in order to complete the sale transaction..
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing such option. No option shall have a maximum term in excess of ten
(10) years. During the lifetime of the Optionee, the option shall be
exercisable only by the Optionee and shall not be assignable or transferable
except for a transfer of the option effected by will or by the laws of decent
and distribution following the Optionee's death.
<PAGE>
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
a. Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such limited period of time thereafter as shall be
determined by the Plan Administrator and set forth in the documents
evidencing the option, but no such option shall be exercisable after
the expiration of the option term.
b. Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
c. During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of shares for which the option is exercisable on the date
of the Optionee's cessation of Service. Upon the expiration of the
applicable post-Service exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to
be outstanding for any otherwise exercisable shares for which the
option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Service, terminate and cease to be
outstanding for any and all shares for which the option is not
otherwise at that time exercisable.
d. Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
a. extend the period of time for which the option is to
remain exercisable following Optionee's cessation of Service or death from
the limited period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
b. permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments for which the option would have become
exercisable had the Optionee continued in Service.
<PAGE>
D. SHAREHOLDER RIGHTS. An Optionee shall have none of the rights of a
shareholder with respect to any option shares until such person shall have
exercised the option and paid the exercise price for the purchased shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each option
outstanding at the time but not otherwise fully exercisable shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become exercisable for all of the shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. However, an
outstanding option shall not become exercisable on such an accelerated basis if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of the
Corporate Transaction on the shares for which the option is not otherwise at
that time exercisable (the excess of the Fair Market Value of those shares over
the exercise price payable for such shares) and provides for subsequent payout
in accordance with the same exercise/vesting schedule applicable to those option
shares or (iii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of the option grant.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the number and/or class of securities available for issuance under the
Plan following the consummation of such Corporate Transaction and (ii) the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
D. The Plan Administrator shall have full power and authority to
grant options under the Plan which will automatically accelerate in the event
the Optionee's Service subsequently terminates by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those options
are assumed and do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully-vested shares until the EARLIER of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to provide for the automatic acceleration of one or more
outstanding options in connection with a Change in Control so that each such
option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The accelerated option shall remain
exercisable for fully-
<PAGE>
vested shares until the expiration or sooner termination of the option term.
Alternatively, the Plan Administrator may condition such option acceleration
upon the termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of the Change in Control. Each option so
accelerated shall remain exercisable for fully-vested shares until the
EARLIER of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination.
F. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Plan by delivering a promissory note payable in one or
more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Promissory notes may be authorized with
or without security or collateral. In all events, the maximum credit available
to the Optionee may not exceed the sum of (i) the aggregate option exercise
price payable for the purchased shares plus (ii) any Federal, state and local
income and employment tax liability incurred by the Optionee in connection with
the option exercise.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. AMENDMENT OF THE PLAN
The Board has complete and exclusive power and authority to amend or
modify the Plan in any or all respects whatsoever. However, no such amendment
or modification shall adversely affect rights and obligations with respect to
stock options at the time outstanding under the Plan, unless the affected
Optionees consent to such amendment.
III. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of stock options under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income tax and
employment tax withholding requirements.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. This Plan shall become effective immediately upon approval by the
Board at the October 13, 1997 Board meeting and shall not be subject to
shareholder approval.
<PAGE>
B. The Plan shall terminate upon the EARLIEST of (i) October 12,
2007, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of options under the Plan or
(iii) the termination of all outstanding options in connection with a Corporate
Transaction. If the date of termination is determined under clause (i) above,
then all option grants outstanding on such date shall thereafter continue to
have force and effect in accordance with the provisions of the instruments
evidencing those grants.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan, and the issuance of Common Stock upon the exercise of the stock
options granted hereunder shall be subject to the Corporation's procurement of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options granted under it and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under 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 applicable listing requirements
of any securities exchange on which the Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
- the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
shareholders which the Board does not recommend such shareholders to
accept, or
- 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 ceases, by reason of one or more contested elections for Board
membership, 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 the Board approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
- a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction; or
- the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. CORPORATION shall mean ENCAD, Inc., a California corporation, in
the process of being reincorporated into the state of Delaware, and any
corporate successor to all or substantially all of the assets or voting stock
of ENCAD Inc. which shall by appropriate action adopt the Plan.
<PAGE>
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise and full payment of the Option
Price.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
- If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
- If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
K. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
- such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
- such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or
her duties and responsibilities or the level of management to which he or
she reports, (B) a reduction in his or her level of compensation (including
base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
L. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by the
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by the Optionee
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).
<PAGE>
M. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
N. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
O. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
P. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
Q. PLAN shall mean the Corporation's 1997 Supplemental Stock Option Plan,
as set forth in this document.
R. PLAN ADMINISTRATOR shall mean either the Board or a committee or
designee(s) of the Board acting in its administrative capacity under the Plan.
S. PLAN EFFECTIVE DATE shall mean October 13, 1997, the date on which the
Plan was adopted by the Board.
U. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit restrictions and reporting
obligations under Section 16 of the 1934 Act.
V. SERVICE shall mean the performance of services to the Corporation (or
any Parent or Subsidiary) by any person in the capacity of an Employee or an
independent consultant or advisor, except to the extent otherwise specifically
provided in the applicable stock option agreement.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
X. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
<PAGE>
EXHIBIT 99.3
Form of Notice of Grant of Stock Option
ENCAD, INC.
1997 SUPPLEMENTAL STOCK OPTION PLAN
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of ENCAD, Inc. (the "Corporation"):
OPTIONEE:
------------------------------------------
GRANT DATE:
-----------------------------------
VESTING COMMENCEMENT DATE:
-------------------------
EXERCISE PRICE: $ per share
-----------------
NUMBER OF OPTION SHARES: shares
---------------
EXPIRATION DATE:
-----------------------------------
TYPE OF OPTION: Non-Statutory Stock Option
EXERCISE SCHEDULE: The Option shall become exercisable in sixteen
(16) successive equal quarterly installments measured from the first anniversary
of the Vesting Commencement Date. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's cessation of
Service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the ENCAD, Inc. 1997 Supplemental Stock
Option Plan (the "Plan"). Optionee further agrees to be bound by the terms of
the Plan and the terms of the Option as set forth in the Stock Option Agreement
(the "Option Agreement") attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official
prospectus for the Plan in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Plan Administrator at the
Corporation's principal offices.
<PAGE>
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice or in the
attached Option Agreement or in the Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Option Agreement.
Dated
----------------------------
ENCAD, INC.
By:
-------------------------------
Title:
------------------------------
OPTIONEE
By:
-------------------------------
Address:
----------------------------
------------------------------------
Social Security #:
------------------
<PAGE>
ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
<PAGE>
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
ENCAD, INC.
