ENCAD INC, DEF 14A, 2000-06-01

ENCAD INC
DEF 14A, 2000-06-01
COMPUTER PERIPHERAL EQUIPMENT, NEC

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12

ENCAD, INC.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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ENCAD, INC.

6059 CORNERSTONE COURT WEST

SAN DIEGO, CALIFORNIA 92121

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JULY 20, 2000

On Thursday, July 20, 2000, ENCAD, Inc., a Delaware corporation, will hold its
2000 annual meeting of stockholders at the Wyndham Garden Hotel, 5975 Lusk
Boulevard, San Diego, California 92121. The meeting will begin at 2:00 p.m.,
Pacific Daylight Time (local time).

Only stockholders who owned stock at the close of business on May 26, 2000 are
entitled to notice of and to vote at this meeting, or any adjournments or
postponements that may occur. At the meeting, stockholders will consider and
vote upon the following matters which are more fully described in the
accompanying proxy statement:

1. Election of the Board of Directors.

2. Approval of an amendment to the 1999 Stock Option/Stock Issuance
Plan to increase the number of shares reserved for issuance
under the plan by an additional 750,000 shares, from 580,000
shares currently reserved for the plan to a total of 1,330,000
shares.

3. Approval of an amendment to the 1999 Stock Option/Stock Issuance
Plan to provide for automatic annual increases in the number of
shares authorized for issuance under the plan by the lesser of
(a) four percent of the then outstanding shares of Common Stock
or (b) 750,000 shares, with such increases to commence on
January 1, 2001 and to continue on the first day of January of
each year thereafter.

4. Approval of an amendment to the 1993 Employee Stock Purchase
Plan to increase the number of shares authorized to be
purchased under the plan by an additional 200,000 shares, from
520,000 shares currently reserved for the plan to a total of
720,000 shares.

5. Approval of an amendment to the 1993 Employee Stock Purchase
Plan to provide for automatic annual increases in the number of
shares authorized for issuance under the plan by the lesser of
(a) one percent of the then outstanding shares of Common Stock,
or (b) 175,000 shares, with such increases to commence on
January 1, 2001 and to continue on the first day of January of
each year thereafter.

6. Ratification of the appointment of Deloitte & Touche LLP as
ENCAD's independent auditors for the year ending December 31,
2000.

7. Transaction of such other business as may properly be presented
at the meeting or any adjournments or postponements that may
occur.

All stockholders are cordially invited to attend the meeting in person.
Regardless of whether you plan to attend the meeting, you are urged to sign
and date the enclosed proxy which is solicited by your Board of Directors, and
return it promptly in the accompanying envelope, postage for which has been
provided if mailed in the United

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States. The prompt return of proxies will ensure a quorum and save us the
expense of further solicitation. Any stockholder returning the enclosed proxy
may revoke it prior to its exercise by voting in person at the meeting or by
filing with our Corporate Secretary a written revocation or a duly executed
proxy bearing a later date.

By order of the Board of Directors,

/s/ Thomas L. Green

Thomas L. Green, Esq.
Corporate Secretary

San Diego, California
June 8, 2000

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YOUR VOTE IS IMPORTANT

In order to ensure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy and return it as promptly as
possible in the enclosed envelope. No postage is required if mailed in the
United States.

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ENCAD, INC.

6059 CORNERSTONE COURT WEST

SAN DIEGO, CALIFORNIA 92121

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 20, 2000

TABLE OF CONTENTS

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GENERAL INFORMATION...........................................................................................1

SOLICITATION OF PROXIES AND VOTING............................................................................1

PROPOSAL 1 - ELECTION OF DIRECTORS............................................................................2

PROPOSAL 2 - APPROVAL OF AMENDMENT TO THE 1999 STOCK OPTION/STOCK
ISSUANCE PLAN TO INCREASE AUTHORIZED SHARES...................................................................4

PROPOSAL 3 - APPROVAL OF AMENDMENT TO THE 1999 STOCK OPTION/STOCK
ISSUANCE PLAN FOR AUTOMATIC ANNUAL INCREASES IN AUTHORIZED SHARES............................................13

PROPOSAL 4 - APPROVAL OF AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE
PLAN TO INCREASE AUTHORIZED SHARES...........................................................................14

PROPOSAL 5 - APPROVAL OF AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE
PLAN FOR AUTOMATIC ANNUAL INCREASES IN AUTHORIZED SHARES.....................................................17

PROPOSAL 6 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS...............................................18

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................................19

BOARD OF DIRECTORS...........................................................................................20

EXECUTIVE OFFICERS...........................................................................................21

COMPENSATION OF EXECUTIVE OFFICERS...........................................................................22

SUMMARY COMPENSATION TABLE...................................................................................25

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION...............................................30

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS.........................................................33

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................................33

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SUBMISSION OF STOCKHOLDER PROPOSALS..........................................................................34

FINANCIAL STATEMENTS.........................................................................................34

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......................................................34

OTHER MATTERS................................................................................................35

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ii
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PROXY STATEMENT

FOR THE

2000 ANNUAL MEETING OF STOCKHOLDERS

ENCAD, INC.

GENERAL INFORMATION

This proxy statement is furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors of ENCAD, Inc., a
Delaware corporation. The proxies will be used at our upcoming annual meeting
of stockholders to be held at the Wyndham Garden Hotel, 5975 Lusk Boulevard,
San Diego, California 92121, on Thursday, July 20, 2000, at 2:00 p.m., Pacific
Daylight Time (local time), and at any adjournments or postponements thereof,
for the purposes described in the preceding notice. We anticipate that this
proxy statement and the accompanying proxy will be mailed to our stockholders
on or about June 8, 2000.

SOLICITATION OF PROXIES AND VOTING

SOLICITATION

The expense of printing and mailing these proxy materials will be
borne by us. We have contracted with Corporate Investor Communications, Inc.
to assist in solicitation of proxies for the meeting. Corporate Investor
Communications will mail a search notice to banks, brokers, nominees and
street-name accounts to develop a listing of stockholders, distribute proxy
materials to brokers and banks for subsequent distribution to the beneficial
owners of the stock, and solicit proxy responses from holders of our common
stock. The anticipated cost of the proxy solicitation by Corporate Investor
Communications is $5,000. In addition, we may reimburse brokers, banks and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses incurred in connection with forwarding these proxy materials to the
beneficial owners of our common stock as of the record date (defined below).
No additional compensation will be paid for such services.

STOCKHOLDERS ENTITLED TO VOTE

Only stockholders of record as of the close of business on the record
date of May 26, 2000 will be entitled to vote at the meeting. As of the record
date, there were issued and outstanding 11,817,825 shares of our common stock,
$0.001 par value. No shares of our preferred stock, $0.001 par value, were
outstanding at that time.

QUORUM AND VOTING

The required quorum for the transaction of business at the meeting
is the presence, in person or by proxy, of the holders of a majority of
shares of our common stock issued and outstanding on the record date. Each
stockholder is entitled to one vote for each share of stock owned on the
record date. On all matters properly brought before the meeting, other than
the election of directors, a vote in favor by a majority of shares
represented in person or by proxy at the meeting and entitled to vote on the
item constitutes approval of that item by the stockholders, unless the vote
of a greater number is required by Delaware General Corporation Law or our
charter documents. Directors are elected by a plurality of votes of shares
represented in person or by proxy at the meeting and entitled to vote on the
election of directors. Accordingly, the six director nominees receiving the
highest number of votes of the shares entitled to vote at the meeting will be
elected.

On any matter other than the election of directors, stockholders may
vote part of their shares in favor of a proposal and refrain from voting the
remaining shares or vote them against the proposal. If a stockholder fails to
specify the number of shares which the stockholder is voting affirmatively, it
will be conclusively presumed that

1
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the stockholder's approving vote is with respect to all shares that the
stockholder is entitled to vote. No stockholder is entitled to cumulate votes
(i.e., to cast a number of votes greater than the number of the stockholder's
shares for any one or more candidates).

All votes will be tabulated by the inspector of election appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are
counted as present for purposes of determining the presence or absence of a
quorum for the transaction of business. Abstentions will be counted towards
the tabulations of votes cast on proposals presented to the stockholders and
will have the same effect as negative votes, whereas broker non-votes will
not be counted for purposes of determining whether a proposal has been
approved.

VOTING AND REVOCABILITY OF PROXY

If the enclosed proxy is properly signed and received by us prior to
the meeting, the proxy will be voted as directed by the stockholder. If no
instructions are given on the executed proxy, the proxy will be voted in favor
of the election of the nominees for the board (Proposal 1), and also in favor
of Proposals 2, 3, 4, 5 and 6 as described in this proxy statement. The
persons named in the proxy will have discretionary authority to vote the proxy
with respect to additional matters that are properly presented at the meeting.

Any stockholder returning the enclosed proxy may revoke it prior to
its exercise by voting in person at the meeting or by filing with our
Corporate Secretary a written revocation or a duly executed proxy bearing a
later date.

PROPOSAL 1

ELECTION OF DIRECTORS

Six individuals have been nominated for election to the board at the
meeting. If elected, they will hold office until their term has expired or
until their successors are duly elected and qualified. Under our bylaws, the
number of directors is established by resolution of the board. In 1998, the
board fixed the number of directors at six. Each of the six directors
currently serving on the board, listed below, has agreed to stand for
re-election at the meeting and to serve until the next annual meeting of
stockholders or until his respective successor is elected or appointed.

Unless individual stockholders specify otherwise, each returned proxy
will be voted for the election of the nominees listed below, or for as many
nominees of the board as possible. Such votes will be distributed among the
nominees in the manner the persons named in the proxy deem appropriate.

If, however, any of the nominees are unable to serve or, for good
cause, decline to serve at the time of the meeting, the persons named in the
proxy will exercise discretionary authority to vote for substitutes. The board
is not currently aware of any circumstances that would render any nominee
unavailable for election.

NOMINEES FOR ELECTION AS DIRECTOR

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DAVID A. PURCELL CHAIRMAN OF THE BOARD, PRESIDENT AND
AGE: 62 CHIEF EXECUTIVE OFFICER

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Mr. Purcell has served as our Chairman of the Board, a director and
our Chief Executive Officer since ENCAD was founded in November 1981. Mr.
Purcell was also President from ENCAD's inception until June 1995, and from
November 1998 to the present. Currently, he is a member of the board of
directors of Metallic Power Inc., a privately-held company. Prior to founding
ENCAD, Mr. Purcell served in varying capacities, including District, Regional
and National Sales Manager at Union Carbide's Electronics Division from 1964
to 1969. In 1969 he founded Celtec, a technical manufacturers' representative
company, and served as its Chief Executive Officer. He is also a co-founder of
two other companies: Bishop Electronics, a manufacturer of precision
capacitors, and Ryno Electronics, Inc., an electronics distribution company
ultimately acquired by Western Microtechnology in 1986. Mr. Purcell attended
Nasson College and California State College-Fresno.

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ROBERT V. ADAMS DIRECTOR
AGE: 68

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Mr. Adams has been a director since December 1994. Currently, Mr.
Adams is Chairman of the Board of Documentum, a publicly-traded software
company that develops document management systems. He is also a director of
two other publicly-traded companies, Tekelec, a supplier of software and
equipment for communication products and services, and Peerless Systems
Corporation, a provider of software-based embedded imaging systems. Mr. Adams
was previously President, Chief Executive Officer and Senior Principal of
Xerox Technology Ventures, a division of Xerox Corporation where he held
numerous management positions from 1965 to 1999, including President and
General Manager of the Printing Systems Division, Corporate Vice President and
President of Xerox Systems Group and Executive Vice President overseeing the
Corporate Strategy Office and Custom Systems Division. Mr. Adams holds an
undergraduate degree in Mechanical Engineering from Purdue University and an
MBA from the University of Chicago.

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CRAIG S. ANDREWS DIRECTOR
AGE: 47

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Mr. Andrews has served as a director since June 1996. In May 2000 he
became Vice President of Business Development and General Counsel for
AirFiber, Inc., a privately-held corporation. Previously Mr. Andrews was a
partner with the law firm of Brobeck, Phleger & Harrison LLP from 1997 to May
2000 where he served as the leader of its Business and Technology Group from
1998 to 1999. He is currently a director of four privately-held companies and
a director of Rubio's Restaurants, Inc., a publicly-traded corporation
engaged in operating and franchising restaurants. In January 2000, Mr.
Andrews retired from his position as director of Collateral Therapeutics,
Inc., a publicly-traded corporation which develops and commercializes
non-surgical gene therapy products. Mr. Andrews holds an undergraduate degree
in Political Science/Economics from the University of California, Los Angeles
and a JD from the University of Michigan.

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RONALD J. HALL DIRECTOR
AGE: 60

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Mr. Hall has served as a director since December 1993. Since 1990,
Mr. Hall has been managing general partner of Hall Capital Management of
Mission Viejo, California and was previously with First Interstate Venture
Capital Corporation from 1986 to 1990. Mr. Hall was also a general partner of
Weiss, Peck & Greer, a New York City-based venture capital and money
management firm, and with the venture capital operation of Bank of America.
Mr. Hall holds an undergraduate degree in Industrial Management from Brigham
Young University and an MBA in Finance from the University of California, Los
Angeles.

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HOWARD L. JENKINS DIRECTOR
AGE: 63

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Mr. Jenkins has been a director since December 1993. Since 1976, Mr.
Jenkins has been President of Jenkins Machinery Co., a tractor and machinery
dealership serving California and Nevada. He is also managing general partner
of Jenkins Ranch. Previously, Mr. Jenkins had been a board member of Alex
Brown Financial Group. Mr. Jenkins holds an undergraduate degree in Business
Administration from Eastern Washington University.

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CHARLES E. VOLPE DIRECTOR
AGE: 62

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Mr. Volpe has served as a director since December 1995. Mr. Volpe is
currently a director of Kemet Electronics Corp. and its parent, Kemet
Corporation, a publicly-traded electronic components manufacturing company,
where he held numerous management positions from 1970 until retiring as
President and Chief Operating Officer in 1996. Prior to joining Kemet in 1966,
Mr. Volpe was with the Micro Switch Division of Honeywell, Inc. In addition to
being a director of Kemet, Mr. Volpe is also a director of Trend Technologies,
Inc.,

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a privately-held company providing custom enclosures and components to the
electronics industry. Mr. Volpe holds an undergraduate degree in Mechanical
Engineering from Rochester Institute of Technology.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE NOMINEES FOR DIRECTORS
WHICH IS ITEM 1 ON THE PROXY.

PROPOSAL 2

APPROVAL OF AMENDMENT TO THE 1999 STOCK
OPTION/STOCK ISSUANCE PLAN TO INCREASE AUTHORIZED
SHARES

You are being asked to approve an amendment to the 1999 Stock
Option/Stock Issuance Plan which will increase the total number of shares of
common stock authorized for issuance under the plan by an additional 750,000
shares, from 580,000 shares to a total of 1,330,000 shares. The amendment
will become effective immediately upon stockholder approval.

The 1999 Stock Option/Stock Issuance Plan was adopted by the board on
February 10, 1999 and was approved by stockholders on May 19, 1999. It is a
comprehensive equity incentive program designed to attract and retain the
services of individuals essential to our company's long-term growth and
financial success. The plan allows us to provide officers and other key
employees, non-employee board members, consultants and other independent
advisors with the opportunity to acquire a meaningful equity interest in our
company through awards of stock under the plan over their period of continued
service with us. The board is requesting the increase in shares authorized for
issuance under the plan in order to maintain an adequate number of shares to
offer competitive compensation packages to potential employees and other
skilled individuals, as well as to provide key personnel with an incentive to
remain with the company. The board also believes that the acquisition of an
equity interest in the company will encourage employees to devote their best
efforts towards building a successful business.

The following is a summary of the principal features of the 1999
Stock Option/Stock Issuance Plan, as amended. This summary, however, does not
purport to be a complete description of the plan. Copies of the actual plan
will be furnished to any stockholder upon written request to our Corporate
Secretary at our offices located in San Diego, California.

SUMMARY OF THE 1999 STOCK OPTION/STOCK ISSUANCE PLAN

STRUCTURE

The 1999 Stock Option/Stock Issuance Plan consists of four separate
equity incentive programs:

- The discretionary grant program under which eligible individuals
in our employ or service may, at the discretion of the plan
administrator, be granted stock options to purchase shares of
common stock or stock appreciation rights covering such shares;

- The automatic option grant program under which eligible
non-employee board members will automatically receive option
grants to purchase shares of common stock at designated intervals
over their period of board service;

- The stock issuance program under which eligible persons may, at
the discretion of the plan administrator, be issued shares of
common stock directly, either upon the attainment of designated
milestones or the completion of specified service requirements,
or as a fully-vested bonus for past services rendered to us; and

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- The reload option grant program under which eligible persons may,
at the discretion of the plan administrator, be granted options
with a special feature which will automatically trigger new
option grants to the extent the original options are exercised
through the delivery of previously acquired shares of common
stock.

