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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1999
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 0-23034
ENCAD, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3672088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6059 CORNERSTONE COURT WEST
SAN DIEGO, CA 92121
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (858) 452-0882
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. ___
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed using the closing price as reported by Nasdaq for the
Company's Common Stock on February 29, 2000: $51,279,316.*
Indicate the number of shares outstanding of the registrant's Common Stock as of
the latest practicable date:
<TABLE>
<CAPTION>
Outstanding at
Class February 29, 2000
----- ------------------
<S> <C>
Common Stock, $.001 par value 11,785,237
</TABLE>
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* Excludes 3,819,518 shares of Common Stock held by executive officers,
directors and stockholders whose ownership exceeds 5% of the Common Stock
outstanding at February 29, 2000. Exclusion of such shares should not be
construed to indicate that any such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the
Registrant or that such person is controlled by or under common control with the
Registrant.
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<PAGE>
The Registrant hereby files this Report on Form 10-K/A to amend its
Annual Report on Form 10-K for the year ended December 31, 1999 to include the
information required by Part III (Items 10, 11, 12 and 13) in lieu of
incorporation thereof by reference from the Registrant's definitive proxy
statement for its 2000 Annual Meeting of Stockholders. No other items in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 are
amended.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS
As of February 29, 2000, the board of directors of ENCAD consists of
the following six members:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David A. Purcell..................62 Chairman of the Board
Robert V. Adams...................68 Director
Craig S. Andrews..................47 Director
Ronald J. Hall....................59 Director
Howard L. Jenkins.................63 Director
Charles E. Volpe..................62 Director
</TABLE>
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.
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.
Mr. Andrews has served as a director since June 1996. He has been a
partner with the law firm of Brobeck, Phleger & Harrison LLP since 1987 and was
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
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undergraduate degree in Political Science/Economics from the University of
California, Los Angeles and a JD from the University of Michigan.
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.
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.
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., 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.
EXECUTIVE OFFICERS
The following individuals were executive officers of ENCAD as of February 29,
2000:
<TABLE>
<CAPTION>
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
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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 became Vice President of Human Resources in December 1998
after serving 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 Assurance after serving as temporary Director of Quality Assurance
from April 1999 to June 1999. Prior to joining our company, he was with
General 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.
3
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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
UCSD, Revelle College and an MS in Electrical Engineering from San Diego State
University.
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 10% 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 10%
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 11 transactions.
4
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ITEM 11: EXECUTIVE COMPENSATION
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 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, salaries 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.
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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 10% of total annual salary and
bonuses have been omitted from this column.
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% 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% of the first 6% 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% for each year of employment with us.
Matching contributions would be 100% 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% of the $4,800 in total matching contributions made to
Mr. Purcell in 1999 are vested.
- 20% or $960 of the $4,800 in total matching contributions made
to Mr. Liess in 1999 are vested.
- 60% or $3,189 of the $5,315 in total matching contributions
for 1998 and 1999 made to Mr. Schmidt are vested.
- 20% or $960 of the $4,800 in total matching contributions made
to Mr. Stark in 1999 are vested.
- 20% or $960 of the $4,800 in total matching contributions made
to Mr. Steep in 1999 are 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
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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% or $2,171 of the $2,714 in total matching
contributions made to Mr. Thompson for 1998 and 1999 had vested. The remaining
20% 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,
ENCAD made severance payments to Mr. Thompson in the amount of $161,167. For
a general description of the severance agreements, please see the discussion
under "Severance, Change in Control, and Other Arrangements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------------------------------
AWARDS
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL COMPEN- OPTIONS/SARS COMPEN-
POSITION YEAR SALARY ($) 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 1998 $ 201,759 $ - $ 169,505 150,000 $ -
and Chief Operating 1997 $ - $ - $ - - $ -
Officer
LAWRENCE E. THOMPSON 1999 $ 96,168 $ - $ - 10,000 $ 244,244
Former Vice President 1998 $ 168,834 $ 25,000 $ - 52,500 $ 695
and General Manager, 1997 $ 152,226 $ 107,528 $ - 15,000 $ -
Textiles 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
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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.
<TABLE>
<CAPTION>
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.
8
<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/
SHARES OPTIONS/SARs SARs(2)
ACQUIRED ON VALUE AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
NAME EXERCISE REALIZED (1) -------------------------- ---------------------------
- -------------------- ----------- ---------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David 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>
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 % of the voting power of our outstanding
securities, (2) additional shares in ENCAD so as to increase total holdings to
more than 50% 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
9
<PAGE>
following a change in control be increased to 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 % of the voting power of our outstanding
securities, (2) additional shares in ENCAD so as to increase total holdings to
more than 50% 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 ENCAD. 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.
10
<PAGE>
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 ENCAD or a merger or
consolidation pursuant to which either (1) ENCAD is not the surviving entity or
(2) ownership of more than 50% 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% 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 ENCAD 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% 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% or, in the case of
the 1999 option plan, more than 35% of the voting power of ENCAD's
outstanding securities pursuant to a tender offer made directly to the
company's stockholders or (b) a change in the majority of the 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% of the voting power of
ENCAD's outstanding securities pursuant to a tender offer made directly to
the company's stockholders which the board does not recommend that
stockholders accept or (b) a change in the majority of ENCAD'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.
11
<PAGE>
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
ENCAD. 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 (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.
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.
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 the growth and success of ENCAD. 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 ENCAD'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.
12
<PAGE>
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 ENCAD, 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 ENCAD 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% and 45%
of base salary for our executive officers. These percentages increased to
between 60% and 90% if actual performance exceeded target performance. The
Compensation Committee also predetermined a minimum performance level below
which no bonus was earned. The performance goal at which the full target bonus
was earned was determined by the Chief Executive Officer based upon individual
performance and other factors. In the event 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
the management and growth of ENCAD 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 ENCAD'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
13
<PAGE>
would be awarded a target bonus of 50% of his base salary. If target performance
levels were exceeded, the bonus percentage increased to between 50% and 100% 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 ENCAD's 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-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.
Mr. Andrews is 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.
14
<PAGE>
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.
[GRAPH]
ITEM 12: 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.
15
<PAGE>
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.
<TABLE>
<CAPTION>
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%.
(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
Remainder Unitrust II (50,000 shares), DRP Charitable Remainder
Unitrust (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.
16
<PAGE>
ITEM 13: 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."
Mr. Andrews, a member of our board, is 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.
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.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ENCAD, Inc.
By /s/ David A. Purcell April 28, 2000
------------------------
David A. Purcell
Chief Executive Officer
By /s/ Todd W. Schmidt April 28, 2000
-------------------------
Todd W. Schmidt
Chief Financial Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints David A. Purcell or Thomas L. Green, his
attorney-in-fact, with power of substitution in any and all capacities, to sign
any amendments to this annual report on Form 10-K, and to file the same with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David A. Purcell
- ------------------------------------------ Chairman of the Board, President
(David A. Purcell) and Chief Executive Officer
(Principal Executive Officer)
/s/ Robert V. Adams Director April 28, 2000
- -------------------------------------------
(Robert V. Adams)
/s/ Craig S. Andrews Director April 28, 2000
- -------------------------------------------
(Craig S. Andrews)
/s/ Ronald J. Hall Director April 28, 2000
- -------------------------------------------
(Ronald J. Hall)
/s/ Howard L. Jenkins Director April 28, 2000
- -------------------------------------------
(Howard L. Jenkins)
/s/ Charles E. Volpe Director April 28, 2000
- -------------------------------------------
(Charles E. Volpe)
</TABLE>
18