_______________________________________
1997 SUPPLEMENTAL STOCK OPTION PLAN
(OCTOBER 13, 1997)
PLAN SUMMARY AND PROSPECTUS
______________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
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INFORMATION ON THE 1997 SUPPLEMENTAL STOCK OPTION PLAN 1
QUESTIONS AND ANSWERS ABOUT THE PLAN.......................................................... 1
GENERAL PROVISIONS............................................................................ 1
1. What is the basic structure of the Plan?.............................................. 1
2. When was the Plan adopted?............................................................ 1
3. Who is eligible to participate?....................................................... 1
4. Who administers the Plan?............................................................. 2
5. What stock will I receive upon the exercise of an option or upon a share
issuance under the Plan?.............................................................. 2
6. How many shares of Common Stock may be issued under the Plan?......................... 2
7. What happens if there is a stock dividend or other change in the
Corporation's Common Stock?........................................................... 2
8. Can the Plan be amended or terminated?................................................ 2
GRANT OF OPTIONS.............................................................................. 2
9. How are options granted under the Plan?............................................... 2
10. Will I be required to pay for an option granted under the Plan?....................... 3
11. How is the exercise price determined?................................................. 3
12. How is the fair market value of the Common Stock determined?.......................... 3
13. Can I assign or transfer my options?.................................................. 3
14. When do I acquire the rights of a shareholder?........................................ 3
EXERCISE OF OPTIONS........................................................................... 3
15. When may I exercise my options?....................................................... 3
16. How do I exercise my options?......................................................... 3
17. What form of payment is required when I exercise my options?.......................... 4
18. Does the Corporation have the right to repurchase the shares I receive
upon the exercise of my option?....................................................... 4
EARLY TERMINATION OF OPTIONS.................................................................. 5
19. What happens to my options if my employment or service terminates?.................... 5
20. What happens to my options if I die or become disabled?............................... 5
21. What happens to my options if the Corporation acquired or merged?..................... 5
22. What happens to my options if they are not terminated upon a Corporate
Transaction?.......................................................................... 6
23. What happens to my options if there is a change in control of the
Corporation?.......................................................................... 6
DISPOSITION OF OPTION SHARES.................................................................. 6
24. When can I sell my shares?............................................................ 6
MISCELLANEOUS................................................................................. 6
25. Are loans or installment payments available under the Plan?........................... 6
26. Do I have the right to remain employed until my options under the Plan vest?.......... 7
27. Are there any circumstances which would cause me to lose my rights with
respect to an option or a share issuance?............................................. 7
28. Does the Plan restrict the authority of the Corporation to grant or
assume options outside of the Plan?................................................... 7
29. Does the grant of an option or the issuance of shares under the Plan
affect my eligibility to participate in other plans of the Corporation?............... 7
30. What is a subsidiary corporation?..................................................... 7
31. Is the Plan subject to ERISA?......................................................... 7
</TABLE>
<PAGE>
<TABLE>
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<S> <C>
QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES.................................................. 8
NON-STATUTORY OPTIONS......................................................................... 8
T1. Will the grant of a Non-Statutory Option result in Federal income tax
liability to me?...................................................................... 8
T2. What Federal income tax liability results upon the exercise of a
Non-Statutory Option?................................................................. 8
T3. What if the shares purchased under a Non-Statutory Option are subject to
the Corporation's repurchase rights?.................................................. 8
T4. What is the effect of making a Section 83(b) election?................................ 8
T5. What are the Federal tax consequences to the Corporation?............................. 9
T6. Will I recognize additional income when I sell shares acquired under a
Non-Statutory Option?................................................................. 9
T7. Can shares of Common Stock be used to satisfy tax withholding
requirements?......................................................................... 9
T8. What are the consequences of paying the exercise price of a Non-Statutory
Option in the form of shares of Common Stock previously acquired upon
the exercise of employee stock options or through open-market purchases?.............. 9
REGISTRANT INFORMATION AND PLAN ANNUAL INFORMATION................................................. 10
</TABLE>
<PAGE>
THIS DOCUMENT CONSTITUTES PART OF THE OFFICIAL PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
INFORMATION ON THE
1997 SUPPLEMENTAL STOCK OPTION PLAN
ENCAD, Inc., a corporation organized under the laws of the State of
California (the "Corporation"), is offering shares of its common stock to
eligible individuals pursuant to stock options under the ENCAD, Inc.1997
Supplemental Stock Option Plan (the "Plan"). The purpose of the Plan is to
offer the Corporation's selected employees, independent consultants and
advisors the opportunity to acquire an ownership interest in the Corporation
as an incentive for such individuals to continue in service. Unless the
context indicates otherwise, all references to the Corporation in this
description of the Plan will include ENCAD, Inc. and any parent or subsidiary
corporations.
QUESTIONS AND ANSWERS ABOUT THE PLAN
This document sets forth in question and answer format a
description of the material provisions of the Plan.
GENERAL PROVISIONS
1. WHAT IS THE BASIC STRUCTURE OF THE PLAN?
All options granted under this Plan will be Non-Statuatory Options.
Options may be granted to eligible individuals which will provide them with
the right to purchase a specified number of shares of the Corporation's
common stock at a fixed price based upon the fair market value of the option
shares on the grant date. The number of shares and the per share price under
any option will be determined by the Plan Administrator at the time of grant
and set forth in a written agreement evidencing the gr ant. The right to
purchase shares may be immediately exercisable or may become exercisable in
one or more installments over a designated period of service as set forth in
the option agreement. To the extent the right is exercisable, the option may
be exercised at any time before the date the option expires or terminates.
Shares acquired pursuant to immediately exercisable options will usually be
subject to a repurchase right in the Company exercisable upon termination of
employment and which will lapse over the designated period of service.
This Plan Summary and Prospectus will provide you with a
description of the principal terms and conditions of the option grants and
share issuances which may be made from time to time under the Plan.
2. WHEN WAS THE PLAN ADOPTED?
The Plan was adopted by the Corporation's Board of Directors on
October 13, 1997.
3. WHO IS ELIGIBLE TO PARTICIPATE?
Employees, independent, consultants and advisors in the service of
the Corporation (or any parent or subsidiary) who are neither officers of the
Corporation nor members of the Board and who are not otherwise Section 16
Insiders at the time of the option grant. The actual individuals to whom such
option grants or share issuances are to be made will be determined by the
Plan Administrator in its sole discretion.
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<PAGE>
4. WHO ADMINISTERS THE PLAN?
The Plan will be administered by the Board or by a committee or
designee of the Board (the "Plan Administrator"). Any committee or designee
will serve for so long as the Board deems appropriate and may be removed by
the Board at any time.
The Plan Administrator will have full authority to determine,
subject to the express provisions of the Plan, the persons to whom option
grants are to be made, the number of shares to be subject to each such grant,
the maximum period for which the granted option is to remain outstanding, the
time or times at which such option is to become exercisable and the vesting
schedule (if any) applicable to any shares purchased pursuant to such
options. The decisions of the Committee as Plan Administrator o n all matters
relating to the Plan are binding and conclusive on all persons having any
interest in the Plan.
5. WHAT STOCK WILL I RECEIVE UPON THE EXERCISE OF AN OPTION OR UPON A
SHARE ISSUANCE UNDER THE PLAN?
Your option will be an option to buy common stock of ENCAD, Inc.
(the "Common Stock").
6. HOW MANY SHARES OF COMMON STOCK MAY BE ISSUED UNDER THE PLAN?
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 140,000 shares.