The principal features of each program are described below.

ADMINISTRATION

The Plan is currently administered by the Compensation Committee with
respect to the discretionary grant, stock issuance and reload option grant
programs; however, one or more additional board committees may be appointed to
administer those programs with respect to certain designated classes of
individuals in our service. The term "plan administrator" as used in this
summary will mean the Compensation Committee and any other appointed committee
acting within the scope of its administrative authority under the 1999 plan.
Administration of the automatic option grant program is self-executing in
accordance with the express provisions of that program, and no plan
administrator will exercise any discretion with respect to such program.

ELIGIBILITY

Officers and other employees, non-employee board members, consultants
and other independent advisors in the service of ENCAD, or any parent or
subsidiary corporation (whether now existing or subsequently established) are
eligible to participate in the discretionary grant, stock issuance and reload
option grant programs. Only non-employee board members are eligible to
participate in the automatic option grant program.

As of February 29, 2000, 11 executive officers, approximately 383
other employees and five non-employee board members were eligible to
participate in the discretionary grant, stock issuance and reload option grant
programs. The five non-employee board members were also eligible to
participate in the automatic option grant program.

SHARE RESERVE

Currently, 580,000 shares of ENCAD common stock are reserved for
issuance under the 1999 Stock Option/Stock Issuance Plan. The shares issuable
under the plan are available either from our authorized but unissued common
stock or from common stock reacquired by us, including shares purchased in the
open market.

Assuming the 750,000 share increase which is the subject of this
proposal is approved by our stockholders, the maximum number of shares of
common stock reserved for issuance over the ten year term of the plan,
measured from the effective date of the plan, will increase to 1,330,000
shares. In addition, if the amendment proposed under Proposal 3 below is also
approved by our stockholders, the share reserve under the plan will
automatically increase on the first day of January of each calendar year,
beginning with the 2001 calendar year, by an amount equal to the lesser of
four percent of the then outstanding shares of common stock or 750,000 shares.

As of February 29, 2000, options for 35,000 shares were outstanding,
no options had been exercised, and 545,000 shares remained available for
future issuance under the plan. Assuming stockholder approval of the proposed
750,000 share increase, 1,295,000 shares will become available for future
issuance.

To the extent any of the options granted under the plan are
subsequently exercised, the number of shares issued upon the exercise of those
options will reduce, on a share-for-share basis, the number of shares
available for issuance under the plan. Should an outstanding option expire or
terminate for any reason prior to exercise in full, the shares subject to the
portion of the option not exercised will become available for subsequent
issuance under the plan. Unvested shares issued under the plan that are
subsequently repurchased by us are added back to the share reserve and will be
available for subsequent issuance under the plan. Shares subject to any stock
appreciation rights exercised under the plan will not be available for
subsequent issuance.

No one participant in the plan may receive stock option grants,
separately exercisable stock appreciation rights, or direct stock issuances
for more than 250,000 shares of common stock in the aggregate per calendar
year.

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VALUATION

For purposes of establishing the exercise price for stock options and
stock appreciation rights and for all other valuation purposes under the 1999
plan, the fair market value per share of common stock under the 1999 plan on
any relevant date will be the closing selling price per share of our common
stock reported on the Nasdaq National Market on that date. The closing selling
price of our common stock on February 29, 2000 was $6.438 per share.

DISCRETIONARY GRANT PROGRAM

STOCK OPTIONS

The options granted under the discretionary grant program may be
either incentive stock options under the federal tax laws or non-statutory
options. Each option has an exercise price per share of not less than 100
percent of the fair market value per share of common stock on the grant date.
No granted option has a term in excess of ten years. Each option will normally
become exercisable for fully vested shares in a series of installments over a
specified period of service measured from the grant date. One or more options
may be structured so that the shares acquired under those options are unvested
and subject to repurchase by us at the exercise price paid per share should
the optionee cease service with us prior to vesting of those shares.

Options are generally not assignable or transferable other than by
will or the laws of inheritance. During the optionee's lifetime, the option
may be exercised only by the optionee. The plan administrator, however, may
allow non-statutory options to be transferred or assigned during the
optionee's lifetime to one or more members of the optionee's immediate family
or to a trust established exclusively for such family members, to the extent
such transfer or assignment is in furtherance of the optionee's estate plan.
No option holder has any stockholder rights with respect to the option shares
until the option is exercised and the exercise price is paid for the shares.

The exercise price may be paid in cash or in shares of common stock
valued at fair market value on the exercise date. The option may also be
exercised through a cashless exercise procedure in which the optionee provides
irrevocable instructions to a designated brokerage firm to effect the
immediate sale of the purchased shares and remit to us, out of the sale
proceeds available on the settlement date, an amount equal to the aggregate
exercise price payable for the purchased shares plus all applicable
withholding taxes.

Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to purchase vested shares.
The plan administrator will have complete discretion to extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability
or vesting of such options in whole or in part. Such discretion may be
exercised at any time while the options remain outstanding.

STOCK APPRECIATION RIGHTS

Three types of stock appreciation rights are authorized for issuance
under the discretionary grant program:

- Tandem rights, which require the option holder to elect between
the exercise of the underlying option for shares of common stock
and the surrender of that option for an appreciation
distribution;

- Stand-alone stock appreciation rights not tied to an option grant
but with a base price per share equal to the fair market value
per share of common stock on the grant date; and

- Limited stock appreciation rights which become exercisable upon
the occurrence of a hostile take-over.

The appreciation distribution payable by us upon the exercise of a
tandem stock appreciation right is equal in amount to the excess of (1) the
aggregate fair market value on the option surrender date of the shares of
common stock in which the optionee is at the time vested under the surrendered
option over (2) the aggregate exercise price payable for those vested shares.
Such appreciation distribution may, at the plan administrator's discretion, be
made

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in cash or in shares of common stock valued at fair market value on the
exercise date or partly in shares and partly in cash.

The appreciation distribution payable by us upon the exercise of a
stand-alone stock appreciation right is equal in amount to the excess of (1)
the aggregate fair market value on the exercise date of the shares of common
stock underlying the exercised right over (2) the aggregate base price in
effect for those shares. Such appreciation distribution may, at the plan
administrator's discretion, be made in cash or in shares of common stock
valued at fair market value on the exercise date. The base price in effect for
each stand-alone right may not be less than the fair market value per share of
common stock on the date that right is granted.

One or more officers subject to the short-swing profit restrictions
of the federal securities laws may be granted, at the discretion of the plan
administrator, limited stock appreciation rights in connection with their
option grants under the discretionary grant program. Each option with a
limited stock appreciation right may be surrendered to us upon the successful
completion of a hostile tender offer for more than 50 percent of our
outstanding voting stock. In return, the optionee will be entitled to a cash
distribution in an amount per surrendered option share equal to the excess of
(1) the greater of (a) the fair market value per share of common stock on the
date the option is surrendered in connection with hostile tender offer or (b)
the highest price per share of common stock paid in the tender offer over (2)
the option exercise price per share.

Shares subject to stock appreciation rights exercised under the 1999
plan are not available for subsequent issuance.

AUTOMATIC OPTION GRANT PROGRAM

Under the automatic option grant program, each individual will at the
time he or she first becomes a non-employee board member, whether through
election by the stockholders or appointment by the board, receive an automatic
option grant for 18,000 shares of common stock, provided such individual was
not previously in our employ. In addition, on the date of each annual
stockholders meeting, each individual re-elected to serve as a non-employee
board member is automatically granted a stock option to purchase 7,000 shares
of our common stock, provided such individual has served as a non-employee
board member for at least six months. There is no limit on the number of such
7,000 share option grants any one non-employee board member may receive over
his or her period of board service. Non-employee board members who have
previously been employed by ENCAD are fully eligible for one or more 7,000
share option grants over their period of continued board service. Stockholder
approval of this proposal will also constitute pre-approval of each automatic
option grant made under the plan on the basis of the proposed 750,000 share
increase and the subsequent exercise of that option grant in accordance with
the terms and conditions below.

Each option granted under the automatic option grant program is
subject to the following terms and conditions:

- The exercise price per share is equal to 100 percent of the fair
market value per share of common stock on the automatic grant
date.

- Each option has a maximum term equal to the lesser of (1) ten
years measured from the grant date or (2) 12 months following
termination of service on our board.

- Each 18,000 share option is immediately exercisable for all the
option shares, but any shares purchased under the option are
subject to repurchase by the company at the exercise price paid
per share upon the optionee's cessation of board service prior to
vesting in those shares.

- The shares subject to each initial 18,000 share grant will vest
and our right to repurchase the shares will lapse in two
successive equal annual installments upon the optionee's
completion of each year of board service over a two-year period
measured from the grant date. Each 7,000 share option will be
immediately exercisable for all of the option shares as fully
vested shares.

<PAGE>

- The shares subject to each outstanding automatic option grant
will immediately vest should the optionee die or become
permanently disabled while a board member or should any of the
following events occur while the optionee continues in board
service: (1) an acquisition of the company by merger or asset
sale, (2) the successful completion of a tender or exchange
offer for more than 35 percent of the outstanding voting
securities or (3) a change in the majority of our board by
reason of one or more contested elections for board membership.

- Upon the successful completion of a hostile tender offer for
securities possessing more than 50 percent of the total combined
voting power of outstanding voting securities, each outstanding
automatic option grant may be surrendered to us for a cash
distribution per surrendered option share in an amount equal to
the excess of (1) the highest price per share of common stock
paid in such hostile tender offer over (2) the exercise price
payable per share. Stockholder approval of this proposal will
also constitute pre-approval of each such option surrender right
granted on the basis of the proposed 750,000 share increase and
the subsequent exercise of that right in accordance with the
foregoing terms and conditions.

- The option may be transferred or assigned during the optionee's
lifetime to one or more members of the optionee's immediate
family or to a trust established exclusively for such family
members, to the extent such transfer or assignment is in
furtherance of the optionee's estate plan.

- The remaining terms of the option will, in general, conform to
the terms described above for option grants made under the
discretionary grant program.

STOCK ISSUANCE PROGRAM

Under the stock issuance program, shares of our common stock may be
issued through direct and immediate issuances without any intervening option
grants. The shares may be issued as a fully vested stock bonus for services
rendered or may vest in a series of installments over the recipient's period
of service or upon the attainment of one or more performance milestones.
Shares of our common stock may also be issued under the stock issuance program
pursuant to share right awards which will entitle the recipients to receive
those shares upon the attainment of designated performance goals or the
completion of a specified period of service.

The recipient will have all the rights of a stockholder with respect
to shares actually issued to him or her, whether or not those shares are
vested, including the right to vote such shares and to receive all regular
cash dividends paid on such shares.

In the event the recipient should leave our service for any reason
while holding one or more unvested shares, or in the event the performance
objectives should not be attained with respect to one or more unvested shares,
then those shares must immediately be surrendered for cancellation, and the
recipient will have no further stockholder rights with respect to those
shares. The plan administrator may, in its discretion, waive such surrender
and cancellation of unvested shares, in whole or in part, and thereby effect
the immediate vesting of the recipient's interest in the shares to which the
waiver applies. Outstanding share right awards will terminate if the
performance goals or service requirements established for those awards are not
attained. The plan administrator, however, has the authority to issue shares
of common stock in satisfaction of one or more outstanding share right awards
as to which the designated performance goals or service requirements are not
attained.

RELOAD OPTION GRANT PROGRAM

The Compensation Committee has full power and authority to
incorporate a reload feature into one or more options at the time those
options are granted under the discretionary grant program. To the extent an
option with such a reload feature is subsequently exercised through the
delivery of shares of common stock in payment of the exercise price, the
optionee will automatically be granted at the time of such exercise, a new
option (known as a "reload option") to purchase the number of shares of common
stock so delivered.

<PAGE>

Each reload option is exercisable upon substantially the same terms
and conditions as the original option to which it relates, except for the
following differences:

- The exercise price per share is equal to the fair market value of
our common stock on the date the new option is granted unless the
Compensation Committee specifies a higher exercise price.

- In no event will any additional reload option be granted in
connection with the subsequent exercise of the first reload
option.

- The Compensation Committee has full authority to set the period
of time which must elapse following the exercise of the original
option before the reload option will become exercisable. Once
that period has elapsed, the reload option will become
immediately exercisable for all of the shares of common stock
subject to that option at that time.

GENERAL PROVISIONS

VESTING ACCELERATION

In the event that we are acquired in a corporate transaction such as
a merger or asset sale, each outstanding option under the discretionary grant
program which is not assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the discretionary grant and
stock issuance programs will immediately vest, except to the extent the
repurchase rights with respect to those shares are assigned to the successor
corporation. The plan administrator will have complete discretion to grant one
or more options under the discretionary grant program which will become fully
exercisable for all the option shares in the event those options are assumed
in the acquisition, but the optionee's service with either us or the acquiring
entity is involuntarily terminated within a designated period (not to exceed
18 months) following such acquisition. The vesting of outstanding shares under
the stock issuance program may be accelerated upon similar terms and
conditions.

The plan administrator also has the authority to grant options which
will immediately vest upon an acquisition of ENCAD, whether or not those
options are assumed by the successor corporation. The plan administrator is
further authorized under the discretionary grant and stock issuance programs
to grant options and to structure repurchase rights so that the shares subject
to those options or repurchase rights will immediately vest in connection with
a change in ownership or control (whether by successful tender offer for more
than 35 percent of the outstanding voting stock or by a change in the majority
of the board by reason of one or more contested elections for board
membership). Such vesting will occur either at the time of such change in
control or upon the subsequent involuntary termination of the individual's
service within a designated period (not to exceed 18 months) following such
change in control. The acceleration of options in the event of a corporate
transaction or change in control may be seen as an anti-takeover provision and
may have the effect of discouraging a merger proposal, a takeover attempt, or
other efforts to gain control of us.

FINANCIAL ASSISTANCE

The plan administrator may institute a loan program to assist
participants in financing the exercise of outstanding options or the purchase
of shares under the discretionary grant or stock issuance programs through
full-recourse interest-bearing promissory notes. However, the maximum amount
of financing provided any participant may not exceed the aggregate option
exercise price payable for the issued shares plus all applicable taxes
incurred in connection with the acquisition of the shares.

CHANGES IN CAPITALIZATION

In the event any change is made to the outstanding shares of our
common stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate
structure effected without our receipt of consideration, appropriate
adjustments will be made to (1) the maximum number and/or class of securities
issuable under the 1999 plan, (2) the number and/or class of securities for
which any one person may be granted stock options, separately exercisable
stock appreciation rights or direct stock issuances in the aggregate per
calendar year, (3) the number and/or class of securities for which grants are

<PAGE>

subsequently to be made under the automatic option grant program to our new
and continuing non-employee board members, (4) the maximum number and/or class
of securities by which the share reserve is to increase each calendar year
pursuant to the automatic share increase provisions of the plan, and (5) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option.

Each outstanding option which is assumed in connection with a
corporate transaction will be appropriately adjusted to apply to the number
and class of securities which would otherwise have been issued to the option
holder had the option been exercised immediately prior to that corporate
transaction. Appropriate adjustments will also be made to the option price
payable per share and to the class and number of securities available for
future issuance under the 1999 plan on both an aggregate and a per-participant
basis.

SPECIAL TAX ELECTION

The plan administrator may, in its discretion, provide one or more
holders of outstanding options or unvested share issuances under the 1999 plan
with the right to have us withhold a portion of the shares of common stock
otherwise issuable to such individuals in satisfaction of the income and
employment withholding taxes to which they may become subject in connection
with the exercise of those options or the vesting of those shares.
Alternatively, the plan administrator may allow such individuals to deliver
existing shares of common stock in satisfaction of such withholding tax
liability.

AMENDMENT AND TERMINATION

The board may amend or modify the 1999 plan; however, certain
amendments may also require stockholder approval.

Unless sooner terminated by the board, the 1999 plan will, in all
events, terminate on February 10, 2009. Any options outstanding at the time of
such termination will remain in force in accordance with the provisions of the
instruments evidencing those grants.

FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE 1999 PLAN

Options granted under the 1999 plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code, or non-statutory options which are not intended to meet such
requirements. The federal income tax treatment for the two types of options
differs as follows:

INCENTIVE OPTIONS

No taxable income is recognized by the optionee at the time of the
option grant, and no taxable income is generally recognized at the time the
option is exercised. The optionee will, however, recognize taxable income in
the year in which the purchased shares are sold or otherwise made the subject
of a taxable disposition. For federal tax purposes, dispositions are divided
into two categories: (1) qualifying and (2) disqualifying. A qualifying
disposition occurs if the sale or other disposition of the shares is made more
than two years after the date the option for those shares is granted and more
than one year after the date that option is exercised for the shares. If
either of those requirements is not satisfied, then a disqualifying
disposition will result.

