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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ILLINOIS SUPERCONDUCTOR CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(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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(4) Date filed:
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[LOGO]
451 Kingston Court
Mt. Prospect, Illinois 60056
May 4, 1999
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend
the 1999 Annual Meeting of Stockholders of Illinois Superconductor Corporation.
The Annual Meeting will be held on Wednesday, June 9, 1999, beginning at 11:30
a.m. local time, at Ida Noyes Hall, 1212 East 59th Street, Chicago, Illinois.
The formal notice of the Annual Meeting appears on the next page.
The attached Notice of Annual Meeting and Proxy Statement describe
matters that we expect will be acted upon at the meeting.
It is important that your views be represented whether or not you are
able to be present at the Annual Meeting. Please sign and date the enclosed
proxy card and promptly return it to us in the enclosed postage paid envelope.
If you sign and return your proxy card without specifying your choices, it will
be understood that you wish to have your shares voted in accordance with the
recommendations of the Board of Directors contained in the Proxy Statement.
We are gratified by our stockholders' continued interest in Illinois
Superconductor Corporation and urge you to return your proxy card as soon as
possible.
Sincerely,
EDWARD W. LAVES
Chairman of the Board of Directors,
President and Chief Executive Officer
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[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 9, 1999
To the Stockholders of
Illinois Superconductor Corporation:
Notice is hereby given that the Annual Meeting of Stockholders of
Illinois Superconductor Corporation (the "Company"), a Delaware corporation,
will be held at Ida Noyes Hall, 1212 East 59th Street, Chicago, Illinois on
Wednesday, June 9, 1999, beginning at 11:30 a.m. local time, for the following
purposes:
(1) To elect one Class III director to the Company's Board of
Directors;
(2) To approve an amendment to the Company's Certificate of
Incorporation, as amended, to increase the Company's authorized
capital stock and the number of authorized shares of the Company's
Common Stock;
(3) To approve an amendment to the Company's Amended and Restated 1993
Stock Option Plan, as amended;
(4) To ratify the appointment by the Board of Directors of Ernst &
Young LLP as the independent auditors of the Company's financial
statements for the fiscal year ending December 31, 1999; and
(5) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 14,
1999 as the record date for determining stockholders entitled to notice of, and
to vote at, the meeting. Only stockholders of the Company as of the close of
business on April 14, 1999 will be entitled to vote at the meeting.
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PLEASE NOTE THAT ATTENDANCE AT THE MEETING WILL BE LIMITED TO STOCKHOLDERS OF
ILLINOIS SUPERCONDUCTOR CORPORATION AS OF THE RECORD DATE (OR THEIR AUTHORIZED
REPRESENTATIVES) HOLDING ADMISSION TICKETS OR OTHER EVIDENCE OF OWNERSHIP. THE
ADMISSION TICKET ACCOMPANIES YOUR PROXY CARD. IF YOUR SHARES ARE HELD BY A BANK
OR BROKER, PLEASE BRING TO THE MEETING YOUR BANK OR BROKER STATEMENT EVIDENCING
YOUR BENEFICIAL OWNERSHIP OF ILLINOIS SUPERCONDUCTOR CORPORATION COMMON STOCK TO
GAIN ADMISSION TO THE MEETING.
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By Order of the Board of Directors,
WILLIAM M. KOCHLEFL
Secretary
Mt. Prospect, Illinois
May 4, 1999
ALL STOCKHOLDERS ARE URGED TO ATTEND THE MEETING IN PERSON OR BY PROXY. WHETHER
OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
FURNISHED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
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ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT
MT. PROSPECT, ILLINOIS 60056
--------------------
PROXY STATEMENT
--------------------
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board of Directors" or "Board") of Illinois Superconductor Corporation, a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 11:30 a.m., local time, on
Wednesday, June 9, 1999 at Ida Noyes Hall, 1212 East 59th Street, Chicago,
Illinois, and any adjournment or postponement thereof. This Proxy Statement and
accompanying proxy are being mailed to stockholders on or about May 4, 1999.
RECORD DATE AND OUTSTANDING SHARES. The Board of Directors has fixed
the close of business on April 14, 1999 as the record date (the "Record Date")
for the determination of stockholders entitled to notice of, and vote at, the
Annual Meeting or any adjournment or postponement thereof. As of the Record
Date, the Company had outstanding 12,557,344 shares of Common Stock, par value
$.001 per share, including attached preferred stock purchase rights (the "Common
Stock"). Each of the outstanding shares of Common Stock is entitled to one vote
on all matters to come before the Annual Meeting.
VOTING OF PROXIES. Edward W. Laves, William M. Kochlefl and Kenneth E.