7. WHAT HAPPENS IF THERE IS A STOCK DIVIDEND OR OTHER CHANGE IN THE
CORPORATION'S COMMON STOCK?
In the event of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments will automatically be made to the
number and/or class of shares issuable under the Plan. Such adjustments will
preclude the dilution or enlargement of the rights and benefits available to
the holders of those outstanding options.
8. CAN THE PLAN BE AMENDED OR TERMINATED?
Yes. The Board has exclusive authority to amend or modify the Plan
in any and all respects. However, no amendment or modification which
adversely affects the rights of an option holder or which adversely affects
the rights of any individual with respect to Common Stock issued pursuant to
the Plan may occur without the consent of such individual.
Unless sooner terminated as a result of a Corporate Transaction
(see Question 21), the Plan will terminate upon the earlier of (i) the tenth
anniversary of its Effective Date or (ii) the date on which all shares
available for issuance under the Plan are issued or cancelled. All options
outstanding and all shares issued and outstanding on such date will continue
to have force and effect in accordance with the provisions of the instruments
evidencing such grants or issuances.
GRANT OF OPTIONS
9. HOW ARE OPTIONS GRANTED UNDER THE PLAN?
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<PAGE>
The Plan Administrator will have complete discretion to determine
when and to whom options will be granted, the number of shares subject to
each such grant, the time or times the option is to become exercisable, the
restrictions to be imposed on such options or the shares issued on exercise
of the options and the maximum term for which the option is to remain
outstanding. An individual granted such an option must sign an option
agreement evidencing the grant.
10. WILL I BE REQUIRED TO PAY FOR AN OPTION GRANTED UNDER THE PLAN?
No. The option is granted in recognition of your services to the
Corporation and does not require any cash payment. To purchase shares under
the option, however, you must pay the exercise price for the number of shares
you elect to purchase. See the section below entitled "Exercise of Options."
11. HOW IS THE EXERCISE PRICE DETERMINED?
The exercise price per share is determined by the Plan
Administrator and cannot be less than 100% of the fair market value of the
Common Stock on the grant date.
12. HOW IS THE FAIR MARKET VALUE OF THE COMMON STOCK DETERMINED?
The fair market value per share of Common Stock on any relevant
date under the Plan will be the closing selling price on that date, as
reported on the Nasdaq National Market System. If the Common Stock is not
traded on that day, the fair market value will be the closing selling price
per share on the last preceding date for which such quotation exists. Stock
prices of shares traded on the Nasdaq National Market System are reported
daily in most major newspapers.
13. CAN I ASSIGN OR TRANSFER MY OPTIONS?
No. Your options cannot be assigned or transferred, except by the
provisions of your will or the laws of descent and distribution following
your death.
14. WHEN DO I ACQUIRE THE RIGHTS OF A SHAREHOLDER?
An option holder will not have any shareholder rights with respect
to the shares covered by his or her option. Shareholder rights are acquired
when an optionee exercises the option, pays the exercise price for the
purchased shares and is issued those shares.
EXERCISE OF OPTIONS
15. WHEN MAY I EXERCISE MY OPTIONS?
Your option may be immediately exercisable for all of the option
shares or may become exercisable for such shares in one or more installments
over a designated period that you remain in the Corporation's service. The
exercise schedule applicable to your option will be determined by the Plan
Administrator at the time of grant and will be set forth in the option
agreement evidencing the grant. You may exercise your option at any time for
the shares for which your option has become exercisable provi ded you do so
before the option expires or terminates.
No option granted under the Plan may have a term in excess of ten
(10) years. Your option may, however, terminate prior to its designated
expiration date in the event of your termination of service or upon the
occurrence of certain other events. See the section below entitled "Early
Termination of Options."
16. HOW DO I EXERCISE MY OPTIONS?
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<PAGE>
To exercise an option, you must provide the Corporation with
written notice in which you specify the number of shares which you wish to
purchase under the option. You will be required to satisfy all applicable
income and employment tax withholding requirements at that time. For
information about the tax treatment applicable to your option exercises, see
the "Questions and Answers on Federal Tax Consequences" section below.
17. WHAT FORM OF PAYMENT IS REQUIRED WHEN I EXERCISE MY OPTIONS?
The exercise price for the purchased shares is due immediately upon
the exercise of your option. Payment may be made in one of the following
forms: (i) full payment in cash or check payable to the Corporation, (ii)
full payment in shares of Common Stock held for a requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes, or (iii) full payment through a combination of such shares of
Common Stock and cash or check payable to the Corporation. Any shares
delivered in payment will be valued at fair market value (see Question 12) on
the exercise date. The Plan Administrator may, in its discretion, allow you
to finance the exercise of your option through a loan from the Corporation or
through payment of the exercise price in installments. See Question 25 for
further details with respect to such loans or installment payments.
Cashless exercises are also permitted. To utilize such procedure,
you must provide irrevocable written instructions to a designated brokerage
firm to effect the immediate sale of the shares purchased under your option
and then to pay over to the Corporation, out of the sale proceeds available
on the settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable withholding taxes.
Concurrently with such instructions, you must also direct the Corporation to
deliver the certificates for the purchased shares to the brokerage firm in
order to complete the sale transaction.
18. DOES THE CORPORATION HAVE THE RIGHT TO REPURCHASE THE SHARES I
RECEIVE UPON THE EXERCISE OF MY OPTION?
The answer will depend upon the exercise schedule in effect for the
option you are granted. If you are granted an option which becomes
exercisable for the option shares in one or more installments over your
period of service, then the shares of Common Stock purchased under such
option will generally be fully vested when acquired and will not be subject
to the Corporation's repurchase rights upon your termination of service.
However, if you are granted an option which is exercisable immediately, then
the shares of Common Stock purchased under such option will normally be
subject to a vesting schedule pursuant to which the Corporation may
repurchase, at the original exercise price, any unvested shares you hold at
the time of your cessation of service.
The Corporation's repurchase rights cover not only the unvested
Common Stock purchased under your stock option, but also any new, substituted
or additional shares or other property subsequently distributed with respect
to such Common Stock by reason of any stock dividend, stock split,
recapitalization or other transaction affecting the outstanding Common Stock
as a class. Such new, substituted or additional shares or other property
will be subject to the Corporation's repurchase rights to the sam e extent
that the shares of Common Stock you hold under the Option Grant Program are
at the time covered by such rights. Appropriate adjustments to reflect the
distribution will be made to the number of shares subject to the
Corporation's repurchase rights and the price per share payable upon the
exercise of such rights in order to reflect the effect such distribution may
have upon the Corporation's capital structure.
You may not transfer, assign or encumber any unvested shares of
Common Stock which are subject to the Corporation's repurchase rights, except
for permissible gifts to family members or family trusts or transfers by will
or descent and distribution following your death. The certificates
representing such unvested shares may, in the Committee's discretion, bear a
legend indicating the existence of such transfer restrictions or the unvested
shares may be held in escrow by the Corporation until your interest in the
shares vests.