Upon a qualifying disposition of the shares, the optionee will
recognize long-term capital gain in an amount equal to the excess of (1) the
amount realized upon the sale or other disposition of the purchased shares
over (2) the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (1) the fair market value of the
shares on the exercise date over (2) the exercise price paid for those shares
will be taxable as ordinary income to the optionee. Any additional gain or
loss recognized upon the disposition will be taxable as a capital gain or loss.

If the optionee makes a disqualifying disposition of the purchased
shares, then ENCAD will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the excess of (1) the fair
market value of such shares on the option exercise date over (2) the exercise
price paid for the shares. In no other instance will we be allowed a deduction
with respect to the optionee's disposition of the purchased shares.

<PAGE>

NON-STATUTORY OPTIONS

No taxable income is recognized by an optionee upon the grant of a
non-statutory option. The optionee will in general recognize ordinary income
in the year in which the option is exercised in an amount equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee will be required to
satisfy the tax withholding requirements applicable to such income.

If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase in the event of the optionee's termination
of service prior to vesting in those shares, then the optionee will not
recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when our repurchase right lapses, an amount equal
to the excess of (1) the fair market value of the shares on the date the
repurchase right lapses over (2) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code
to include as ordinary income in the year of exercise of the option an amount
equal to the excess of (1) the fair market value of the purchased shares on
the exercise date over (2) the exercise price paid for such shares. If the
Section 83(b) election is made, the optionee will not recognize any additional
income as and when the repurchase right lapses.

We will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will, in general, be allowed for the
taxable year in which such ordinary income is recognized by the optionee.

STOCK APPRECIATION RIGHTS

No taxable income is recognized upon the receipt of a stock
appreciation right. The holder will recognize ordinary income in the year in
which the right is exercised in an amount equal to the excess of the fair
market value of the underlying shares of common stock on the exercise date
over the base price in effect for the exercised right. The holder will be
required to satisfy the tax withholding requirements applicable to such income.

We will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable
year in which such ordinary income is recognized.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

Compensation deemed paid by us in connection with disqualifying dispositions
of incentive stock option shares or exercises of non-statutory options will
qualify as performance-based compensation for purposes of Internal Revenue
Code Section 162(m) and will not have to be taken into account for purposes of
the $1 million limitation per covered individual on the deductibility of the
compensation paid to certain of our executive officers. Accordingly, all
compensation deemed paid with respect to those options will remain deductible
without limitation under Internal Revenue Code Section 162(m).

ACCOUNTING TREATMENT

Under the current accounting principles in effect for equity
incentive programs such as the 1999 plan, option grants under the 1999 plan
will not result in any direct charge to our reported earnings. However, the
fair value of those options will be required to be disclosed in the notes to
our financial statements. We must also disclose in notes to our financial
statements the pro-forma impact that those options would have upon our
reported earnings per share if the fair value of those options at the time of
grant were treated as a compensation expense and amortized over the applicable
vesting period. In addition, the number of outstanding options may be a factor
in determining our earnings per share on a fully-diluted basis.

On March 31, 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, which is an interpretation of APB Opinion No. 25
governing the accounting principles applicable to equity incentive plans.
Under the Interpretation, option grants made to consultants (but not
non-employee board members) after December 15, 1998 will result in a direct
charge to our reported earnings based upon the fair value of the option
measured initially as of the grant date and then subsequently on the vesting
date of each installment of the

<PAGE>

underlying option shares. Such charge will accordingly include the
appreciation in the value of the option shares over the period between the
grant date of the option (or, if later, the July 1, 2000 effective date of the
Interpretation) and the vesting date of each installment of the option shares.

Should one or more individuals be granted tandem or stand-alone stock
appreciation rights under the 1999 plan, then such rights would result in a
compensation expense to be charged against reported earnings. Accordingly, at
the end of each fiscal quarter, the amount (if any) by which the fair market
value of the shares of common stock subject to such outstanding stock
appreciation rights has increased from the end of the prior quarter is accrued
as compensation expense to the extent such fair market value is in excess of
the aggregate exercise price in effect for those rights.

OUTSTANDING OPTION GRANTS UNDER THE 1999 STOCK OPTION/STOCK ISSUANCE PLAN

The table below shows, as to the executive officers in the Summary
Compensation Table and as to the various indicated groups, the following
information with respect to stock options granted under the 1999 plan during
the 1999 calendar year: (i) the number of shares of common stock subject to
options granted and (ii) the weighted average exercise price per share for
such options.

1999
------------------------------------------------------
SHARES UNDERLYING WEIGHTED AVERAGE
OPTIONS (#) EXERCISE PRICE
------------------------------------------------------
<S> <C> <C> <C>
DAVID A. PURCELL - $ -
Chairman of the Board, President and
Chief Executive Officer

MICHAEL T. LIESS - $ -
Vice President, Sales and Field Marketing

TODD W. SCHMIDT - $ -
Vice President and Chief Financial Officer

GURI A. STARK - $ -
Vice President, Marketing

MICHAEL J.T. STEEP - $ -
Executive Vice President and Chief Operating
Officer

All current directors who are not executive officers 35,000 $ 5.88

All current executive officers as a group - $ -

All employees who are not executive officers (1) - $ -

</TABLE>

(1) This category only includes those employees who were employed by us as of
December 31, 1999.

NEW OPTION PLAN BENEFITS

As of February 29, 2000, no options have been granted under the plan
on the basis of the proposed 750,000 share increase.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The affirmative vote of a majority of the outstanding voting shares
of ENCAD present or represented at the 2000 annual meeting and entitled to
vote on this proposal is required for approval of the proposed 750,000 share
increase to the 1999 Stock Option/Stock Issuance Plan. The board recommends
that the stockholders vote FOR the approval of the proposed share increase.
The board believes that it is in the best interests of the company

<PAGE>

to maintain a comprehensive equity incentive program for our officers,
employees, non-employee board members, and consultants which will encourage
such individuals to remain in our service and more closely align their
interests with those of our stockholders.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE AMENDMENT TO THE 1999 STOCK OPTION/STOCK ISSUANCE PLAN
TO INCREASE AUTHORIZED SHARES WHICH IS ITEM 2 ON THE PROXY.

PROPOSAL 3

APPROVAL OF AMENDMENT TO THE 1999 STOCK OPTION/STOCK
ISSUANCE PLAN FOR AUTOMATIC ANNUAL INCREASES IN
AUTHORIZED SHARES

Subject to stockholder approval, the board adopted a second
amendment to the 1999 Stock Option/Stock Issuance Plan which is commonly
referred to as an "Evergreen" provision. This Evergreen amendment provides
for automatic annual increases in the number of shares authorized for
issuance under the plan in an amount equal to the lesser of (a) four percent
of the outstanding shares of our company's common stock on the date of the
increase or (b) 750,000 shares (subject to periodic adjustment for stock
splits, stock dividends, recapitalizations and similar transactions). If this
amendment is approved by the stockholders, these increases in authorized plan
shares (rounded downward, if necessary, to eliminate fractional shares) will
automatically occur on the first day of January of each calendar year,
commencing with the 2001 calendar year and continuing over the remaining term
of the plan.

The board approved the Evergreen amendment because it believes that
the 1999 Stock Option/Stock Issuance Plan is an important factor in attracting
and retaining highly-qualified individuals and in motivating such individuals
to devote their maximum efforts toward the advancement of the company. The
board believes that this amendment furthers these objectives by assuring
continuing availability of our common stock to our employees through the plan
that will not only serve as a reward for the efforts of our employees, but
will also build an equity ownership interest in the company which will align
the interests of our employees with those of our stockholders. An Evergreen
provision could also reduce our costs by minimizing the frequency with which
amendments to the plan must be submitted to stockholders for approval to
increase authorized shares in order to accommodate ENCAD's growth and the
potential expansion of eligible employees under the plan.

This Evergreen amendment will not reduce our company's flexibility in
future financing and capital-raising efforts since the board will retain the
right to reduce the actual amount of any Evergreen increase to the plan in the
event that the number of shares otherwise allocated for issuance under the
plan would conflict with the then current needs of the company to issue shares
of its common stock for other purposes.

The board believes that this Evergreen feature will provide us with
the consistent and predictable source of common stock needed to maintain
employee equity participation comparable to businesses with which we compete
in recruiting and retaining highly-skilled employees.

An affirmative vote of at least a majority of the shares held by the
stockholders present in person or by proxy at the annual meeting and entitled
to vote on this proposal is required to approve this amendment.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE AMENDMENT TO AUTOMATICALLY INCREASE AUTHORIZED SHARES
UNDER THE 1999 STOCK OPTION/ STOCK ISSUANCE PLAN
ON AN ANNUAL BASIS WHICH IS ITEM 3 ON THE PROXY.

<PAGE>

PROPOSAL 4

APPROVAL OF AMENDMENT TO THE 1993 EMPLOYEE
STOCK PURCHASE PLAN TO INCREASE AUTHORIZED
SHARES

You are being asked to vote on a proposal to approve an amendment to
the 1993 Employee Stock Purchase Plan. This amendment was adopted by the
board on December 9, 1999, subject to stockholder approval. The effect of the
amendment will be to increase the number of shares available for issuance
under the 1993 Employee Stock Purchase Plan by an additional 200,000 shares
of common stock, from total current authorized shares of 520,000 to 720,000
shares.

The purpose of the amendment is to enable us to continue to offer our
employees and potential employees equity participation packages comparable to
those of our competitors. Such packages serve as a means to attract, motivate
and retain high-quality, key employees. Through equity participation, employee
compensation is correlated to the company's performance so that employees have
a vested interest in applying their best efforts toward making the company as
productive as possible. As a result, equity participation through the stock
purchase plan benefits both employees and stockholders.

The board is requesting the increase in shares authorized for
issuance under the 1993 Employee Stock Purchase Plan in order to maintain an
adequate number of shares to offer competitive compensation packages, as well
as to accommodate potential employee demand and the growth of the company.

The Employee Stock Purchase Plan was initially adopted by the board
and approved by shareholders on October 8, 1993. The plan was amended by a
resolution adopted by the board on March 12, 1996 and approved by the
shareholders on June 18, 1996, to increase the number of shares of stock
subject to the plan by 100,000 shares for a total of 200,000 authorized
shares. In accordance with the terms of the plan, the number of authorized
shares was increased to 400,000 as a result of the two-for-one stock split
payable in the form of a 100 percent stock dividend distributed to our
shareholders on May 31, 1996. On February 11, 1997, the board resolved to
further amend the plan to increase the number of shares available for
issuance by 120,000 shares to a total of 520,000 shares. This amendment was
approved by shareholders on July 17, 1997.

The terms and provisions of the 1993 Employee Stock Purchase Plan, as
amended, are summarized below. This summary, however, does not purport to be a
complete description of the plan. Copies of the actual plan may be obtained by
any stockholder upon written request to our Corporate Secretary at our
corporate offices in San Diego, California.

SUMMARY OF THE 1993 EMPLOYEE STOCK PURCHASE PLAN

SHARE RESERVE AND PLAN ADMINISTRATION

Currently, the maximum number of shares that may be sold to
participants over the term of the 1993 Employee Stock Purchase Plan may not
exceed 520,000 shares of our common stock. As of February 29, 2000, 407,831
shares of our common stock had been purchased under the plan and 112,169
shares were available for future purchase.

Assuming the 200,000 share increase which is the subject of this
proposal is approved by our stockholders, the maximum number of shares of our
common stock reserved for issuance over the term of the plan will increase to
720,000 shares, with 312,169 shares available for future purchase. In
addition, if the amendment proposed under Proposal 5 below is also approved
by our stockholders, then the share reserve under the plan will automatically
increase on the first day of January of each calendar year, beginning with
the 2001 calendar year, by an amount equal to the lesser of one percent of
the then outstanding shares of common stock or 175,000 shares per year.

<PAGE>

Appropriate adjustments will be made to (i) the class and maximum
number of securities purchasable under the plan, (ii) the class and maximum
number of securities purchasable per participant during any one offering
period, (iii) the class and maximum number of securities by which the share
reserve is to increase automatically each calendar year pursuant to the
proposed automatic share increase provisions of the plan, and (iv) the class
and number of securities and the price per share in effect under each
outstanding purchase right in order to preserve participant rights should any
change be made to the outstanding common stock by reason of any stock
dividend, stock split, combination of shares or other similar change
affecting the outstanding common stock as a class without our company's
receipt of consideration.

The Employee Stock Purchase Plan is administered by the Compensation
Committee of our board of directors ("Purchase Plan Administrator"). The
Purchase Plan Administrator has full authority to adopt administrative rules
and procedures and to interpret the provisions of the plan and any outstanding
purchase rights.

OFFERING PERIODS AND PURCHASE RIGHTS

Shares of our common stock are offered under the plan through a
series of successive offering periods. Each offering period is coincident
with the calendar quarter. The purchase dates will occur on the last business
day of each calendar quarter.

ELIGIBILITY

Employees are eligible to participate if they are employed for at
least 20 hours per week by our company or a subsidiary designated by the
board. As of February 29, 2000, approximately 394 employees (including 11
officers of the company) were eligible to participate in the Employee Stock
Purchase Plan.

An employee who is eligible to participate in the plan at the start
of an offering period may join during that offering period on the start date.

PLAN OPERATION

Employees eligible to participate in an offering period can elect to
have up to ten percent of their base salary withheld under the plan. The
amount withheld is then used to purchase shares of our common stock at
quarterly intervals. The price of our common stock purchased in each offering
period under the plan is equal to 85 percent of the lower of the fair market
value of the common stock on (i) the first business day of the calendar
quarter or (ii) the purchase date. Employees may withdraw from the plan
during an offering period at any time other than the last five days of the
calendar quarter. Participation ends automatically on termination of
employment with us. Employees who elect to withdraw from the plan during an
offering period may not participate again until the next offering period.
Employees may alter their level of payroll deduction on a limited basis
during an offering period.

No participant may purchase more than 2,000 shares during any one
offering period or otherwise accrue rights to purchase more than $25,000 of
stock per calendar year. Upon an acquisition of our company, the outstanding
payroll deductions will be immediately applied to the purchase of our common
stock.

AMENDMENT AND TERMINATION

The Employee Stock Purchase Plan will terminate upon the earlier of
(i) December 31, 2003 or (ii) the date on which all shares available for
issuance thereunder are sold pursuant to exercised purchase rights. However,
we specifically reserve the right, exercisable in the sole discretion of the
Plan Administrator, to terminate all outstanding purchase rights under the
plan immediately following any quarterly purchase date. If such right is
exercised by us, then the plan will terminate in its entirety and no further
purchase rights will be granted or exercised thereunder.

<PAGE>

The board may amend or modify the provisions of the plan at any time.
However, the board may not, without stockholder approval, (i) increase the
number of shares issuable under the plan or the maximum number of shares which
any one participant may purchase during a single offering period, (ii) alter
the purchase price formula so as to reduce the purchase price, or (iii) modify
the requirements for eligibility to participate in the plan.

FEDERAL TAX CONSEQUENCES

The 1993 Employee Stock Purchase Plan is designed to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code.
Under a plan which so qualifies, no taxable income will be recognized by a
participant, and no deductions will be allowable to our company, upon either
the grant or the exercise of the purchase rights. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the plan or in the event the participant should die while still owning
the purchased shares.

If the participant sells or otherwise disposes of the purchased
shares within two years after his or her entry date into the offering period
in which those shares were acquired or within one year after the quarterly
purchase date on which the shares were actually acquired, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
amount by which the fair market value of the shares on the purchase date
exceeded the purchase price paid for those shares, and we will be entitled to
an income tax deduction for the taxable year in which such disposition
occurs, equal in amount to such excess.

If the participant sells or disposes of the purchased shares more
than two years after his or her entry date into the offering period in which
the shares were acquired and more than one year after the quarterly purchase
date of those shares, then the participant will recognize ordinary income in
the year of sale or disposition equal to the lesser of (i) the amount by
which the fair market value of the shares on the sale or disposition date
exceeded the purchase price paid for those shares or (ii) 15 percent of the
fair market value of the shares on the participant's entry date into that
offering period. Any additional gain upon the disposition will be taxed as a
long-term capital gain. We will not be entitled to an income tax deduction
with respect to such disposition.

ACCOUNTING TREATMENT

Under current accounting principles applicable to employee stock
purchase plans qualified under Section 423 of the Internal Revenue Code, the
issuance of common stock under our plan will not result in a compensation
expense chargeable against our reported earnings. However, we must disclose,
in pro-forma statements to our financial statements, the impact the purchase
rights granted under the plan would have upon our reported earnings were the
fair value of those purchase rights treated as compensation expense.

OUTSTANDING STOCK PURCHASES UNDER THE PURCHASE PLAN

The table below shows, as to our Chief Executive Officer, our four
most highly compensated executive officers and the various indicated groups,
the number of shares of common stock purchased under the plan for 1999 and
for the offering period which began on January 1, 2000.

<PAGE>

OFFERING PERIOD CALENDAR YEAR
ENDING MARCH 31, 2000 ENDED DECEMBER 31, 1999
-------------------------------- --------------------------------
NUMBER OF
NUMBER OF WEIGHTED PURCHASED WEIGHTED
PURCHASED AVERAGE SHARES AVERAGE
SHARES PURCHASE ---------------- PURCHASE
(#) PRICE (#) PRICE
----------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
DAVID A. PURCELL - $ - - $ -
Chairman of the Board, President
and Chief Executive Officer
MICHAEL T. LIESS 1,207 $ 4.09 2,000 $ 4.31
Vice President,
Sales and Field Marketing
TODD W. SCHMIDT - $ - - $ -
Vice President and
Chief Financial Officer
GURI A. STARK 1,046 $ 4.09 2,000 $ 3.51
Vice President, Marketing
MICHAEL J.T. STEEP - $ - - $ -
Executive Vice President and
Chief Operating Officer
All current directors who are not - $ - - $ -
executive officers
All current executive officers as a 3,410 $ 4.09 8,000 $ 3.75
group
All employees who are not executive 20,822 $ 4.09 74,568 $ 4.06
officers (1)

</TABLE>

(1) This category only includes those employees who were employed by us as of
December 31, 1999.

NEW PLAN BENEFITS

As of February 29, 2000, no purchase rights had been granted under
the 1993 Employee Stock Purchase Plan on the basis of the proposed 200,000
share increase.

VOTE REQUIRED

The affirmative vote of the holders of a majority of the outstanding
voting shares of ENCAD stock present or represented at the 2000 annual
meeting and entitled to vote on this proposal is required for approval of the
proposed 200,000 share increase to our Employee Stock Purchase Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE PLAN
TO INCREASE AUTHORIZED SHARES WHICH IS ITEM 4 ON THE PROXY.

PROPOSAL 5

APPROVAL OF AMENDMENT TO THE 1993 EMPLOYEE
STOCK PURCHASE PLAN FOR AUTOMATIC ANNUAL
INCREASES IN AUTHORIZED SHARES

Subject to stockholder approval, the board adopted a second amendment
to the 1993 Employee Stock Purchase Plan which is commonly referred to as an
"Evergreen" provision. This amendment provides for automatic annual increases
in the number of shares authorized for issuance under the Employee Stock
Purchase Plan in an amount equal to the lesser of (a) one percent of the
outstanding shares of ENCAD common stock at the time of the increase or (b)
175,000 shares (subject to periodic adjustments for stock splits, stock
dividends,

<PAGE>

recapitalizations and similar transactions). If this amendment is approved by
the stockholders, these increases in authorized plan shares (rounded
downward, if necessary, to eliminate fractional shares) will automatically
occur on the first day of January of each calendar year, commencing with the
2001 calendar year and continuing over the remaining term of the plan.

The board approved the Evergreen amendment because, like the Stock
Option/Stock Issuance Plan, it believes that the Employee Stock Purchase Plan
is an important factor in attracting and retaining highly qualified
individuals and in motivating such individuals to devote their maximum efforts
toward the advancement of the company. The board believes that this amendment
furthers these objectives by assuring continuing availability of common stock
to our employees through the Employee Stock Purchase Plan which will not only
serve as a reward for the efforts of its employees, but will also build an
equity ownership interest in the company which will align the interests of the
our employees with those of our stockholders. An Evergreen provision could
also reduce our costs by minimizing the frequency with which amendments to the
Employee Stock Purchase Plan must be submitted to stockholders for the purpose
of increasing authorized shares to accommodate our growth and the potential
expansion of eligible employees under the plan.

The board believes that this Evergreen feature will provide our
company and our stockholders with the consistent and predictable source of
common stock needed to maintain employee equity participation comparable to
businesses with which we compete in recruiting and retaining highly-skilled
employees.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE AMENDMENT TO AUTOMATICALLY INCREASE AUTHORIZED SHARES
UNDER THE 1993 EMPLOYEE STOCK PURCHASE PLAN ON AN ANNUAL BASIS
WHICH IS ITEM 5 OF THE PROXY.

PROPOSAL 6

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The board has appointed the accounting firm of Deloitte & Touche LLP
as our independent auditors for the year ending December 31, 2000. Deloitte &
Touche has served as our independent auditors since 1983 and the board
believes that the firm is well-qualified to provide these services.
Representatives of Deloitte & Touche are expected to be present at the 2000
annual meeting. They will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.

Ratification of the appointment of Deloitte & Touche as our
independent auditors requires the affirmative vote of a majority of the shares
of common stock represented in person or by proxy and entitled to vote on this
matter at the 2000 annual meeting. In the event that the stockholders fail to
ratify such appointment, the board will reconsider its selection. Even if the
selection is ratified, the board, at its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the board believes that such a change would be in the best interest of
the company and our stockholders.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR RATIFICATION OF THE SELECTION
OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
WHICH IS ITEM 6 ON THE PROXY.

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth information as of February 29, 2000
relating to the beneficial ownership of common stock by (1) each stockholder
known to own beneficially more than five percent of the outstanding shares of
our common stock, (2) each director, (3) the executive officers listed below
under "Compensation of Executive Officers," and (4) all our executive officers
and directors as a group. This table is based upon information supplied by
directors and the executive officers described in Section (3) of this
paragraph, principal stockholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission, also known as the SEC. Unless otherwise
indicated, the individual stockholders named in the table have sole voting and
sole investment power with respect to all shares beneficially owned, subject
to community property laws where applicable. Applicable ownership is based on
12,407,662 shares of common stock outstanding on February 29, 2000, and
calculated pursuant to SEC Rule 13d-3(d)(1), which includes the number of
shares acquirable within 60 days.

All amounts listed under the column "Acquirable Within 60 Days"
represent the underlying shares for stock options which will vest within 60
days of February 29, 2000.

AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------------------------
OWNED AT ACQUIRABLE PERCENT
NAMES AND ADDRESSES FEBRUARY 29, 2000 WITHIN 60 DAYS OF CLASS
---------------------- ---------------------- ----------------
<S> <C> <C> <C>
DIMENSIONAL FUND ADVISORS INC. 679,900 0 5.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401

RICHARD H. PICKUP 2,000,000 (1) 0 17.0%
610 Newport Center Dr., Suite 1300
Newport Beach, CA 92660

ROBERT V. ADAMS 30,000 11,334 *

CRAIG S. ANDREWS 10,324 39,334 *

RONALD J. HALL 82,610 27,334 *

HOWARD L. JENKINS 208,176 42,334 2.00%

CHARLES E. VOLPE 20,000 40,334 *

DAVID A. PURCELL 740,002 41,249 6.30%

MICHAEL T. LIESS 2,000 15,312 *

TODD W. SCHMIDT 1,500 26,249 *

GURI A. STARK 4,000 14,375 *

MICHAEL J.T. STEEP 4,000 38,437 *

LAWRENCE E. THOMPSON (2) 16,366 0 *

ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP - 16 PERSONS (3) 1,139,618 367,382 12.1%

</TABLE>

* Less than 1 percent.

(1) Based upon information filed with the SEC on Schedule 13D/A as of
February 18, 2000. This total is an aggregate of the shares held of
record by entities with which Mr. Pickup is affiliated. These entities
are Dito Devcar Corporation (1,120,000 shares), Dito Caree, LP
(305,000 shares), TD Investments, LLC (50,000 shares), Pickup
Charitable Unitrust II (50,000 shares), DRP Charitable Remainder
Unitrust

<PAGE>

(50,000 shares), TMP Charitable Remainder Unitrust (50,000 shares),
Pickup Family Trust (175,000 shares), and Dito Devcar LP (200,000).

(2) The amounts shown for Mr. Thompson in this table are based upon
information reported as of October 1999.

(3) The amounts shown in this table for all directors and executive
officers as a group excludes the amounts reported for Mr. Thompson.

BOARD OF DIRECTORS

TERM OF BOARD

Members of the board hold office and serve until the next annual
meeting of our stockholders or until their respective successors have been
elected and qualified. Executive officers are appointed by, and serve at the
discretion of, the board.

RELEVANT COMMITTEES AND MEETINGS OF THE BOARD

The board has a compensation and an audit committee. The board does
not maintain a nominating committee or other committee which performs similar
functions.

The current members of the Compensation Committee are Mr. Volpe
(Chairman), Mr. Hall and Mr. Jenkins. The Compensation Committee provides
recommendations concerning salaries and incentive cash compensation for our
executive officers and key personnel other than remuneration of directors. The
Compensation Committee held three meetings during 1999.

The current members of the Audit Committee are Mr. Adams (Chairman),
Mr. Andrews and Mr. Jenkins. The Audit Committee recommends our independent
auditors, reviews the results and scope of the audit and other services
provided by such auditors, and evaluates fees. The Audit Committee held three
meetings during 1999.

The board held six meetings during 1999. No incumbent director,
except Mr. Adams, attended fewer than 75 percent of the board and committee
meetings in which such director was entitled to participate. Mr. Adams
attended four of the six board meetings and two of the three audit committee
meetings.

COMPENSATION OF DIRECTORS

For their services as directors in 1999, non-employee directors
received cash compensation of $15,000 annually and $2,000 for each regular
board meeting. An additional payment of $4,000 was paid to each non-employee
director who served on at least one special committee of the board.
Non-employee directors were also eligible for reimbursement of their expenses
incurred in attending meetings of the board in accordance with our policy.
Pursuant to an increase in compensation approved for 1997, additional payments
owed to non-employee directors for each board meeting attended in 1997 and
1998 were paid in a lump sum in 1999.

At the 1999 annual meeting held on May 19, 1999, Mr. Adams, Mr.
Andrews, Mr. Hall, Mr. Jenkins, and Mr. Volpe were re-elected to the board.
Each received a stock option for 7,000 shares of common stock under the
automatic option grant program in effect for non-employee directors under the
1999 Stock Option/Stock Issuance Plan. Each option has an exercise price of
$5.875 per share and is immediately exercisable for any or all of the option
shares. Each option has a term of 10 years measured from the grant date,
subject to earlier termination following the director's cessation of service
on the board.

<PAGE>

EXECUTIVE OFFICERS

The following individuals were executive officers of ENCAD as of February 29,
2000:

NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Purcell..................62 President and Chief Executive Officer

Thomas L. Green...................52 Vice President, Secretary and General Counsel

Michael T. Liess..................35 Vice President, Sales and Field Marketing

Sheryl D. Roland..................44 Vice President, Human Resources

Todd W. Schmidt...................57 Vice President and Chief Financial Officer

John Schwarzenbach................56 Vice President, Quality Assurance

Charles L. Sharp..................45 Vice President, Supplies Operations

Guri A. Stark.....................46 Vice President, Marketing

Michael J.T. Steep................46 Executive Vice President and Chief Operating Officer

Terry E. Vandewarker..............48 Vice President, Operations

Steven T. Van Voorhis.............49 Vice President, Engineering

</TABLE>

Mr. Purcell is currently serving as our Chairman of the Board,
President and Chief Executive Officer. Please see the discussion under
"Directors" for a description of his business experience.

Mr. Green has served as Vice President since December 1995, and as
General Counsel and Secretary since joining us in June 1994, after serving as
a legal consultant for us from February 1994 to May 1994. From February 1992
to June 1993, Mr. Green served as General Counsel for Psicor, Inc., a
publicly-traded company that provides services related to open-heart
perfusion. He was Senior Vice President and General Counsel from May 1990 to
February 1992 for Pacific Scene Development, a real estate development
company. Mr. Green holds a BA in Economics from West Virginia Wesleyan College
and a JD from the Western States University School of Law.

Mr. Liess joined ENCAD in October 1998 as Vice President of Worldwide
Sales and Field Marketing. Prior to joining the Company he was with Oce-USA, a
public company which offers products and services for the reproduction,
distribution and management of documents. During his tenure with Oce from
September 1990 until October 1998, he held the positions of Vice President
Operations - Western United States and numerous other management positions.
Mr. Liess has a BS in Industrial and Labor Relations from Cornell University
and an MBA from the University of Rochester.

Ms. Roland served as our Vice President of Human Resources from
December 1998 to April 2000 and served as the company's Director of Employee
Relations and Compensation from June 1997 to December 1998. Prior to joining
the Company, Ms. Roland was Vice President, Human Resources, for The Upper
Deck Company, LLC, a position she held from March 1992 until December 1996.
Ms. Roland holds a BA in Psychology from the University of California at Los
Angeles and an MS in Counseling Psychology from San Jose State University.

Mr. Schmidt joined us as Vice President and Chief Financial Officer
in June 1996. From September 1995 to May 1996, Mr. Schmidt was a financial
consultant. During that period, from March to May 1996, Mr. Schmidt provided
financial consulting services to ENCAD. Mr. Schmidt previously served as Vice
President, Finance and Administration from July 1990 to September 1995 for
Biosym Technologies, Inc., a developer and seller of computer-aided molecular
modeling software. He is a Certified Public Accountant with a BS in Industrial
Engineering and an MBA, both from Northwestern University.

Mr. Schwarzenbach joined us in July 1999 as Vice President of Quality
after serving as temporary Director of Quality Assurance from April 1999 to
June 1999. Prior to joining our company, he was with General

<PAGE>

Instrument, a publicly-traded company providing integrated and interactive
broadband access solutions. Mr. Schwarzenbach was Senior Director, Engineering
Services and Program Management for General Instrument, a position he held
from March 1997 until March 1999. He also served as Vice President, Quality,
at Motorola Transmission Products Division from April 1994 to September 1996.
Mr. Schwarzenbach has a BS in Electrical Engineering from the University of
Oklahoma and an MA in Mathematics from the University of Denver.

Mr. Sharp joined us as Vice President of Supplies Operations in
October 1999. Prior to joining the Company, he was President and Chief
Operating Officer of Hunt Digital Imaging, Inc. from February 1999 to October
1999. He served as Vice President at Sentinel Imaging, a division of Sentinel
Business Systems, Inc., a position he held from February 1996 until February
1999. In March 1998, Sentinel Business Systems filed a petition for protection
under Chapter 11 of the US Bankruptcy Code in connection with an award of
damages against the company in a lawsuit filed prior to Mr. Sharp's joining
Sentinel. From July 1994 to January 1996 Mr. Sharp founded Digital Graphics,
Inc., where he held the positions of President and Vice President of
Marketing. Mr. Sharp has a BS in Operations Research/Industrial Engineering
and a ME in Electrical Engineering from Cornell University, and an MBA from
Boston University.

Mr. Stark joined us in October 1998 as Vice President of Marketing.
From February 1996 until he joined ENCAD, he held the positions of Senior
Director, Channels Development, and Director of Marketing for the Mechanical
CAD business unit at Autodesk, Inc., a publicly-traded company and supplier of
computer design software and digital content creation tools. From February
1993 to February 1996, Mr. Stark was Vice President of Marketing with
Spectragraphics Corporation. Mr. Stark has a BS in Mechanical Engineering and
an MS in Mechanical Engineering/Computer Science from Technion, Israel
University of Technology, and an MBA in Business Administration from the
University of Colorado.

Mr. Steep became Executive Vice President and Chief Operating Officer
in April 1999 after serving as ENCAD's Senior Vice President and General
Manager, Digital Imaging Solutions from April 1998 until April 1999. From
December 1994 to April 1998, Mr. Steep was with Lexmark International Group,
Inc., a publicly-traded global developer, manufacturer and supplier of printer
solutions and products. While at Lexmark, Mr. Steep served as Vice President,
Corporate Strategy and Business Development, and was also General Manager of
Worldwide Business Development and President of Lexmark Japan. Mr. Steep has a
BA from the University of Pennsylvania and an MBA from the University of
Virginia.

Mr. Vandewarker became Vice President of Operations in January 1999
after serving as Director of Finance for us from September 1997 to December
1999. Prior to joining us, he was Vice President and Chief Financial Officer
for Nexcycle, Inc., a position he held from May 1995 until September 1997. He
served in the same capacity from 1993 to 1995 for OCTUS, Inc., a
publicly-traded company in the computer-telephone integration business. Mr.
Vandewarker is a Certified Public Account and holds a BS in Psychology from
the University of California at Riverside and an MBA in Accounting and Finance
from the University of California at Los Angeles.