The Corporation's repurchase rights will lapse, and you will vest in
the option shares, in one or more installments according to the vesting
schedule established by the Committee and set forth in the instrument
-4-
<PAGE>
evidencing the repurchase rights applicable to those shares. If you wait to
exercise your option until you are fully vested in the option shares, the
Corporation will no longer have any right to repurchase the shares you
acquire.
The Committee will have full discretion to establish the remaining
terms and conditions upon which the Corporation's repurchase rights are to
become exercisable for unvested shares (including the procedure for effecting
such repurchase), and these additional provisions will be also included in
the instrument evidencing the repurchase rights.
All of the Corporation's outstanding repurchase rights will
automatically terminate, and all shares subject to the terminated rights will
immediately vest, upon the occurrence of any Corporate Transaction, except to
the extent (i) one or more of such repurchase rights are to be assigned to
the successor corporation or (ii) such termination is precluded by other
limitations imposed by the Committee in the instrument evidencing such
repurchase rights. See Questions 23 and 24 below for further infor mation
concerning Corporate Transactions.
EARLY TERMINATION OF OPTIONS
----------------------------
19. WHAT HAPPENS TO MY OPTIONS IF MY EMPLOYMENT OR SERVICE TERMINATES?
Following your termination of service with the Corporation, you
will have a limited period of time in which to exercise your outstanding
options for any shares for which they are exercisable on your termination
date. The length of this period will be set forth in your option agreement,
but you must in all events exercise your option before the specified
expiration date of the option term.
For purposes of the Plan, you will be deemed to continue in service
for so long as you render services to the Corporation or any parent or
subsidiary corporation, whether as an employee, an independent consultant or
advisor retained to perform specific tasks or assignments for the
Corporation, or a non-employee member of the board of directors.
The Plan Administrator will have the discretion to extend the
period of time in which you may exercise one or more of your options
following your cessation of service and/or to permit such options to be
exercised not only with respect to the number of shares for which they are at
the time exercisable but also with respect to one or more subsequent
installments of purchasable shares for which they would have otherwise become
exercisable had you continued in service. You will be notified, at the ti me
of your cessation of service, in the event the Plan Administrator decides to
provide you with any of these additional benefits.
20. WHAT HAPPENS TO MY OPTIONS IF i DIE OR BECOME DISABLED?
Should you die while holding one or more options, then the personal
representative of your estate or the person(s) to whom those options are
transferred by the provisions of your will or the laws of descent and
distribution following your death may exercise the transferred options for
any or all shares for which they were exercisable on the date your service
with the Corporation ceased, less any shares you may have subsequently
purchased under those options prior to your death. Each such option m ust be
exercised by the earlier of (i) the expiration date of the option term or
(ii) the expiration of the limited exercise period following your death
specified in the agreement evidencing the option.
If you become disabled while holding one or more options under the
Plan, you will have a limited period following the date your service
terminates by reason of such disability in which to exercise your options for
any or all of the shares for which such options were exercisable on your
termination date. The length of the post-termination period for which each
of your options will remain so exercisable will be specified in the
instrument evidencing the option grant. In no event, however, may you
exercise any such option after the specified expiration date of the option
term. For purposes of the Plan, you will be deemed to be disabled if you are
unable to perform your usual duties for the Corporation by reason of any
medically-determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) consecutive months or
more.
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<PAGE>
21. WHAT HAPPENS TO MY OPTIONS IF THE cORPORATION IS ACQUIRED OR MERGED?
In the event of a Corporate Transaction (as defined below), all
unexercised options outstanding under the Plan will automatically accelerate
and become fully exercisable immediately prior to the completion of the
Corporate Transaction (subject to appropriate adjustments to reflect the
Corporate Transaction) unless (I) instrument evidencing your option expressly
provides otherwise, or (ii) your option is to be assumed by the successor
corporation (or its parent company) or replaced with a comparab le option to
purchase shares of the successor corporation (or its parent company).
A Corporate Transaction is defined under the Plan as:
- a sale or other disposition of all or substantially all the
assets of the Corporation in liquidation or dissolution of the
Corporation; or
- any merger or consolidation in which the Corporation is the
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.
22. WHAT HAPPENS TO MY OPTIONS IF THEY ARE NOT TERMINATED UPON A
CORPORATE TRANSACTION?
Each continuing or assumed option will, immediately after the
Corporate Transaction, be appropriately adjusted to apply and pertain to the
number and class of securities which would have been issuable, in completion
of the Corporate Transaction, to an actual holder of the same number of
shares of Common Stock as is subject to the option immediately prior to the
Corporate Transaction. Appropriate adjustments will also be made to the
exercise price payable per share, provided the aggregate exercise price will
remain the same.
23. WHAT HAPPENS TO MY OPTIONS IF THERE IS A CHANGE IN CONTROL OF THE
CORPORATION?
On a change in control of the Corporation, unless the governing
agreements provide otherwise, all options will become immediately exercisable
and all shares issued or issuable under the Plan will become fully vested.
A Change in Control will generally be deemed to occur under the Plan
in the event:
i) any person or related group of persons (other than the
Corporation or any person or entity affiliated with the Corporation)
directly or indirectly acquires beneficial ownership of securities
possessing more than 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 shareholders which the Board does
not recommend such shareholders to accept; or
ii) there is a change in the composition of the Board over a
period of 24 consecutive months or less such that a majority of the Board
members cease, by reason of one or more contested elections for Board
membership, 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 a
majority of the Board members described in clause (A) who were stil l in
office at the time such election or nomination was approved by the Board;
or
DISPOSITION OF OPTION SHARES
----------------------------
24. WHEN CAN I SELL MY SHARES?
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<PAGE>
You may sell your shares of Common Stock at any time without
restriction, provided you are not an officer of the Corporation at the time of
the sale, nor in possession of any material, non-public information. These
shares have been registered for trading with the NASDAQ National Market System.
MISCELLANEOUS
-------------
25. ARE LOANS OR INSTALLMENT PAYMENTS AVAILABLE UNDER THE PLAN?
The Plan Administrator has the authority to assist you in the
exercise of your option or the purchase of your shares by (i) authorizing the
extension of a loan to you from the Corporation or (ii) permitting you to pay
the exercise price or the purchase price for the purchased shares in
installments over a period of years. The terms of any such loan or
installment method of payment, including the interest rate and terms of
repayment, will be established in the sole discretion of the Plan Administr
ator. Loans and installment payments may be made without security or
collateral; however, the maximum credit available to you may not exceed the
exercise or purchase price payable for the acquired shares, plus any
withholding tax liability incurred by you in connection with such exercise or
issuance. Loans extended by the Corporation may, at the discretion of the
Plan Administrator, be forgiven in whole or in part over the optionee's or
participant's period of service. The Plan Administrator has no oblig
The Corporation will comply with all applicable requirements of
Regulation G of the Board of Governors of the Federal Reserve System in
connection with any loans or guarantees extended under the Plan.
26. DO I HAVE THE RIGHT TO REMAIN EMPLOYED UNTIL MY OPTIONS UNDER THE
PLAN VEST?