Mr. Van Voorhis joined us in May 1998 as Vice President of Worldwide
Engineering. Prior to joining our company, Mr. Van Voorhis worked from 1991
to 1998 for Hewlett-Packard, a publicly-held company which manufactures and
sells computing and imaging solutions and services. While at Hewlett-Packard,
Mr. Van Voorhis held the positions of Research and Development Manager,
Research and Development Section Manager/Program Manager, Supply Chain
Manager, and Manufacturing Manager. Mr. Van Voorhis has a BS in Biology and
Psychology from the University of California at San Diego, Revelle College
and an MS in Electrical Engineering from San Diego State University.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the aggregate compensation paid or
accrued for the years ended December 31, 1999, 1998 and 1997 with respect to:
(1) our Chief Executive Officer; (2) our other four most highly compensated
executive officers; and (3) one former executive officer for whom disclosure
would have been required as one of the company's four most highly compensated
executive officers but for the fact that the

<PAGE>

individual was not serving as an executive officer at the end of 1999. The
information contained in the table is described in more detail in the
following section.

EXPLANATION OF SUMMARY COMPENSATION TABLE

SALARY

The "Salary" column indicates all salary earned during the year by
the officers listed in the table which follows this explanation. This includes
salary which was not actually paid to the officer because payment was deferred
at the election of the officer under either our 401(k) plan or our Select
Compensation Non-Qualified Deferred Compensation Plan. The 401(k) plan is a
retirement savings plan established by ENCAD which is generally available to
all our salaried employees. For a description of our deferred compensation
plan, please see the discussion under "Severance, Change in Control, and Other
Arrangements."

In the following cases, amounts reported in the "Salary" column were
paid only for a partial year:

- Mr. Liess joined ENCAD in October 1998. His 1998 compensation
commences at that time.

- Mr. Stark joined ENCAD in October 1998. His 1998 compensation
commences at that time.

- Mr. Steep joined ENCAD in April 1998. His 1998 compensation
commences at that time.

- Mr. Thompson left ENCAD in April 1999. His 1999 compensation
represents the amount earned by him from January 1, 1999 until
April 27, 1999.

BONUS

The "Bonus" column shows the amount of bonuses awarded in accordance
with annual incentive compensation targets established by the Compensation
Committee. Please see the discussion under "Report of the Compensation
Committee on Executive Compensation - Incentive Compensation." The "Bonus"
column also includes amounts which were not actually paid to the officer
because payment was deferred at his or her election under either our 401(k)
plan or our deferred compensation plan.

OTHER ANNUAL COMPENSATION

The "Other Annual Compensation" column shows amounts representing (1)
perquisites and other personal benefits, (2) above-market or preferential
earnings on deferred compensation and (3) a grant of ENCAD stock to Mr. Steep
and payments to cover his estimated tax liability for the stock grant.

All amounts reported in this column for Mr. Purcell and Mr. Schmidt
are above-market earnings on compensation deferred at their election under our
deferred compensation plan.

The amount of $135,459 reported as other annual compensation for Mr.
Liess in 1999 reflects perquisites or other personal benefits comprised of
$128,259 in relocation costs and a $7,200 annual car allowance. The amount of
$106,483 reported for Mr. Stark in 1999 also represents perquisites in the
form of relocation costs of $99,283 and an annual car allowance of $7,200.

For 1999, other annual compensation for Mr. Steep in the total amount
of $56,830 was comprised of $27,250 representing the fair market value on the
date of the grant of 4,000 shares granted to Mr. Steep on April 20,1999 in
accordance with our offer of employment to him, plus $29,580 paid to cover his
estimated tax liability for the shares. The amount of $169,505 reported for
Mr. Steep in 1998 in this column reflects perquisites of $157,606 in
relocation costs, a $6,400 annual car allowance, and $5,499 reimbursement for
financial services.

In accordance with SEC rules, amounts paid to the executive officers
named in the Summary Compensation Table below for perquisites or other
personal benefits totaling the lesser of $50,000 or ten percent of total
annual salary and bonuses have been omitted from this column.

<PAGE>

AWARDS, SECURITIES UNDERLYING OPTIONS/SARS

The figures under the "Awards, Securities Underlying Options/SARs"
column reflect the number of underlying shares for all stock options granted
during 1999, 1998 and 1997. The stock option for 10,000 shares granted to Mr.
Thompson in 1999 was cancelled when he left the Company. All of his remaining
stock options were either cancelled or exercised by October 1999.

The numbers listed for 1998 include stock options which were granted,
but subsequently cancelled in November 1998 in connection with a stock option
re-grant program. These figures also include stock options granted to replace
options issued in prior years that were cancelled in 1998 in connection with
the stock option re-grant program.

All awards reported under this column were stock options issued under
either the 1993 Stock Option/Stock Issuance Plan, the 1997 Supplemental Stock
Option Plan or the 1998 Stock Option Plan, with the exception of the stock
option for 75,000 shares issued to Mr. Steep in 1998 pursuant to a
non-statutory stock option agreement between Mr. Steep and ENCAD.

No stock appreciation rights (SARs) were awarded.

ALL OTHER COMPENSATION

Certain amounts reported in the "Other Annual Compensation" column
are 401(k) matching contributions. In 1998, we began contributing matching
funds to all participants in an amount equal to 25 percent of the employee's
contributions to the plan during profitable quarters which, in 1998, was the
second quarter. In 1999, matching contributions were increased to 50 percent
of the first six percent of gross annual salary contributed by the participant
to the plan, regardless of profitability of the company.

In 1998 and 1999, a participant vested in his or her matching
contribution account at the rate of 20 percent for each year of employment
with us. Matching contributions would be 100 percent vested after five years.
Should the employee leave ENCAD prior to the end of the five-year vesting
period, matching contributions which had not vested would be forfeited.

As of December 31, 1999, the amount of vested matching contributions
for current officers listed in the Summary Compensation Table were as follows:

- 100 percent of the $4,800 in total matching contributions made to
Mr. Purcell in 1999 is vested.
- 20 percent or $960 of the $4,800 in total matching contributions
made to Mr. Liess in 1999 is vested.
- 60 percent or $3,189 of the $5,315 in total matching contributions
for 1998 and 1999 made to Mr. Schmidt is vested.
- 20 percent or $960 of the $4,800 in total matching contributions
made to Mr. Stark in 1999 is vested.
- 20 percent or $960 of the $4,800 in total matching contributions
made to Mr. Steep in 1999 is vested.

In addition to the matching 401(k) contributions of $4,800, the total
of $197,007 reported in 1999 for Mr. Purcell as all other compensation is
comprised of $189,846 representing the present value cost of the company's
portion of the 1999 premiums for split dollar life insurance above the term
coverage level and $2,361 representing imputed income associated with the term
portion of the split dollar arrangement. We entered into a split dollar
insurance agreement on December 1, 1999 for the benefit of Mr. Purcell. We pay
the annual premiums due under the insurance policy and, subject to specified
contingencies, are entitled to a refund of premiums paid upon the earlier of
Mr. Purcell's death or the surrender of the policy. Mr. Purcell is entitled to
receive a minimum stated benefit subject to the sufficiency of cash value in
the policy and is entitled to the cash surrender value, if any, in excess of
specified amounts payable to ENCAD.

Of the $244,244 reported under this column in 1999 for Mr. Thompson,
$2,019 represents matching 401(k) contributions. At the time Mr. Thompson left
the company in April 1999, 80 percent or $2,171 of the

<PAGE>

$2,714 in total matching contributions made to Mr. Thompson for 1998 and 1999
had vested. The remaining 20 percent was forfeited upon Mr. Thompson's leaving
ENCAD.

The balance of $242,225 reported in 1999 for Mr. Thompson represents
total severance payments owed to Mr. Thompson. These severance payments are
payable over a 12-month period in equal bi-weekly installments. In 1999, we
made severance payments to Mr. Thompson in the amount of $161,167. For a
general description of the severance agreements, please see the discussion
under "Severance, Change in Control, and Other Arrangements."

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------------
AWARDS
------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL COMPEN- OPTIONS/SARs COMPEN-
POSITION YEAR SALARY ($) BONUS ($) SATION ($) (#) SATION ($)
---------------------------------- --------- -------------------------------------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
DAVID A. PURCELL 1999 $ 365,013 $ 263,204 $ 90,736 45,000 $ 197,007
Chief Executive Officer 1998 $ 350,919 $ -- $ -- 145,000 $
and President 1997 $ 327,356 $ 165,000 $ 29,672 65,000 $ --

MICHAEL T. LIESS 1999 $ 239,877 $ 166,086 $ 135,459 25,000 $ 4,800
Vice President, 1998 $ 94,779 $ 62,679 $ -- 25,000 $ --
Sales and Field Marketing 1997 $ -- $ -- $ -- -- $ --

TODD W. SCHMIDT 1999 $ 200,771 $ 115,571 $ 28,340 12,500 $ 4,800
Vice President and 1998 $ 184,038 $ -- $ -- 100,000 $ 515
Chief Financial Officer 1997 $ 169,724 $ 57,047 $ 3,403 20,000 $ --

GURI A. STARK 1999 $ 201,939 $ 76,133 $ 106,483 20,000 $ 4,800
Vice President, Marketing 1998 $ 77,748 $ 49,548 $ -- 25,000 $ --
1997 $ -- $ -- $ -- -- $ --

MICHAEL J.T. STEEP 1999 $ 345,148 $ 189,246 $ 56,830 65,000 $ 4,800
Executive Vice President and 1998 $ 201,759 $ -- $ 169,505 150,000 $ --
Chief Operating Officer 1997 $ -- $ -- $ -- -- $ --

LAWRENCE E. THOMPSON 1999 $ 96,168 $ -- $ -- 10,000 $ 244,244
Former Vice President and 1998 $ 168,834 $ 25,000 $ -- 52,500 $ 695
General Manager, Textiles 1997 $ 152,226 $ 107,528 $ -- 15,000 $ --
Business Unit

</TABLE>

OPTION GRANTS IN 1999

The following table sets forth information concerning stock option
grants during 1999 to the officers listed in the Summary Compensation Table
above. All options granted in 1999 were issued under the 1993 Stock
Option/Stock Issuance Plan. The options granted in 1999 generally become
exercisable in equal quarterly installments over a period of four years. The
first quarterly installment becomes exercisable three months after the date of
grant. The options were granted for a term of ten years, subject to earlier
termination under certain circumstances related to termination of employment.
No stock appreciation rights were granted to these officers during 1999.

The "Potential Realizable" columns under the Option Grant Table sets
forth hypothetical gains or "option spreads" for the options at the end of
their respective ten-year terms, calculated in accordance with the rules of
the SEC. Each gain is based on an arbitrarily assumed annualized rate of
compound appreciation of the market price at the date of grant of five percent
and ten percent from the date the option was granted to the end of the option
term. Actual gains, if any, on option exercises are dependent on the future
performance of our common stock and overall market conditions.

<PAGE>

OPTION GRANT TABLE

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-----------------------------------------------------------------------------------
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS/SARs ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS/SARs EMPLOYEES IN PRICE EXPIRATION OPTION TERM
NAME GRANTED (#) FISCAL YEAR (1) ($/SH)(2) DATE 5%($) 10%($)
---------------------- ------------ ---------------- ---------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David A. Purcell 45,000 6.65% $ 8.125 07/09/09 $ 229,939.60 $ 582,712.09

Michael T. Liess 10,000 1.48% $ 3.625 01/06/09 $ 22,797.43 $ 57,773.16

15,000 2.22% $ 8.125 07/09/09 $ 76,646.53 $ 194,237.36

Todd W. Schmidt 7,500 1.11% $ 4.563 02/10/09 $ 21,519.99 $ 54,535.87

5,000 0.74% $ 8.125 07/09/09 $ 25,548.84 $ 64,745.79

Guri A. Stark 10,000 1.48% $ 3.625 01/06/09 $ 22,797.43 $ 57,773.16

10,000 1.48% $ 8.125 07/09/09 $ 51,097.69 $ 129,491.57

Michael J.T. Steep 30,000 4.44% $ 7.125 04/21/09 $ 134,426.23 $ 340,662.45

15,000 2.22% $ 4.563 02/10/09 $ 43,039.98 $ 109,071.75

20,000 2.96% $ 8.125 07/09/09 $ 102,195.38 $ 258,983.15

Lawrence E. Thompson 10,000(3) 1.48% $ 4.563 02/10/09 $ 28,693.32 $ 72,714.50

</TABLE>

(1) In 1999, employees received stock options amounting to a total of 676,375
shares.

(2) Exercise price is the closing price of our common stock as reported on the
Nasdaq National Market on the date of grant.

(3) This stock option grant to Mr. Thompson was cancelled in 1999 as a result
of his leaving ENCAD.

OPTION EXERCISES AND HOLDINGS

The following table sets forth certain information with respect to the number
and value of unexercised stock options held by the executive officers listed
in the Summary Compensation Table above as of December 31, 1999. No stock
options or SARs were exercised by the officers during 1999, with the exception
of Mr. Thompson who acquired 1,875 shares of our common stock through an
option exercise. The value realized by Mr. Thompson as reported in the table
below was determined by multiplying the number of shares exercised by the
difference between the option exercise price and the fair market value of the
company's common stock on the date of exercise. No SARs were outstanding at
the end of 1999.

The value of unexercised in-the-money options at the end of 1999 as reported
in this table was based upon a market price of $4.78 per share, determined on
the basis of the closing selling price per share of common stock as reported
on the Nasdaq National Market on December 31, 1999, less the option exercise
price payable per share.

<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS/
OPTIONS/SARs SARs (2)
SHARES VALUE AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON REALIZED ------------------------------ ------------------------------
NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------ ------------- ---------- ------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
David A. Purcell - $ - 29,062 120,938 $ - $ -
Michael T. Liess - $ - 9,062 40,938 $ 2,168 $ 9,395
Todd W. Schmidt - $ - 20,468 67,032 $ 308 $ 1,333
Guri A. Stark - $ - 8,750 36,250 $ 2,168 $ 9,395
Michael J.T. Steep - $ - 22,812 117,188 $ 615 $ 2,667
Lawrence E. Thompson 1,875 $ 1,230 - - $ - $ -

</TABLE>

(1) Fair market value of the Common Stock on the date of exercise less the
exercise price.
(2) Fair market value of the Common Stock at December 31, 1999 ($4.78)
multiplied by the applicable number of shares less the aggregate exercise
price of the options for such number of shares.

SEVERANCE, CHANGE IN CONTROL, AND OTHER ARRANGEMENTS

1997 SEVERANCE AGREEMENTS, AS AMENDED

In 1997, the Compensation Committee approved a special severance
benefits program for its executive officers. Three officers listed in the
Summary Compensation table above - Mr. Purcell, Mr. Schmidt and Mr. Thompson
-received the 1997 severance agreements. When Mr. Steep joined the company in
1998, he was also granted a severance agreement substantially the same as the
1997 severance agreement. In 1999, the board approved an amendment to the 1997
severance agreements, including Mr. Steep's agreement.

Under the amended 1997 severance agreements, benefits are triggered
by the occurrence of the following events: (1) Termination Without Cause (as
defined in the severance agreements) after at least nine months of service
with ENCAD and (2) Resignation for Good Cause or Termination Without Cause
(each as defined in the severance agreements) within 18 months after a change
of control. For the Chief Executive Officer, the period of time for which
severance benefits will apply following a change in control has been extended
to 24 months.

Severance payments in connection with the termination of employment
following a change in control will be paid in a lump sum rather than through a
series of payments over a one year period as set forth in the original
agreements. In addition, the non-competition covenant and other restrictive
covenants will no longer apply in the event of termination of employment upon
a change in control of the company.

A "change of control" includes mergers, consolidations, reverse
mergers, the sale of substantially all our assets, a Hostile Take-Over (as
defined in the severance agreements), and the acquisition by a stockholder or
related group of stockholders of (1) 25 percent of the voting power of our
outstanding securities, (2) additional shares in our company so as to increase
total holdings to more than 50 percent of the voting power of our outstanding
securities, or (3) sufficient voting power to elect an absolute majority of
the members of the board.

In the event of Termination Without Cause, these officers would
receive an amount equal to their annual base salary on the date of
termination, plus the average of their bonuses paid over the previous two
years. The Chief Executive Officer will receive an amount equal to twice his
annual base salary on the date of termination, plus twice the average of his
bonus paid over the previous two years.

In the event of Resignation for Good Cause or Termination Without
Cause within 18 months following a change of control, these officers will
receive an amount equal to their total compensation consisting of annual base
salary and average bonus over the previous two years, plus total costs of any
other benefits made available to the participant during the prior year. The
amendment to these severance agreements provided that Mr. Steep's severance
payment in connection with the termination of employment following a change in
control be increased to

<PAGE>

1.75 times the amount of his total compensation, as defined above, and that
Mr. Schmidt's severance payment following a change in control be increased to
1.5 times the amount of his total compensation.

The Chief Executive Officer will receive an amount equal to twice his
annual base salary and twice his average bonus over the previous two years, as
well as total costs of any other benefits made available to him in the prior
year. In addition, the Chief Executive Officer will be furnished, for a
limited time, with health care coverage at our expense.

With respect to a termination event under the change in control
provisions, all outstanding options granted to the participant will
automatically become fully vested and immediately exercisable. Such options
will remain exercisable until the earlier of (1) the expiration date of the
option term, or (2) three months from the date of termination of employment.

1999 CHANGE IN CONTROL AGREEMENTS

In 1999, severance agreements in connection with a change in control
of the company were granted to specified executive officers, including Mr.
Liess and Mr. Stark.

Under the 1999 change in control agreements, benefits are triggered
if the executive officer is terminated without cause within 12 months after a
change in control. For Mr. Liess, benefits are triggered upon a termination of
employment without cause within 18 months after a change in control. A "change
of control" includes mergers, consolidations, the sale, transfer or
disposition of substantially all our assets, and the acquisition by a
stockholder or related group of stockholders of (1) 25 percent of the voting
power of our outstanding securities, (2) additional shares in ENCAD so as to
increase total holdings to more than 50 percent of the voting power of our
outstanding securities, or (3) sufficient voting power to elect an absolute
majority of the members of the board. In addition, a change of control will be
deemed to occur upon a change in the composition of our board of directors
over period of 24 consecutive months or less. A change in the composition of
the board occurs when a majority of the board 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 two-thirds 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.

In the event participants are terminated without cause within the
specified period following a change of control, they will receive an amount
equal to their total compensation consisting of annual base salary and average
bonus over the previous two years, plus total costs of any other benefits made
available to the participant during the prior year. In the event the change of
control occurs before January 1, 2001 and prior to the payment of the 2000
annual bonus, the average bonus component for those officers who do not have a
two year bonus history with the company will be replaced by the target annual
award under the Executive Bonus Plan in effect at the time of the change in
control. Mr. Liess will receive a severance payment in an amount equal to 1.5
times his total compensation as defined above.

ADDITIONAL SEVERANCE ARRANGEMENTS

As part of their offers of employment, Mr. Liess and Mr. Stark will
be entitled to severance benefits under certain circumstances in addition to
termination upon change of control of our company. In the event that Mr.
Liess' employment is terminated within 21 months of his hire date for any
reason other than poor performance or just cause, he will receive 12 months of
base salary plus earned commission. If Mr. Stark's employment is terminated
within 24 months of his hire date for any reason other than poor performance
or just cause, he will receive 12 months base salary. Mr. Liess and Mr. Stark
will only be able to receive severance benefits under either the severance
arrangement contained in their offer letters (as subsequently amended) or
under the Change in Control Agreements described above.

OPTION AGREEMENTS UPON CHANGE IN CONTROL

Under the 1993 Stock Option/Stock Issuance Plan, certain options
granted to executive officers, to the extent not already exercisable,
generally become exercisable upon liquidation or dissolution of our company or
a

<PAGE>

merger or consolidation pursuant to which either (1) our company is not the
surviving entity or (2) ownership of more than 50 percent of the voting power
of our stock is transferred. In addition, the plan administrator may
accelerate vesting upon such conditions as it may impose in the event of a
Hostile Takeover which is generally defined as the acquisition by one or more
related parties of more than 50 percent of the voting power of our stock
pursuant to a tender or exchange offer not recommended by our board.

In addition, certain options granted to executive officers under the
1993 and 1999 option plans may be subject to "limited stock appreciation
rights" at the sole discretion of the respective plan administrators. This
means that the options with such rights at the time of a Hostile Takeover may
be surrendered in return for a cash payment to the optionee equal to the
difference between the then market price of the stock subject to the option
(or, if higher, the highest price paid per share for stock by the acquirer in
the Hostile Takeover) and the exercise price. Under the 1993 option plan, an
option may be subject to limited stock appreciation rights only to the extent
such option was exercisable and outstanding for at least six months prior to
the Hostile Takeover and will automatically be cancelled in return for a cash
payment.

With respect to the 1997 Supplemental Stock Option Plan, the 1998
Stock Option Plan and the 1999 Stock Option/Stock Issuance Plan, in the event
of a Corporate Transaction, as defined below, outstanding options which are
not fully exercisable at the time of the transaction will automatically
accelerate and become fully exercisable, except to the extent that (1) such
options are either continued by us or assumed by the successor company or its
parent, or (2) such options are replaced with a cash incentive program of the
successor corporation, or (3) such options are subject to other limitations
imposed by the plan administrator at the time of the option grant. Under the
1999 plan, the plan administrator has the additional authority to structure
options issued under the Discretionary Grant Program so that they become fully
exercisable immediately prior to a Corporate Transaction whether or not those
options are assumed in the transaction.

A Corporate Transaction is generally defined in the company's stock
option plans as (1) a merger or consolidation in which 50 percent or more of
the voting power of the company's outstanding shares is transferred, or (2)
the sale, transfer or other disposition of all or substantially all of the
company's assets in complete liquidation or dissolution of the company.

Upon a Change of Control, as defined below under the 1998 and 1999
option plans, the plan administrator has the discretion to provide for the
automatic acceleration of any outstanding options so that such options become
fully exercisable immediately prior to the Change of Control. Alternatively,
the plan administrator may condition option acceleration upon the termination
of the optionee's employment by reason of an involuntary termination within a
designated period, not to exceed 18 months, following the effective date of
the Change in Control. A Change in Control is generally defined in the plans
as the (a) direct or indirect acquisition of more than 50 percent or, in the
case of the 1999 option plan, more than 35 percent of the voting power of our
outstanding securities pursuant to a tender offer made directly to our
company's stockholders or (b) a change in the majority of our company's board
over a 24 month period or 36 months in the case of the 1999 option plan.

Under the 1997 option plan and a stock option agreement entered into
with Mr. Steep in April 1998, a change in control is generally defined as (a)
the direct or indirect acquisition of more than 50 percent of the voting power
of our company's outstanding securities pursuant to a tender offer made
directly to our company's stockholders which the board does not recommend that
stockholders accept or (b) a change in the majority of our company's board
over a 24 month period. The plan administrator has the same discretionary
authority to accelerate options under the change in control under the 1997
option plan as the plan administrator has under the 1998 and 1999 option plans
described above. Under Mr. Steep's stock option agreement, his option will
automatically become fully vested and exercisable immediately prior to a
change in control.

SELECT COMPENSATION NON-QUALIFIED DEFERRED COMPENSATION PLAN

Our deferred compensation plan, which was adopted in 1996, allows
select management or certain highly-compensated employees to defer for each
year a certain percentage of annual salary, bonus, or profit-sharing amounts,
or any combination thereof, as determined by agreement between the participant
and us. Deferred compensation is invested in mutual funds selected by the
participants from a group of mutual funds designated under our deferred
compensation plan. Distribution of amounts paid into the deferred compensation
plan is made

<PAGE>

(1) upon the participant's retirement, disability, death or other termination
of employment with us, (2) on the date elected in advance by the participant,
or (3) in the event the participant has an unforeseeable emergency. No
matching contributions were made to the deferred compensation plan by us in
1999.

NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF OUR
PREVIOUS FILINGS MADE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE
FILINGS MADE BY OUR COMPANY UNDER THOSE STATUTES, NEITHER THE STOCK
PERFORMANCE GRAPH ON PAGE 33 NOR THE FOLLOWING COMPENSATION COMMITTEE REPORT
IS TO BE INCORPORATED BY REFERENCE INTO ANY SUCH PRIOR FILINGS, NOR SHALL
SUCH GRAPH OR REPORT BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILINGS
MADE BY OUR COMPANY UNDER THOSE STATUTES.

REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION

OVERVIEW AND PHILOSOPHY

The Compensation Committee is responsible for developing and making
recommendations to the board with respect to our executive compensation
policies. In addition, the Compensation Committee, pursuant to authority
delegated by the board, determines on an annual basis the compensation to be
paid to the Chief Executive Officer and each of the other executive officers.

It is the philosophy of the Compensation Committee to provide
competitive executive compensation which rewards executives on their
performance and contribution to our company's growth and success. The goal of
the committee is to create a compensation program that incorporates and
promotes three attributes: (1) the attainment of high levels of individual
performance, (2) the achievement of our financial and strategic goals, and (3)
our ability to attract and retain key executives. Using these guidelines, the
Compensation Committee believes it can realize its commitment to ensuring that
compensation is meaningfully related to the value created for stockholders.

EXECUTIVE OFFICER COMPENSATION PROGRAM COMPONENTS

The Compensation Committee formulates a compensation program which
will ensure that salary levels and incentive opportunities are competitive and
reflect our company's performance. Our compensation program for executive
officers consists of (1) base salary, (2) cash incentive compensation and (3)
long-term compensation in the form of stock options. Each of these components
is described in more detail in the following sections.

BASE SALARY

Base salary levels for executive officers are determined, in part,
through surveys providing market data on base compensation of executives in
companies in the computer/high technology industry and other companies with
which we compete for personnel. Average merit increases of industry benchmark
companies are also considered in determining executive salary increases. In
addition, the Compensation Committee evaluates individual experience and
performance and specific issues particular to our company, such as success in
creation of stockholder value and achievement of specific company objectives.
The Compensation Committee reviews each executive's salary once a year and may
increase each executive's salary at that time based on: (1) the individual's
increased contribution to our company over the prior 12 months; (2) the
individual's increased responsibilities over the prior 12 months; and (3) any
increase in median competitive pay levels. Individual contributions are
measured with respect to specific individual accomplishments established for
each executive.

INCENTIVE COMPENSATION

Incentive compensation for 1999 was formulated to offer total annual
cash compensation in excess of competitive levels if performance by an
executive officer was substantially above targeted financial objectives. Based
upon target performance levels tied to our revenues and earnings, the
Compensation Committee established target bonus percentages for 1999 which
varied between 30 percent and 45 percent of base salary for our executive
officers. These percentages increased to between 60 percent and 90 percent if
actual performance exceeded target performance. The Compensation Committee
also predetermined a minimum performance level below which no

<PAGE>

bonus was earned. The performance goal at which the full target bonus was
earned was determined by the Chief Executive Officer based upon individual
performance and other factors. In the event we did not achieve the minimum
performance level for the year, the board would consider recommendations from
the Chief Executive Officer and the Compensation Committee, and would decide
whether bonuses should be paid, and in what amounts.

STOCK OPTION PLANS

The stock option plans are our long-term equity incentive plans for
executive officers and other employees. The Compensation Committee strongly
believes that providing those persons who have substantial responsibility for
our company's management and growth with an opportunity to increase their
ownership of common stock will serve the best interests of stockholders.

Generally, stock options are granted with exercise prices equal to
the fair market value of the common stock on the grant date, have ten-year
terms and have equal quarterly vesting periods over four years. Awards are
made at a level intended to be competitive within both the local computer
industry, and a broader group of computer peripheral manufacturing companies
of comparable size and complexity.

In July 1999, executive officers were granted stock options in order
to raise their compensation to a level commensurate with industry standards.

CEO COMPENSATION

The compensation of our Chief Executive Officer is based upon a
number of economic and non-economic factors. Base salary and target bonus
percentage levels were determined in accordance with general guidelines as
described above in "Overview and Philosophy." The base salary level is
determined, in part, through a comparison of salaries of chief executive
officers for companies of comparable size in the computer/high technology
industry. In addition, the Compensation Committee considers our company's
performance in the prior year, as well as Mr. Purcell's experience and
knowledge of our business. Mr. Purcell's performance and his contributions to
achieving specific objectives are also evaluated by the Compensation Committee.

Mr. Purcell's incentive compensation potential for 1999 was tied to
bonuses and stock options. The Compensation Committee set a target performance
level in terms of our attaining certain revenue and earnings goals. In the
event the performance target levels were achieved, it was determined that Mr.
Purcell would be awarded a target bonus of 50 percent of his base salary. If
target performance levels were exceeded, the bonus percentage increased to
between 50 percent and 100 percent of Mr. Purcell's base salary.

SUMMARY

After its review of all existing programs, the Compensation Committee
continues to believe that our compensation program for our executive officers
is competitive with the compensation programs provided by other companies with
which we compete. The Compensation Committee intends that any amounts to be
paid under the annual incentive plan will be appropriately related to
corporate and individual performance, yielding awards that are directly linked
to the achievement of our goals and annual financial and operational results.

COMPENSATION COMMITTEE
CHARLES E. VOLPE, Committee Chairman
RONALD J. HALL, Committee Member
HOWARD L. JENKINS, Committee Member

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)

Internal Revenue Code Section 162(m) disallows a tax deduction to
publicly-held companies for compensation paid to certain of their executive
officers, to the extent that compensation exceeds $1 million per covered
executive officer in any fiscal year. The limitation applies only to
compensation which is not considered to be performance based. Non-performance
based compensation paid to executive officers for 1999 did not exceed the $1
million limit per executive officer. The Compensation Committee does not
anticipate that the non-

<PAGE>

performance based compensation to be paid to executive officers for 2000 will
exceed that limit. Our 1993, 1998 and 1999 stock option plans have now been
structured and administered so that any compensation deemed paid in connection
with the exercise of option grants made under those plans with an exercise
price equal to the fair market value of the option shares on the grant date
will qualify as performance based compensation which will not be subject to
the $1 million limitation. On the other hand, the stock option agreement with
Mr. Steep will not qualify for such exemption, and any compensation deemed
paid by us in connection with the exercise of such option will be subject to
the $1 million limitation; however, because it is unlikely that the cash
compensation payable to any executive officer in the foreseeable future will
approach the $1 million limit, the Compensation Committee has decided at this
time not to take any action to limit or restructure the elements of cash
compensation payable to executive officers. The Compensation Committee will
reconsider this decision should the individual cash compensation of any
executive officer approach the $1 million level.

The 1997 option plan does not comply with Internal Revenue Code
Section 162(m) and any compensation that is deemed to be paid in connection
with the exercise of options issued under that plan will not qualify as
performance based compensation. Participation in the plan, however, is limited
to ENCAD employees who are not officers or board members and who would
therefore not be subject to the 162(m) limitations.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

From June 1998 until May 1999, Charles E. Volpe (Chairman), Craig S.
Andrews, and Howard L. Jenkins served as members of the Compensation
Committee. Until May 2000 Mr. Andrews was a partner in the law firm of
Brobeck, Phleger & Harrison LLP, which will provide legal services to ENCAD in
its current year and has provided legal services in connection with corporate
and litigation matters during 1999. On May 19, 1999, the board re-appointed
Mr. Volpe as Chairman and appointed Mr. Jenkins and Ronald J. Hall as members
of the Compensation Committee. All three directors continued to serve on the
committee through the end of 1999 and are currently members.

No member of the Compensation Committee for 1999 is a former or
current executive officer or employee. We are not aware of any other
interlocks or insider participation with respect to the members of the
Compensation Committee that would require disclosure under the applicable
rules of the SEC.

PERFORMANCE GRAPH

The following graph compares total stockholder returns related to the
common stock since December 31, 1994 to the weighted average return of stocks
of companies included in the Nasdaq Stock Market (U.S.) Index and a peer group
index consisting of Nasdaq computer manufacturers. The total return for the
common stock, the Nasdaq Stock Market (U.S.) Index, and the Nasdaq Computer
Manufacturer Stock Index assumes the reinvestment of dividends, although
dividends have not been declared on the common stock. The Nasdaq Stock Market
(U.S.) Index tracks the aggregate price performance of equity securities of
companies traded on the Nasdaq. Our common stock is traded on the Nasdaq
National Market. The Nasdaq Computer Manufacturer Stock Index consists of
companies with a Standard Industrial Classification Code identifying them as a
computer manufacturer. The stockholder return shown on the graph below is not
necessarily indicative of future performance and we do not make or endorse any
predictions as to future stockholder returns.

<PAGE>

[GRAPH]

FISCAL YEARS ENDED,

12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>

ENCAD, INC.