No. Nothing in the Plan or in any option grant or share issuance
under such plan is intended to provide any individual with the right to
remain in the Corporation's service for any specific period, and both you and
the Corporation will each continue to have the right to terminate your
service at any time and for any reason, with or without cause.
27. ARE THERE ANY CIRCUMSTANCES WHICH WOULD CAUSE ME TO LOSE MY
RIGHTS WITH RESPECT TO AN OPTION OR A SHARE ISSUANCE?
Yes. The grant of stock options and the issuance of Common Stock
under such options are subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan and the securities issuable thereunder. It is possible that
the Corporation could be prevented from granting stock options or from
issuing shares of Common Stock under the Plan in the event one or more
required approvals or permits were not obtained.
28. DOES THE PLAN RESTRICT THE AUTHORITY OF THE CORPORATION TO
GRANT OR ASSUME OPTIONS OUTSIDE OF THE PLAN?
No. The Plan does not limit the authority of the Corporation to
grant options outside of the Plan or to grant options to, or assume the
options of, any person in connection with the acquisition of the business and
assets of any firm, company or other business entity.
29. DOES THE GRANT OF AN OPTION OR THE ISSUANCE OF SHARES UNDER THE PLAN
AFFECT MY ELIGIBILITY TO PARTICIPATE IN OTHER PLANS OF THE
CORPORATION?
No. Stock option grants and share issuances made under the Plan do
not in any way affect, limit or restrict your eligibility to participate in
any other Plan or other compensation or benefit plan, arrangement or program
maintained by the Corporation.
30. WHAT IS A SUBSIDIARY CORPORATION?
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<PAGE>
A corporation is a subsidiary if the Corporation owns,
directly or indirectly, stock possessing fifty percent (50%) or more of the
total combined voting power of the outstanding securities of such
corporation.
31. IS THE PLAN SUBJECT TO ERISA?
No. The Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA) or Section 401(a) of the Code.
QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES
The following is a general description of the Federal income tax
consequences of stock option grants and share issuances under the Plan.
State and local tax treatment, which is not discussed below, may vary from
such Federal income tax treatment. You should consult with your own tax
advisor as to the tax consequences of your particular transactions under the
Plan.
T1. WILL THE GRANT OF A NON-STATUTORY OPTION RESULT IN FEDERAL INCOME
TAX LIABILITY TO ME?
No. Federal income and other tax liability results upon the
exercise of a Non-Statutory option and the ultimate sale of the purchased
shares.
T2. WHAT FEDERAL INCOME TAX LIABILITY RESULTS UPON THE EXERCISE
OF A NON-STATUTORY OPTION?
Normally, you will recognize ordinary income upon the exercise of
the Non-Statutory Option in an amount equal to the excess of (i) the fair
market value of the purchased shares on the date of exercise over (ii) the
exercise price. This income will be reported by the Corporation on your W-2
wage statement for the year, and you will be required to satisfy the tax
withholding requirements applicable to this income.
T3. WHAT IF THE SHARES PURCHASED UNDER A NON-STATUTORY OPTION ARE
SUBJECT TO THE CORPORATION'S REPURCHASE RIGHTS?
If the shares you purchase under a Non-Statutory Option are
unvested and subject to the Corporation's right to repurchase those shares at
the original exercise price upon your termination of service prior to vesting
in such shares, then such shares will be treated as subject to a substantial
risk of forfeiture under the Federal tax laws. Accordingly, you will not
recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Corporation's repurcha se rights lapse,
an amount equal to the excess of (1) the fair market value of the shares on
the date such shares vest over (2) the exercise price paid for the shares.
If you purchase shares subject to such a substantial risk of
forfeiture, you may elect under Code Section 83(b) to recognize income at the
time of exercise (see Question T4).
T4. WHAT IS THE EFFECT OF MAKING A SECTION 83(b) ELECTION?
If you purchase shares subject to a substantial risk of forfeiture
(see Question T3), you may elect under Code Section 83(b) to include as
ordinary income in the year of exercise an amount equal to the excess of (i)
the fair market value of the purchased shares on the date of exercise over
(ii) the exercise price paid for the shares. The fair market value of the
purchased shares will be determined as if the shares were not subject to the
Corporation's repurchase rights or other forfeiture restric tions. If you
make the Section 83(b) election, you will not recognize any additional income
when the forfeiture restrictions subsequently lapse.
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<PAGE>
The Section 83(b) election must be filed with the Internal Revenue
Service within thirty (30) days following the date the option is exercised,
and the resulting ordinary income is subject to applicable tax withholding
requirements.
NOTE: In determining whether to make a Section 83(b) election,
you should bear in mind that you will not be entitled to any tax
refund should your unvested shares subsequently be reacquired by the
Corporation upon your cessation of service. For example, assume you
purchase 1,000 shares worth $14.00 per share for $10,000 ($10 per share),
file a Section 83(b) election, and incur Federal tax liability of
approximately $1,200.00 (assuming a Federal income tax rate of 30%).
If the shares are subsequently reacquired by the Corporation for $10 per
share, you will not be entitled to a refund of the $1,200.00 in taxes you
previously paid with respect to those shares.
T5. WHAT ARE THE FEDERAL TAX CONSEQUENCES TO THE CORPORATION?
The Corporation will be entitled to an income tax deduction equal
to the amount of ordinary income you recognize in connection with the
exercise of the Non-Statutory Option, provided the applicable withholding
requirements are satisfied. The deduction will, in general, be allowed for
the taxable year of the Corporation in which you recognize such ordinary
income.
T6. WILL I RECOGNIZE ADDITIONAL INCOME WHEN I SELL SHARES ACQUIRED UNDER
A NON-STATUTORY OPTION?
Yes. You will recognize a capital gain to the extent the amount
realized upon the sale of such shares exceeds their fair market value at the
time you recognized the ordinary income with respect to their acquisition. A
capital loss will result to the extent the amount realized upon such sale is
less than such fair market value. The gain will be subject to preferential
capital gains tax rates if the shares are held for more than twelve (12)
months prior to the disposition. The holding period nor mally starts at the
time the Non-Statutory Option is exercised.
T7. CAN SHARES OF COMMON STOCK BE USED TO SATISFY TAX WITHHOLDING
REQUIREMENTS?
Yes. The Committee may, in its discretion and upon such terms and
conditions as it deems appropriate, provide optionees with the election to
have a portion of the shares of Common Stock otherwise issuable to them under
the Plan (in any amount specified by such individual up to 100%) withheld by
the Corporation in satisfaction of the Federal and state income and
employment taxes incurred in connection with their exercise of Non-Statutory
Options. Any election to have shares withheld will be subje ct to the
approval of the Committee and no shares will be accepted in satisfaction of
such tax liability except to the extent the Committee approves the election.
Optionees may also be granted the alternative right, subject to
Committee approval, to deliver previously acquired shares of Common Stock to
the Corporation in satisfaction of such tax liability. The withheld or
delivered shares will be valued at fair market value on the date the
optionee's tax liability for the shares purchased under the Plan is
determined.