Stock Price 6.188 8.750 41.250 27.500 3.625 4.781
Multiplier 1.000 1.414 6.667 4.444 0.586 0.773
Indexed Value 100.00 141.41 666.67 444.44 58.59 77.27

NASDQ US (BROAD MARKET):

Index Value 244.532 345.609 425.222 521.032 734.202 1326.416
Multiplier 1.000 1.413 1.739 2.131 3.002 5.424
New Value 100.00 141.33 173.89 213.07 300.25 542.43

NASDQ-COMPUTER MFCS (PEER GROUP):

Index Value 234.403 369.068 494.804 598.537 1296.852 2726.593
Multiplier 1.000 1.575 2.111 2.553 5.533 11.632
New Value 100.00 157.45 211.09 255.35 553.26 1163.21

</TABLE>

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation and bylaws provide that we shall
indemnify our directors and executive officers to the fullest extent permitted
under Delaware law. We have entered into indemnification agreements with our
directors and certain executive officers which may require us, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service (other than liabilities arising from acts or
omissions involving intentional misconduct or knowing and culpable violations
of law), and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 7, 1998, ENCAD extended an interest-free loan in the
principal amount of $25,000 to Mr. Liess, Vice President, Sales and Field
Marketing. Mr. Liess authorized the company to withhold from any
performance-related bonus which was owed to Mr. Liess after 1999 any amount
necessary to repay all sums due under the note. The loan originally provided
for repayment of all outstanding amounts within 15 days after payment of any
performance-related bonus which may become due to Mr. Liess after 1999, or if
no such bonus became payable, within 15 days after the public release of the
company's 1999 financial results. In July 1999, the company granted Mr. Liess
an extension for repayment of the loan until December 31, 2000.

On December 1, 1999, we entered into a split dollar agreement for the
benefit of Mr. Purcell which is discussed above under "Executive Compensation
--All Other Compensation."

Until May 2000 Mr. Andrews, a member of our board, was a partner in
the law firm of Brobeck, Phleger & Harrison LLP which will provide legal
services to us in the current year and has provided legal services in
connection with corporate and litigation matters to us during the past year.

33
<PAGE>

SUBMISSION OF STOCKHOLDER PROPOSALS

In order to have a stockholder proposal considered for inclusion in
next year's proxy statement for the 2001 annual meeting, the proposal must be
received by us no later than January 10, 2001. In addition, if we do not
receive proper notice of a stockholder proposal by that date, the proxies
solicited by the board for the 2001 annual meeting will confer discretionary
authority on the board to vote on any stockholder proposal presented at that
meeting.

All stockholder proposals must be submitted in writing and must
conform with SEC regulations and our bylaws. Stockholders submitting proposals
should direct them to our Corporate Secretary at 6059 Cornerstone Court West,
San Diego, California 92121, using Certified Mail-Return Receipt Requested.

FINANCIAL STATEMENTS

Our financial statements are included in our Annual Report on Form
10-K for the year ended December 31, 1999. Copies of these statements and the
Annual Report as filed with the SEC (excluding exhibits that are not
specifically incorporated by reference in those documents) are available
without charge to stockholders and may be obtained by writing our Corporate
Secretary at 6059 Cornerstone Court West, San Diego, California 92121.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than ten percent of
a registered class of our equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers. Such persons
must also provide copies to us of any such report filed.

Based solely on our review of the forms which we received and of
written representations from certain reporting persons, we believe that during
1999, all of our executive officers, directors and greater than ten percent
beneficial owners were in compliance with their Section 16(a) filing
requirements, except as described below.

Upon the appointment of Mr. Liess, Ms. Roland, Mr. Schwarzenbach, Mr.
Sharp, Mr. Stark, Mr. Vandewarker and Mr. Van Voorhis as officers in the
Company, it was initially determined that their duties did not include
policy-making functions that required them to file beneficial ownership
reports under Section 16(a). Subsequently, their functions as officers and
related reporting obligations were re-evaluated. Consequently, Forms 3 and
Forms 5 were filed in April 2000 for each of the above named vice presidents
and such filings may be deemed untimely if measured from the date of each
officer's appointment as a vice president. Of the Forms 3 filed, Ms. Roland
reported four transactions; Mr. Sharp reported one transaction; Mr. Stark
reported one transaction; and Mr. Vandewarker reported two transactions. Of
the Forms 5 filed, Mr. Liess reported seven transactions; Ms. Roland reported
five transactions; Mr. Schwarzenbach reported one transaction; Mr. Sharp
reported one transaction; Mr. Stark reported five transactions; Mr.
Vandewarker reported two transactions; and Mr. Van Voorhis reported a total of
eleven transactions.

<PAGE>

OTHER MATTERS

As of the date of this proxy statement, we know of no other matters
to be presented at the 2000 annual meeting. If any other business is properly
presented at the 2000 annual meeting for action, the persons named in the
enclosed proxy will vote on such matters in accordance with the recommendation
of the board or, in the absence of such a recommendation, in accordance with
their best judgment.

By order of the Board of Directors,

/s/ Thomas L. Green

Thomas L. Green, Esq.
Corporate Secretary
San Diego, California
June 8, 2000

35
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EXHIBIT A

ENCAD, INC.
1999 STOCK OPTION/STOCK ISSUANCE PLAN

AS AMENDED AND RESTATED THROUGH MAY 22, 2000

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 1999 Stock Option/Stock Issuance Plan is intended to promote the
interests of ENCAD, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.

Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into four separate equity programs:

(i) the Discretionary Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock or special stock appreciation rights with respect to
such shares,

(ii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock,

(iii) the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary),
and

(iv) the Reload Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options which will,
upon the payment of the exercise price of those options with shares of
Common Stock, automatically entitle them to new options for the same number
of shares of Common Stock delivered in payment of the exercise price.

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B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.

III. ADMINISTRATION OF THE PLAN

A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Grant and Stock Issuance Programs with respect to
Section 16 Insiders. Administration of the Discretionary Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary grants or stock issuances for members of the Primary Committee
shall require the approval of a disinterested majority of the Board.

B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.

C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Grant and Stock
Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Grant and Stock Issuance Programs under its jurisdiction or any
option grant or stock issuance thereunder.

D. The Primary Committee shall have the sole and exclusive authority to
administer the Reload Option Grant Program for all persons eligible to
participate in that program. As such Plan Administrator, the Primary Committee
shall have full power and authority (subject to the provisions of the Plan) to
establish such rules and regulations as it may deem appropriate for proper
administration of the Reload Option Grant Program and to make such
determinations under, and issue such interpretations of, the provisions of such
program and any outstanding options thereunder as it may deem necessary or
advisable. Decisions of the Primary Committee under the Reload Option Grant
Program shall be final and binding on all parties who have an interest in such
program or any option grant thereunder.

E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.

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F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants made under that program.

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary Grant, Stock
Issuance and Reload Option Grant Programs are as follows:

(i) Employees,

(ii) non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and

(iii) consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).

B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the grants made under the Discretionary Grant Program, which eligible persons
are to receive such grants, the time or times when those grants are to be made,
the number of shares to be covered by each such grant, the status of any granted
stock option as either an Incentive Option or a Non-Statutory Option, the time
or times when each stock option or stock appreciation right is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the stock option or stock appreciation right is to
remain outstanding and (ii) with respect to stock issuances made under the Stock
Issuance Program, which eligible persons are to receive such issuances, the time
or times when those issuances are to be made, the number of shares to be issued
to each Participant, the vesting schedule (if any) applicable to the issued
shares and the consideration for such shares.

C. The Plan Administrator shall have the absolute discretion either to
grant stock options or stock appreciation rights in accordance with the
Discretionary Grant Program or to effect stock issuances in accordance with the
Stock Issuance Program.

D. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as
non-employee Board members on the Plan Effective Date, (ii) those individuals
who first become non-employee Board members on or after the Plan Effective Date,
whether through appointment by the Board or election by the Corporation's
shareholders, and (iii) those individuals who continue to serve as non-employee
Board members at one or more Annual Shareholders Meetings held after the Plan
Effective Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.

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V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired 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 not exceed 1,330,000
shares. Such share reserve consists of (i) the 580,000 shares of Common Stock
initially reserved for issuance under the Plan plus (ii) an additional increase
of 750,000 shares authorized by the Board on December 9, 1999, subject to
stockholder approval at the 2000 Annual Meeting.

B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first day of January each calendar year
over the remaining term of the Plan, beginning with calendar year 2001, by an
amount equal to four percent (4%) of the total number of shares of Common Stock
outstanding on the date of each such annual increase, but in no event shall any
such annual increase exceed 750,000 shares.

C. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 250,000 shares of Common Stock in the aggregate per calendar year.

D. Shares of Common Stock subject to outstanding options shall be available
for subsequent issuance under the Plan to the extent those options expire or
terminate for any reason prior to exercise in full. Unvested shares issued under
the Plan and subsequently cancelled or repurchased by the Corporation, at the
original issue price paid per share, pursuant to the Corporation's repurchase
rights under the Plan shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent option grants under the Plan.
However, should the exercise price of an 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 option or the vesting of a stock
issuance 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 or which vest under the stock issuance, and not by the
net number of shares of Common Stock issued to the holder of such option or
stock issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two or Section II of Article Three
shall NOT be available for subsequent issuance under the Plan.

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E. If any change is 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 maximum number and/or class of securities issuable under the Plan, (ii)
number and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate per calendar year, (iii) the number and/or class of
securities for which option grants are subsequently to be made under the
Automatic Option Grant Program to new and continuing non-employee Board members,
(iv) the maximum number and/or class of securities by which the share reserve is
to increase automatically each calendar year pursuant to the provisions of
Section V.B of this Article One and (v) the number and/or class of securities
and the exercise price per share in effect under each outstanding option 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.

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ARTICLE TWO

DISCRETIONARY GRANT PROGRAM

I. OPTION TERMS

Each stock option granted under this Article Two shall be evidenced by one
or more documents in the form approved by the Plan Administrator; PROVIDED,
however, that each such document shall comply with the terms specified below.
Each document evidencing an Incentive Option shall, in addition, be subject to
the provisions of the Plan applicable to such 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 option grant date.

2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Four and
the documents evidencing the option, be payable in one or more of the forms
specified below:

(i) cash or check made payable to the Corporation,

(ii) 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, or

(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) 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 (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.

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.

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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
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.

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:

(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such 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.

(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that 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
or by the Optionee's designated beneficiary or beneficiaries of that
option.

(iii) 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.

(iv) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested 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
to the extent the option is not otherwise at that time exercisable for
vested shares.

D. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:

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(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the limited
exercise 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

(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
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 in which the Optionee would have vested had the
Optionee continued in Service.

E. SHAREHOLDER RIGHTS. The holder of an option shall have no shareholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.

F. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.

G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.

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II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Six shall be applicable to Incentive Options. Options
designated as Non-Statutory Options when issued under the Plan shall NOT be
subject to the terms of this Section II.

A. ELIGIBILITY. Incentive Options may only be granted to Employees.

B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) 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 shall be applied on the
basis of the order in which such options are granted.

C. 10% SHAREHOLDER. If any Employee to whom an Incentive Option is granted
is a 10% Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction, each outstanding option under
this Discretionary Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully vested shares of Common Stock. 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, 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 any
shares for which the option is not otherwise at that time exercisable 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. All outstanding repurchase rights under this Discretionary Grant Program
shall automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.

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C. Immediately following the consummation of the Corporate Transaction, all
outstanding options under this Discretionary Grant Program shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).

D. 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
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of securities available for issuance over the
remaining term of the Plan, (iii) the maximum number and/or class of securities
by which the share reserve is to increase automatically each calendar year and
(iv) the maximum number and/or class of securities for which any one person may
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year.

E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Grant Program
so that those options shall, immediately prior to the effect date of such
Corporate Transaction, become fully exercisable for the total number of shares
of Common Stock at the time subject to those options and may be exercised for
any or all of those shares as fully vested shares of Common Stock, whether or
not those options are to be assumed in the Corporate Transaction. In addition,
the Plan Administrator shall have the discretionary authority to structure one
or more of the Corporation's repurchase rights under the Discretionary Grant
Program so that those rights shall not be assignable in connection with such
Corporate Transaction and shall accordingly terminate upon the consummation of
such Corporate Transaction, and the shares subject to those terminated rights
shall thereupon vest in full.

F. The Plan Administrator shall have full power and authority to structure
one or more outstanding options under the Discretionary Option Grant Program so
that those options shall become fully exercisable for the total number of shares
of Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated 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. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.

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G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of a
Change in Control, become fully exercisable for the total number of shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options under
the Discretionary Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent 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 such Change in Control.

H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.

I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

IV. STOCK APPRECIATION RIGHTS

A. The Plan Administrator shall have full power and authority, exercisable
in its sole discretion, to grant special stock appreciation rights to selected
Optionees or other individuals eligible to receive such grants under the
Discretionary Grant Program.

B. Three types of stock appreciation rights shall be authorized for
issuance under the Plan: (i) tandem stock appreciation rights ("Tandem Rights"),
(ii) stand-alone stock appreciation rights ("Stand-alone Rights") and (iii)
limited stock appreciation rights ("Limited Rights").

C. The following terms and conditions shall govern the grant and exercise
of Tandem Rights under this Article Two.

1. One or more Optionees may be granted a Tandem Right, exercisable
upon such terms and conditions as the Plan Administrator may establish, to elect
between the exercise of the underlying Article Two stock option for shares of
Common Stock or the surrender of that option 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 exercise price payable for such vested shares.

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2. No such option surrender shall be effective unless it is approved
by the Plan Administrator, either at the time of the actual option surrender or
at any earlier time. 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 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.

3. If the surrender of an option is not approved 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. The following terms and conditions shall govern the grant and exercise
of Stand-alone Rights under this Article Two:

1. One or more individuals eligible to participate in the
Discretionary Grant Program may be granted a Stand-alone Right not tied to any
underlying option under the Discretionary Grant Program. The Stand-alone Right
shall cover a specified number of underlying shares of Common Stock and shall be
exercisable upon such terms and conditions as the Plan Administrator may
establish. Upon exercise of the Stand-alone Right, the holder shall be entitled
to receive a distribution from the Corporation in an amount equal to the excess
of (i) the aggregate Fair Market Value (on the exercise date) of the shares of
Common Stock underlying the exercised right over (ii) the aggregate base price
in effect for those shares.

2. The number of shares of Common Stock underlying each Stand-alone
Right and the base price in effect for those shares shall be determined by the
Plan Administrator in its sole discretion at the time the Stand-alone Right is
granted. In no event, however, may the base price per share be less than the
Fair Market Value per underlying share of Common Stock on the grant date.

3. The distribution with respect to an exercised Stand-alone Right may
be made in shares of Common Stock valued at Fair Market Value on the exercise
date, in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.

E. The following terms and conditions shall govern the grant and exercise
of Limited Rights under this Article Two:

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1. One or more Section 16 Insiders may, in the Plan Administrator's
sole discretion, be granted Limited Rights with respect to their outstanding
options under this Article Two.

2. Each individual holding one or more options with such a Limited
Right shall have the unconditional right, exercisable for a thirty (30)-day
period immediately following a Hostile Take-Over, to surrender each such option
to the Corporation for a cash distribution in an amount equal to the excess of
(A) the Take-Over Price of the shares of Common Stock which are at the time
subject to each surrendered option (whether or not the option is otherwise
vested and exercisable for those shares) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.

3. At the time such Limited Right is granted, the Plan Administrator
shall automatically pre-approve any subsequent exercise of that right in
accordance with the terms of this Paragraph E. Accordingly, no further approval
of the Plan Administrator or the Board shall be required at the time of the
actual option surrender and cash distribution.

4. The balance of the option (if any) shall remain outstanding and
exercisable in accordance with the documents evidencing such option.

F. The shares of Common Stock underlying any stock appreciation rights
exercised under this Section IV shall NOT be available for subsequent issuance
under the Plan.

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ARTICLE THREE

AUTOMATIC OPTION GRANT PROGRAM

I. OPTION TERMS

A. GRANT DATES. Option grants shall be made on the dates specified below:

1. Each individual who is first elected or appointed as a non-employee
Board member on or after the date of the 1999 Annual Shareholders Meeting shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 18,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.

2. On the date of each Annual Shareholders Meeting, beginning with the
1998 Annual Shareholders Meeting, each individual who is re-elected to serve as
an Eligible Director shall automatically be granted a Non-Statutory Option to
purchase 7,000 shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six (6) months. There shall be no limit
on the number of such 7,000-share option grants any one Eligible Director may
receive over his or her period of Board service, and non-employee Board members
who have previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall be eligible to receive one or more such annual option grants
over their period of continued Board service.

3. Shareholder approval of this Plan Restatement at the 2000 Annual
Shareholders Meeting shall constitute pre-approval of each option grant made
under this Automatic Option Grant Program on or after the date of such Annual
Meeting and the subsequent exercise of that option in accordance with the terms
and conditions of this Article Three and the stock option agreement evidencing
such grant.

4. The Automatic Option Grant Program under this Plan shall supersede
and replace the automatic option grant program currently in effect for the
non-employee Board members under the Corporation's 1998 Stock Option Plan.
Accordingly, upon shareholder approval of the Plan at the 1999 Annual Meeting,
that program shall immediately terminate, and no further option grants shall be
made to the non-employee Board members under that program. All options granted
to the non-employee Board members on or after the date of the 1999 Annual
Shareholders Meeting, whether upon their initial election or appointment to the
Board upon their re-election at one or more of the Corporation's subsequent
annual stockholder meetings, shall be effected solely and exclusively in
accordance with the terms and provisions of this Article Three.

B. EXERCISE PRICE.

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1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.

2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Grant Program. Except to
the extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

C. OPTION TERM. Each option shall have a maximum term the LESSER of (i) ten
(10) years measured from the option grant date or (ii) twelve (12) months
following termination of Board service.

D. EXERCISE AND VESTING OF OPTIONS. Each 18,000-share option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each such 18,000-share option shall
vest, and the Corporation's repurchase right shall lapse in two (2) successive
equal annual installments over the Optionee's period of Board service, with the
first such installment to vest upon the completion of one (1) year of Board
service measured from the automatic grant date. Each 7,000-share option shall be
immediately exercisable for any or all of the option shares as fully-vested
shares.

E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article Three
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.

F. TERMINATION OF BOARD SERVICE. The following provisions shall govern the
exercise of any options held by the Optionee at the time of his or her cessation
of Board service:

<PAGE>

(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or 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 or the designated beneficiary or
beneficiaries of such option) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise
each such option.

(ii) During the twelve (12)-month exercise period, the option may not
be exercised in the aggregate for more than the number of vested shares of
Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.

(iii) Should the Optionee cease to serve as a Board member by reason
of death or Permanent Disability, then all shares at the time subject to
the option shall immediately vest so that such option may, during the
twelve (12)-month exercise period following such cessation of Board
service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.

(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service for any reason
other than death or Permanent Disability, terminate and cease to be
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER

A. In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option under this Automatic Option Grant
Program but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for all or any portion of
those shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).

<PAGE>

B. In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option under this Automatic Option Grant
Program but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Change in
Control, become fully exercisable for all of the shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or sooner
termination of the option term or the surrender of the option in connection with
a Hostile Take-Over.

C. All outstanding repurchase rights under this Automatic Option Grant
Program shall automatically terminate, and the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event of any
Corporate Transaction or Change in Control.

D. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding option grants under this Automatic Option Grant Program. 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 shares of
Common Stock at the time subject to each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. Stockholder approval of this Plan Restatement at the 2000 Annual
Meeting shall constitute pre-approval of the grant of each such limited cash-out
right and the subsequent exercise of that right in accordance with the terms of
this Paragraph D. Accordingly, no approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.

E. 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 shall also be made to the exercise price payable per share under
each outstanding option, PROVIDED the aggregate exercise price payable for such
securities shall remain the same.

F. The grant of options under the Automatic Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

III. REMAINING TERMS

The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Grant Program.

<PAGE>

ARTICLE FOUR

STOCK ISSUANCE PROGRAM

I. STOCK ISSUANCE TERMS

Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening options. Shares
of Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or Service requirements. Each such
award shall be evidenced by one or more documents which comply with the terms
specified below.

A. PURCHASE PRICE.

1. The purchase price per share of Common Stock subject to direct
issuance shall be fixed by the Plan Administrator.

2. Subject to the provisions of Section II of Article Six, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

(i) cash or check made payable to the Corporation, or

(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).

B. VESTING/ISSUANCE PROVISIONS.

1. The Plan Administrator may issue shares of Common Stock which are
fully and immediately vested upon issuance as a stock bonus for past services
rendered the Corporation (or any Parent or Subsidiary) or which are to vest in
one or more installments over the Participant's period of Service or upon
attainment of specified performance objectives. Alternatively, the Plan
Administrator may issue share right awards which shall entitle the recipient to
receive a specified number of vested shares of Common Stock upon the attainment
of one or more performance goals or Service requirements established by the Plan
Administrator.

2. Any new, substituted or additional securities 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 of Common Stock by reason 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

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consideration shall be issued subject to (i) the same vesting requirements
applicable to the Participant's unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.

3. The Participant shall have full stockholder rights with respect to
the issued shares of Common Stock, whether or not the Participant's 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.

4. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock, or should the performance objectives
not be attained with respect to one or more such unvested shares of Common
Stock, 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. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money indebtedness), the Corporation shall
repay to the Participant the cash consideration paid for the surrendered shares
and shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.

5. The Plan Administrator may 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 cessation of the Participant's
Service or the non-attainment of the performance objectives applicable to those
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.

6. Outstanding share right awards shall automatically terminate, and
no shares of Common Stock shall actually be issued in satisfaction of those
awards, if the performance goals or Service requirements established for such
awards are not attained. The Plan Administrator, however, shall have the
authority to issue shares of Common Stock in satisfaction of one or more
outstanding share right awards as to which the designated performance goals or
Service requirements are not attained.

II. CHANGE IN CONTROL/HOSTILE TAKE-OVER

A. All of the Corporation's outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Change in Control, except to the extent (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) or otherwise
continue in full force and effect pursuant to the terms of the Change in Control
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.

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<PAGE>

B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate 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 repurchase rights are assigned to the
successor corporation (or parent thereof).

C. The Plan Administrator shall also have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, upon the consummation of a Change in Control or,
alternatively, upon an Involuntary Termination the Participant's Service within
a designated period (not to exceed eighteen (18) months) following the effective
date of that Change in Control.

III. SHARE ESCROW/LEGENDS

Unvested shares 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 those unvested shares.

<PAGE>

ARTICLE FIVE

RELOAD OPTION GRANT PROGRAM

I. TERMS AND CONDITIONS

A. The Primary Committee shall have full power and authority, exercisable
in its sole discretion at the time a stock option is granted under the
Discretionary Grant Program, to include a reload feature as part of that option
grant. To the extent an option with such a reload feature is subsequently
exercised through the delivery of previously-acquired shares of Common Stock in
payment of the exercise price for the shares purchased under that option, the
Optionee shall automatically be granted, at the time of such exercise, a new
option (the "Reload Option") to purchase the number of shares of Common Stock so
delivered. For purposes of this Article Five, the underlying option with such a
reload feature shall be referred to as the "Original Option."

B. The Primary Committee may, in its sole discretion, provide in the
instrument evidencing the reload feature that no Reload Option shall be granted
in the event the Original Option with such feature is exercised before a
specified period of time has elapsed after the grant date of that Original
Option.

C. The reload feature and each Reload Option shall each be evidenced by
instruments in such form as the Primary Committee shall from time to time deem
appropriate. However, the terms and provisions of each Reload Option shall be
exactly the same as the terms and provisions of the Original Option to which
such Reload Option relates, except to the extent otherwise indicated below.

D. Unless the Primary Committee specifies otherwise in the instrument
evidencing the reload feature, the exercise price per share of the Common Stock
purchasable under the Reload Option shall be equal to the Fair Market Value per
share of Common Stock on the Reload Grant Date. The Primary Committee shall
specify in the instrument evidencing the reload feature the period of time which
must elapse following the exercise of the Original Option before the Reload
Option shall become exercisable. Once the period specified by the Primary
Committee has elapsed, the Reload Option shall become immediately exercisable
for all of the shares of Common Stock at the time subject to that Reload Option.

E. The exercise price shall become immediately due upon exercise of the
Reload Option and shall be payable in the same form or forms in which the
exercise price may be paid under the Original Option.

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F. In no event shall any additional Reload Option be granted in connection
with the subsequent exercise of the Reload Option granted with respect to the
Original Option, whether or not shares of Common Stock are delivered in payment
of the exercise price of that Reload Option.

G. The Reload Option shall have the same maximum option term and expiration
date as the Original Option to which it relates, subject to earlier termination
at the same time the Original Option may so terminate.

H. The holder of the Reload Option shall have none of the rights of a
shareholder with respect to the shares covered by the Reload Option until such
individual shall have exercised the Reload Option, paid the exercise price for
the purchased shares and become the holder of record of those shares.

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<PAGE>

ARTICLE SIX

MISCELLANEOUS

I. FINANCING

The Plan Administrator may permit any Optionee to pay the option exercise
price under the Discretionary Grant Program by delivering a full-recourse,
interest bearing 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. In no event may the maximum credit available to the Optionee 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 or
share purchase.

II. TAX WITHHOLDING

A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements.

B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Withholding Taxes to which such holders may
become subject in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or both
of the following formats:

STOCK WITHHOLDING: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

STOCK DELIVERY: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.

23.

<PAGE>

II. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan and each of the equity incentive programs thereunder shall
become effective immediately upon the approval of the Corporation's shareholders
at the 1999 Annual Meeting. Options may be granted under the Plan at any time on
or after the date of such shareholder approval. If such shareholder approval is
not obtained, then this Plan shall not become effective, and no options shall be
granted and no shares shall be issued under the Plan.

B. The Plan shall terminate upon the EARLIEST of (i) February 10, 2009,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants shall thereafter continue to have
force and effect in accordance with the provisions of the documents evidencing
such grants.

III. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options at the time outstanding under the Plan unless the Optionee
consents to such amendment or modification. In addition, certain amendments may
require shareholder approval in accordance with applicable laws and regulations.

B. The Plan was amended and restated by the Board on December 9, 1999 (the
"2000 Restatement") to effect the following changes, subject to stockholder
approval at the 2000 Annual Meeting:

(i) increase the maximum number of shares of Common Stock authorized
for issuance under the Plan by an additional 750,000 shares so that the
authorized share reserve is thereby increased from 580,000 shares to
1,330,000 shares of Common Stock; and

(ii) implement an automatic share increase provision whereby the share
reserve under the Plan will automatically increase on the first day of
January each calendar year, commencing with the 2001 calendar year, by 4%
of the total number of outstanding shares of Common Stock on that date,
subject to a maximum annual increase of 750,000 shares.

No option grants or direct stock issuances shall be made on the basis of
the share increases authorized by the 2000 Restatement unless and until that
restatement is approved by the stockholders at the 2000 Annual Meeting.

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<PAGE>

C. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program that are in excess of the number of shares
then available for issuance under the Plan, provided any excess shares actually
issued under that program shall be held in escrow until there is obtained
shareholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
shareholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees the
exercise or purchase price paid for any excess shares 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, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.

IV. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.

V. REGULATORY APPROVALS

A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock upon the exercise of any
granted option 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 shares of Common Stock
issued pursuant to it.

B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there 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 stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

VI. 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. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under Article Three of the Plan.

B. BOARD shall mean the Corporation's Board of Directors.

C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

(i) 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 thirty-five percent (35%)
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, or

(ii) a change in the composition of the Board over a period of
thirty-six (36) 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.

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. COMMON STOCK shall mean the Corporation's common stock.

F. 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

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(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.

G. CORPORATION shall mean ENCAD, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
ENCAD, Inc. which shall by appropriate action adopt the Plan. its successors.

H. DISCRETIONARY GRANT PROGRAM shall mean the discretionary grant program
in effect under Article Two of the Plan.

I. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.

J. 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.

K. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.

L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question, as such
price is reported 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.

(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be deemed equal to 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.

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<PAGE>

M. HOSTILE TAKE-OVER shall mean 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.

N. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.

O. INVOLUNTARY TERMINATION shall mean the termination of the Service of any
individual which occurs by reason of:

(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

(ii) 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.

P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not in any way
preclude or restrict the right of the Corporation (or any Parent or Subsidiary)
to dismiss or discharge any Optionee or other person in the Service of the
Corporation (or any Parent or Subsidiary) for any other acts or omissions, but
such other acts or omissions shall not, for purposes of the Plan, be deemed to
constitute grounds for termination for Misconduct.

Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

S. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.

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<PAGE>

T. 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.

U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of
the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more. However, solely
for purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member 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.

V. PLAN shall mean the Corporation's 1999 Stock Option/Stock Issuance Plan,
as set forth in this document.

W. PLAN ADMINISTRATOR shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Grant and Stock Issuance Programs with respect to
one or more classes of eligible persons, to the extent such entity is carrying
out its administrative functions under those programs with respect to the
persons under its jurisdiction.

X. PLAN EFFECTIVE DATE shall mean February 10, 1999, the date the Plan was
adopted by the Board.

Y. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Grant and Stock Issuance Programs with respect to Section 16
Insiders.

Z. RELOAD OPTION GRANT PROGRAM shall mean the special option grant program
in effect under Article Five of the Plan.

AA. SECONDARY COMMITTEE shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Grant and Stock
Issuance Programs with respect to eligible persons other than Section 16
Insiders.

BB. SECTION 16 INSIDER shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.

CC. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.

A-4
<PAGE>

DD. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.

EE. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

FF. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under Article Four of the Plan.

GG. 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.

HH. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.

II. 10% SHAREHOLDER shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).

JJ. WITHHOLDING TAXES shall mean the Federal, state and local income and
employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.

A-5
<PAGE>

EXHIBIT B

ENCAD, INC.

AMENDMENT TO 1993 EMPLOYEE STOCK PURCHASE PLAN

I. AMENDMENT

Section VI, Stock Subject to Plan, of ENCAD's 1993 Employee Stock
Purchase Plan has been amended to read as follows:

<PAGE>

A. The maximum number of shares of Common Stock which may be issued under
the Plan shall be 720,000 shares of Common Stock (subject to adjustment under
Section VI.B below). Such share reserve consists of (i) the 200,000 shares
initially reserved for issuance under the Plan, (ii) the 200,000-share increase
authorized by the Board on March 12, 1996 and approved by the stockholders at
the 1996 Annual Meeting, (iii) an additional 120,000-share increase authorized
by the Board on February 11, 1997 and approved by the stockholders at the 1997
Annual Meeting and (iv) the additional 200,000-share increase authorized by the
Board on December 9, 1999, subject to stockholder approval at the 2000 Annual
Meeting.

B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first day of January each calendar year
over the remaining term of the Plan, beginning with calendar year 2001, by an
amount equal to one percent (1%) of the total number of shares of Common Stock
outstanding on the date of each such annual increase, but in no event shall any
such annual increase exceed 175,000 shares.

C. In the event any change is made to the Company's outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other change affecting such outstanding Common Stock as a class without receipt
of consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during any one option period, (iii) the maximum number and/or class
of securities by which the share reserve is to increase automatically each
calendar

2
<PAGE>

year pursuant to the provisions of Section VI.B above and (iii) the class and
number of shares and the price per share in effect under each purchase right at
the time outstanding under the Plan. Such adjustments shall be designed to
preclude the dilution or enlargement of rights and benefits under the Plan.

II. OTHER TERMS AND PROVISIONS

Except for the foregoing amendment, all other terms and provisions of
ENCAD's 1993 Employee Stock Purchase Plan shall continue in full force and
effect.

3
<PAGE>

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ENCAD, INC.

The undersigned hereby appoints David A. Purcell and Thomas L. Green, jointly
and severally, as proxies, with full power of substitution, to vote all shares
of common stock which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of ENCAD, Inc. to be held on Thursday, July 20, 2000,
or at any postponements or adjournments thereof, as specified on the other
side, and to vote in his discretion on such other business as may properly
come before the meeting and any adjournments thereof.

PLEASE PROMPTLY PLACE YOUR VOTE
SEE REVERSE SIDE FOR INSTRUCTIONS

<PAGE>

ENCAD, Inc.

PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/

<TABLE>

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR / / / / / /
ITEMS 1, 2, 3, 4, 5 AND 6 For Withheld For All 3. Proposal for automatic annual increases
All All Except in authorized shares under the 1999
Stock Option/Stock Issuance Plan

For / / Against / / Abstain / /

1. ELECTION OF DIRECTORS
Nominees: Robert V. Adams Howard L. Jenkins

________________
Craig S. Andrews David A. Purcell Write Nominee Exception(s) above

Ronald J. Hall Charles E. Volpe 4. Proposal to increase the number of
authorized shares under the 1993
Employee Stock Purchase Plan

For / / Against / / Abstain / /

2. Proposal to increase the number of authorized shares
under the 1999 Stock Option/Stock Issuance Plan 5. Proposal for automatic annual increases
in authorized shares under the 1993
Employee Stock Purchase Plan

6. Proposal to ratify Deloitte & Touche LLP
as independent auditors

--------------------------------------
Signature Date

NOTE: Please sign as name appears on
this proxy. Joint owners should each
sign. When signing as attorney,
executor, trustee or guardian, please
give full title.

</TABLE>