T8. WHAT ARE THE CONSEQUENCES OF PAYING THE EXERCISE PRICE OF A
NON-STATUTORY OPTION IN THE FORM OF SHARES OF COMMON STOCK
PREVIOUSLY ACQUIRED UPON THE EXERCISE OF EMPLOYEE STOCK OPTIONS
OR THROUGH OPEN-MARKET PURCHASES?
If you pay the exercise price of a Non-Statutory Option with shares
of Common Stock previously acquired upon the exercise of Incentive or
Non-Statutory Options or through open-market purchases, then you will not
recognize any taxable income to the extent the shares of Common Stock
received upon the exercise of the Non-Statutory Option equal the number of
shares of Common Stock delivered in payment of the exercise price. For
Federal income tax purposes, these newly-acquired shares will have the sa me
basis and holding period as the delivered shares.
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<PAGE>
The additional shares of Common Stock received upon the exercise of
the Non-Statutory Option will, in general, have to be reported as ordinary
income for the year of exercise in an amount equal to their fair market value
on the date of exercise. These additional shares will have a tax basis equal
to such fair market value, and their holding period will, in general, be
measured from the date of exercise. However, if the shares purchased under
the Non-Statutory Option are subject to a substantial risk of forfeiture (see
Question T3), then the recognition and measurement of ordinary income and the
commencement of the holding period will be deferred until the time those
repurchase rights or forfeiture restrictions lapse, unless you file a Section
83(b) election to be taxed at the time of exercise.
REGISTRANT INFORMATION AND PLAN ANNUAL INFORMATION
ENCAD, Inc. is a California corporation which maintains its
principal executive offices at 6059 Cornerstone Court West, San Diego,
California 92121. The telephone number at the executive offices is (619)
452-0882. You may contact the Corporation at this address or telephone
number for further information concerning the Plan and its administration.
A copy of the Corporation's Annual Report to Shareholders can be
furnished, without charge, to each participant upon written or oral request
to: Investor Relations, ENCAD, Inc., 6950 Cornerstone Court West, San Diego,
California 92121, or upon telephoning the Corporation at (619) 452-0882. In
addition, any person receiving a copy of this Summary and Prospectus may
obtain without charge, upon written or oral request to the Plan
Administrator, a copy of any of the documents listed below, which ar e hereby
incorporated by reference into this Summary and Prospectus, other than
certain exhibits to such documents:
The Corporation's Prospectus, filed with the Corporation's S-1
Registration Statement No. 33-70220, under the Securities Act of 1933, in
which there is set forth the Corporation's audited financial statements
for the fiscal year ended December 31, 1992.
The Corporation's Registration Statement on Form 8-A filed with
the Commission on December 6, 1993, in which there is described the terms,
rights and provisions applicable to the Corporation's outstanding Common
Stock.
The Corporation can also deliver, upon written or oral request, to
each participant in the Plan who does not otherwise receive such materials, a
copy of all reports, proxy statements and other communications distributed to
the Corporation's shareholders.
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<PAGE>
EXHIBIT 99.4
Form of Stock Option Agreement
ENCAD, INC.
1997 SUPPLEMENTAL STOCK OPTION PLAN
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of providing additional
incentive to selected Employees, consultants and other independent advisors to
continue in the Service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
the Optionee's lifetime, only by the Optionee.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
<PAGE>
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while this option is
outstanding, then Optionee shall have a ninety (90)-day period (commencing
with the date of such cessation of Service) during which to exercise this
option, but in no event shall this option be exercisable at any time after
the Expiration Date.
(b) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right
to exercise this option. Such right shall lapse, and this option shall
cease to be outstanding, upon the EARLIER of (A) the expiration of the
twelve (12)- month period measured from the date of Optionee's death or (B)
the Expiration Date.
(c) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then Optionee shall have a
period of twelve (12) months (commencing with the date of such cessation of
Service) during which to exercise this option. In no event shall this
option be exercisable at any time after the Expiration Date.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number
of Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any otherwise exercisable Option
Shares for which the option has not been exercised. To the extent this
option is not exercisable for one or more Option Shares at the time of
Optionee's cessation of Service, this option shall immediately terminate
and cease to be outstanding with respect to those shares.
(e) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to be outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction, this option, to
the extent outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares at the time subject to this option and may be exercised for any or
all of those Option Shares as fully-vested shares of Common Stock. However,
this option shall not become exercisable on such an accelerated basis if and to
the extent: (i) this option is, in connection with the Corporate Transaction, to
be assumed by the successor corporation (or parent thereof) or (ii) this option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing at the time of the Corporate Transaction on
the Option Shares for which this option is not otherwise at that time
exercisable (the excess of the Fair Market Value of such Option Shares over the
aggregate Exercise Price payable for such shares) and provides for subsequent
pay-
<PAGE>
out in accordance with the same exercise/vesting schedule in effect for those
Option Shares pursuant to the option exercise schedule set forth in the Grant
Notice.
(b) Immediately following the consummation of a Corporate
Transaction, this option, to the extent not previously exercised, shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, PROVIDED the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not 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.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude any dilution or enlargement of
benefits hereunder.
8. SHAREHOLDER RIGHTS. The holder of this option shall not have any
shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice
of Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the Corporation's
order;
(B) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for
<PAGE>
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date;
(C) a combination of such stock and cash or check
payable to the Corporation's order; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable instructions (i) to
a Corporation-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (ii) to the Corporation to deliver the purchased shares directly
to such brokerage firm in order to complete the sale transaction.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) the purchased Option Shares.
(c) In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange, or the Nasdaq National Market, if
applicable, on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the
<PAGE>
lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Plan Administrator at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated on the Grant Notice. All notices shall be
deemed effective upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
13. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a promissory note.
The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
14. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
15. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
<PAGE>
EXHIBIT I
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NOTICE TO EXERCISE STOCK OPTIONS
- --------------------------------------------------------------------------------
I hereby notify ENCAD, Inc. that I elect to exercise _____ shares
pursuant to stock option (the "Option") granted to me on ____________________
to purchase up to __________ shares of ENCAD Common Stock at an option price
of $___________ per share (the "Option Price").
Concurrently with the delivery of this Notice to Exercise I shall pay to
ENCAD the Option Price for the exercised shares in accordance with the
provisions of my agreement with ENCAD evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise.
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Optionee Name:
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Mailing Address:
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City/State/Zip Code:
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Social Security Number: Telephone Number/Extension:
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Method of exercise (check one):
Cash/check / / Cashless / / Stock Swap / / No. used in
Exercise and hold / / No._____ swap _____
Exercise and sell / / No._____ Attestation form attached
/ /
Certificate attached
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Delivery Name:
Instructions: -----------------------------------------------
Address:
-----------------------------------------------
DTC #:
-----------------------------------------------
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Broker: Name: -----------------------------------------------
Address: -----------------------------------------------
Phone #: -----------------------------------------------
Account #: -----------------------------------------------
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Optionee Signature: Date:
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Exercise Procedures:
1. Complete, sign and return the Notice to Exercise form to Karen Patchen or
Ann White.
2. For cash transactions, a personal check, money order or cashier's check
must be provided before the exercise will be processed.
3. For stock swaps, the stock certificate(s) used in exchange for the options
shares must be duly executed by a bank participating in the Medallion
program.
4. If exercising through a brokerage firm, submit the Notice to Exercise
prior to contracting the broker to avoid a delay in processing.
5. Exercises are processed the same day payment is received. Fair Market
Value will be established by the closing price (last trade) of ENCAD common
stock on the day of exercise. Allow approximately five business days for
delivery of your certificate.
6. The Notice to Exercise is valid for 30 days only. If transaction does not
take place within 30 days a new form must be completed.
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FINANCE USE ONLY
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Date verified with broker: Date entered into system:
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Date payment received: Date sent to transfer agent:
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FMV/Date: Date confirmation sent to optionee:
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Comments:
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<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean ENCAD, Inc., a California corporation.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
determined in accordance with the following provisions:
- If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
<PAGE>
- If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or other
person in the Service of the Corporation (or any Parent or Subsidiary).
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
Q. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
R. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
S. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
T. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
U. PLAN shall mean the Corporation's 1997 Supplemental Stock Option Plan.
V. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its
<PAGE>
administrative capacity under the Plan.
W. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee or a
consultant or independent advisor.
X. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
Y. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
<PAGE>
EXHIBIT 99.5
Form of Non-Statuatory Stock Option Agreement
ENCAD, INC.
NON-STATUTORY
STOCK OPTION AGREEMENT
(NON-PLAN OPTION)
THIS STOCK OPTION AGREEMENT (the "Option Agreement") dated January 2, 1998
between ENCAD, Inc., a Delaware corporation (as successor to a California
corporation of the same name) (the "Company"), and Richard L. Diamond
("Optionee").
RECITALS
A. The Board of Directors ("the Board") of the Company believes that it is
in the best interests of the Company to provide its employees with the
opportunity to acquire an equity interest in the Company as a means of
attracting and retaining the services of selected key employees (including
officers) and consultants and other independent contractors who contribute to
the financial success of the Company or its parent or subsidiary corporations.
B. Optionee is an individual who will be employed as an officer of the
Company and whose successful efforts will contribute to the financial success of
the Company.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Company hereby grants to Optionee, as of the date
of this Agreement (the "Grant Date"), an Option (the "Option") to purchase up to
thirty-thousand (30,000) shares of the Company's Common Stock (the "Option
Shares"). The Option Shares shall be purchasable from time to time during the
Option Term (as set forth in Paragraph 2 below) at Twenty-Six Dollars and Twelve
and One-Half Cents ($26.125) per share (the "Option Price").
2. OPTION TERM. The Option shall have a maximum term of ten (10) years
measured from the Grant Date unless sooner terminated in accordance with
Paragraph 5 or 6 (the "Option Term"). The date which is ten (10) years from the
Grant Date is hereinafter referred to as the "Expiration Date."
3. LIMITED TRANSFERABILITY. This Option shall be neither transferable nor
assignable by Optionee other than by will or by the laws of descent and
distribution following the Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.
4. EXERCISABILITY. This Option shall become exercisable in sixteen (16)
successive equal quarterly installments upon Optionee's completion of each
additional quarter of Service over the sixteen (16) quarters measured from the
Grant Date, provided that the Option shall not become exercisable for any
additional Option Shares after the Optionee's cessation of Service. As the
Option becomes exercisable for the Option Shares in one or more such
installments, those installments shall accumulate and the Option shall remain
exercisable for the accumulated installments throughout the Option Term.
5. TERMINATION OF SERVICE. The Option Term specified in Paragraph 2 shall
terminate (and this Option shall cease to be exercisable) prior to the
Expiration Date should one of the following provisions become applicable:
(i) Except to the extent otherwise provided in subparagraphs (ii)
through (iii) below, should Optionee cease to remain in the Service of the
Company at any time during the Option Term, then this
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Option shall not remain exercisable for more than a three (3)-month period
commencing with the date of such cessation of Service. Upon the expiration
of such three (3)-month period or (if earlier) upon the specified
Expiration Date of the Option Term, this Option shall terminate and cease
to be outstanding.
(ii) Should Optionee die while in Service or within the three
(3)-month period following his or her cessation of Service, then the
personal representative of the Optionee's estate or the person or persons
to whom this Option is transferred pursuant to the Optionee's will or in
accordance with the law of descent and distribution shall have the right to
exercise this Option. Such right shall lapse, and this Option shall
terminate and cease to remain exercisable, upon the EARLIER of (A) the
expiration of the twelve (12)-month period measured from the date of
Optionee's death or (B) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service at any time during the Option Term,
then this Option shall not remain exercisable for more than a twelve (12)
month period commencing with the date of such cessation of Service. Upon
the expiration of such limited period of exercisability or (if earlier)
upon the Expiration Date, this Option shall terminate and cease to be
outstanding.
(iv) In no event shall this Option be exercisable at any time
after the specified Expiration Date of the Option Term.
(v) During the limited post-Service period of exercisability
determined in accordance with subparagraphs (i) through (iii) above, this
Option may not be exercised for more than the number of Option Shares (if
any) for which this Option is, at the time of the Optionee's cessation of
Service, exercisable in accordance with either the normal exercise
provisions specified in Paragraph 4 or the special acceleration provisions
of Paragraph 6 of this Agreement. However, the number of Option Shares
purchasable after the Optionee's death shall be reduced for any Option
Shares purchased by the Optionee after his or her cessation of Service but
prior to death.
(vi) For purposes of this Paragraph 5 and for all other purposes
under this Agreement, the following definitional provisions shall be in
effect:
A. The Optionee shall be deemed to remain in Service for so
long as the Optionee continues to render periodic services to the Company
or any parent or subsidiary corporation, whether as an Employee, a
non-employee member of the Company's Board or an independent consultant or
advisor.
B. The Optionee shall be deemed to be an Employee and to
continue in the Company's employ for so long as the Optionee remains in the
employ of the Company or one or more of its parent or subsidiary
corporations, subject to the control and direction of the employer entity
as to both the work to be performed and the manner and method of
performance.
C. The Optionee shall be deemed to be permanently disabled
if the Optionee is, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of not less than twelve (12) consecutive months or more, unable to
perform his or her usual duties for the Company or the parent or subsidiary
corporation retaining his or her services.
D. A corporation shall be considered to be a subsidiary
corporation of the Company if it is a member of an unbroken chain of
corporations beginning with the Company, provided each such corporation in
the chain (other than the last corporation) owns, at the time of
determination, stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
E. A corporation shall be considered to be a parent
corporation of the Company if it is a member of an unbroken chain ending
with the Company, provided each such corporation in the chain (other than
the Company) owns, at the time of determination, stock possessing 50% or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
<PAGE>
6. CORPORATE TRANSACTION.
A. For purposes of this Paragraph 6, a "Corporate Transaction"
shall be one or more of the following stockholder-approved transactions:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of
which is to change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or
dissolution of the Company, or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to holders different from those who held such
securities immediately prior to such merger.
B. If this Option is to be assumed in connection with the
Corporate Transaction or is otherwise to continue in effect, then it shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been
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. Appropriate adjustments shall
also be made to the Option Price, provided that the aggregate Option
pricePayable for such securities shall remain the same.
C. If in the event of any Corporate Transaction this Option is
not assumed or continued in accordance with Paragraph 6.B, the exercisability of
this Option shall automatically accelerate so that, immediately prior to the
specified effective date for the Corporate Transaction, this Option shall become
fully exercisable with respect to all of the Option Shares.
D. This Option, to the extent not previously exercised, shall
terminate upon the consummation of the Corporate Transaction and cease to be
exercisable, unless it is expressly assumed or continued by the successor
corporation or parent thereof.
E. This Agreement shall not in any way affect the right of the
Company to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. CHANGE IN CONTROL. Upon the occurrence of any Change in Control
of the Company, the exercisability of this Option shall automatically accelerate
so that 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
of this Option shall automatically vest immediately prior to the specified
effective date of the Change in Control. For purposes of this Paragraph 7, a
Change in Control shall be deemed to occur in the event:
(i) any person or related group of persons (other than
the Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company) 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 Company's outstanding
securities pursuant to a tender or exchange offer made directly to the Company'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
<PAGE>
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.
8. ADJUSTMENT IN OPTION SHARES.
A. In the event any change is made to the Common Stock issuable
under the Option by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares, conversion or other change affecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (i) the total
number of Option Shares subject to this Option and (ii) the Option Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
B. If this Option is to be assumed in connection with a
Corporate Transaction or is otherwise to continue in effect, then this Option
shall, immediately after such Corporate Transaction, be appropriately adjusted
to apply and pertain to the number and class of securities which would have been
issued to the Optionee in the consummation of such Corporate Transaction had the
Option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the Option Price, PROVIDED the
aggregate Option Price payable hereunder shall remain the same.
9. PRIVILEGE OF STOCK OWNERSHIP. The holder of this Option shall not
have any of the rights of a stockholder with respect to the Option Shares until
such individual shall have exercised the Option, paid the Option Price for the
purchased shares and been issued such shares.
10. MANNER OF EXERCISING OPTION.
A. In order to exercise this Option with respect to all or any
part of the Option Shares for which this) Option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, the Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Company (a)
a written notice of exercise (the "Exercise Notice"), in substantially the
form of EXHIBIT I attached hereto, in which there is specified the number
of Option Shares for which the Option is exercised.
(ii) Pay the aggregate Option Price for the purchased
shares in one or more of the following alternative forms:
1. full payment in cash or check drawn to the
Company's order;
2. full payment in shares of Common Stock of the
Company held by the Optionee for the requisite period necessary to permit
the Company to avoid recognizing a charge for compensation for financial
accounting purposes and valued at Fair Market Value on the Exercise Date
(as such terms are defined below);
3. full payment in a combination of shares of
Common Stock of the Company held by the Optionee for the requisite period
necessary to permit the Company to avoid recognizing a charge for
compensation for financial accounting purposes valued at Fair Market Value
on the Exercise Date and cash or check drawn to the Company's order;
4. full payment effected through a broker-dealer
sale and remittance procedure pursuant to which the Optionee (I) shall
provide irrevocable written instructions to a designated brokerage
<PAGE>
firm to effect the immediate sale of the purchased shares and remit to the
Company, 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 Company by reason of such
purchase and (II) shall provide written directives to the Company to
deliver the purchased shares directly to such brokerage firm in order to
complete the sale transaction; or
5. full payment in any other form which the
Company may, in its discretion, approve at the time of exercise in
accordance with the provisions of Paragraph 16 of this Agreement.
(iii) Furnish to the Company appropriate documentation that
the person or persons exercising the Option (if other than the Optionee)
have the right to exercise this Option.
B. For purposes of this Agreement, the Fair Market Value of a
share of Common Stock on any relevant date shall be determined in accordance
with subparagraphs (i) and (ii) below, and the Exercise Date shall be the date
on which the executed Exercise Notice is delivered to the Company. Except to
the extent the sale and remittance procedure specified above is utilized for the
exercise of the Option, payment of the Option Price for the purchased shares
must accompany the Exercise Notice. The procedure for measuring Fair Market
Value shall be as follows:
(i) If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded on the
NASDAQ National Market System, Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers through
the NASDAQ National Market System or any successor system. If there is no
reported closing selling price for the Common Stock 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.
(ii) If the Common Stock is at the time listed or admitted
to trading on any national stock exchange, then the Fair Market Value shall
be the closing selling price per share of Common Stock on the date in
question on the stock exchange determined by the Company 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 Common Stock 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.
(iii) 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 in the over-the-counter market, then the fair market
value shall be determined by the Company after taking into account such
factors as the Company shall deem appropriate, including one or more
independent professional appraisals, in a manner consistent with the
provisions of SECTION 260.140.50 OF THE RULES OF THE CALIFORNIA
CORPORATIONS COMMISSIONER.
C. As soon after the Exercise Date as practical, the Company
shall deliver to or on behalf of the Optionee (or to any other person or persons
exercising this Option) the purchased shares.
D. In no event may this Option be exercised for any fractional
shares.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this Option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Company and the
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the Option
Shares may be listed at the time of such exercise and issuance.
B. In connection with the exercise of this Option, Optionee
shall execute and deliver to the
<PAGE>
Company such representations in writing as may be requested by the Company in
order for it to comply with the applicable requirements of Federal and State
securities laws.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. LIABILITY OF COMPANY. The inability of the Company to obtain
approval from any regulatory body having authority deemed by the Company to be
necessary to the lawful issuance and sale of any Common Stock pursuant to this
Option shall relieve the Company of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Company, however, shall use its best efforts to obtain
all such approvals.
14. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement shall
confer upon the Optionee any right to continue in the Service of the Company (or
any parent or subsidiary corporation of the Company employing or retaining
Optionee) for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Company (or any parent or subsidiary
corporation of the Company employing or retaining Optionee) or the Optionee,
which rights are hereby expressly reserved by each, to terminate the Optionee's
Service at any time for any reason whatsoever, with or without cause.
15. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Company in care of the Corporate Secretary at the Company's principal
corporate offices. Any notice required to be given or delivered to Optionee
shall be in writing and addressed to Optionee at the address indicated below
Optionee's signature line hereto. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
16. LOANS. The Company may, in its absolute discretion and without any
obligation to do so, assist the Optionee in the exercise of this Option by (i)
authorizing the extension of a loan to the Optionee from the Company or (ii)
permitting the Optionee to pay the Option Price for the purchased Common Stock
in installments fora specified period. The terms of any loan or installment
method of payment (including the interest rate, the collateral requirements and
terms of repayment) shall be established by the Company in its sole discretion.
17. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.
18. WITHHOLDING. Optionee hereby agrees to make appropriate
arrangements with the Company or parent or subsidiary corporation employing
Optionee for the satisfaction of any Federal, State or local income tax
withholding requirements and Federal social security or other employee tax
requirements applicable to the exercise of this Option.
ENCAD, INC.
Dated:
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Richard A. Plante
President
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Richard L. Diamond
Address:
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Social Security #
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