Wolf, the persons named as proxies on the proxy card accompanying this Proxy
Statement, were selected by the Board of Directors of the Company to serve in
such capacity. Dr. Laves, Mr. Kochlefl and Mr. Wolf are officers of the Company.
Dr. Laves is also a director of the Company. Each executed and returned proxy
will be voted in accordance with the directions indicated thereon, or if no
direction is indicated, such proxy will be voted in accordance with the
recommendations of the Board of Directors contained in this Proxy Statement.
Each stockholder giving a proxy has the power to revoke it at any time before
the shares it represents are voted. Revocation of a proxy is effective upon
receipt by the Secretary of the Company of either (i) an instrument revoking the
proxy or (ii) a duly executed proxy bearing a later date. Additionally, a
stockholder may change or revoke a previously executed proxy by voting in person
at the Annual Meeting.
REQUIRED VOTE. The affirmative vote of a plurality of the shares of
Common Stock voted in person or by proxy is required to elect the nominee for
director. The affirmative vote of a majority of the outstanding shares of
Common Stock entitled to vote thereon (6,278,672 shares as of the Record Date)
is required to approve the amendment to the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"). The affirmative
vote of a majority of the shares of Common Stock voted affirmatively or
negatively is required to (i) approve the Fourth Amendment (the "Amendment") to
the Company's Amended and Restated 1993 Stock Option Plan, as amended to date
(the "1993 Stock Option Plan"), and (ii) ratify the appointment of Ernst &
Young LLP as the independent auditors of the Company's financial statements for
the fiscal year ending December 31, 1999.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES. The required quorum for
transaction of business at the Annual Meeting will be a majority of the shares
issued and outstanding as of the Record Date. Votes cast by proxy or in person
at the Annual Meeting will be tabulated by the inspector of election appointed
for the meeting and will determine whether or not a quorum is present.
Abstentions and broker non-votes will be included in determining the presence of
a quorum. Abstentions and broker non-votes will have the same effect as votes
"against" the proposal to approve the amendment to the Certificate of
Incorporation. Neither abstentions nor broker non-votes will have any effect on
the voting on the proposals to elect the nominee for director, to approve the
Amendment to the 1993 Stock Option Plan or to ratify the appointment of the
Company's independent auditors.
STOCKHOLDER LIST. A list of stockholders entitled to vote at the Annual
Meeting, arranged in alphabetical order, showing the address of and number of
shares registered in the name of each stockholder, will be open to the
examination of any stockholder for any purpose germane to the Annual Meeting
during ordinary business hours
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commencing May 28, 1999, and continuing through the date of the Annual Meeting
at the principal offices of the Company, 451 Kingston Court, Mt. Prospect,
Illinois 60056.
ANNUAL REPORT TO STOCKHOLDERS. The Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998, containing financial
and other information pertaining to the Company, is being furnished to
stockholders simultaneously with this Proxy Statement.
PROPOSAL 1
ELECTION OF DIRECTOR
The Board of Directors currently consists of five directors. Article
Seven of the Certificate of Incorporation provides that the Board of Directors
shall be classified with respect to the terms for which its members shall hold
office by dividing the members into three classes. At the Annual Meeting, one
Class III director is to be elected for a term of three years expiring at the
2002 Annual Meeting of Stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT
THE STOCKHOLDERS VOTE "FOR" THE ELECTION OF THE NOMINEE NAMED IN THIS PROXY
STATEMENT TO CONTINUE TO SERVE AS A DIRECTOR OF THE COMPANY. See "Nominee for
Election" below.
The four directors whose terms of office expire in 2000 and 2001 will
continue to serve after the Annual Meeting until such time as their respective
terms of office expire or their successors are duly elected and qualified. See
"Other Directors" below.
If at the time of the Annual Meeting the nominee should be unable or
decline to serve, a proxy named on the proxy card accompanying this Proxy
Statement will vote for such substitute nominee as the Board of Directors
recommends, or vote to allow the vacancy created thereby to remain open until
filled by the Board, as the Board recommends. The Board of Directors has no
reason to believe that the nominee will be unable or will decline to serve as a
director if elected.
NOMINEE FOR ELECTION
The name of the nominee for the office of director, together with
certain information concerning such nominee, is set forth below:
SERVED AS
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
Edward W. Laves........................... 51 Chairman of the 1997
Board of Directors, President and
Chief Executive Officer
Dr. Laves has served as Chairman of the Board of Directors since June
1998, and has served as President and Chief Executive Officer and a director of
the Company since July 1997. He joined the Company in December 1994 as Executive
Vice President and Chief Operating Officer. As President and Chief Executive
Officer, Dr. Laves is responsible for all aspects of the Company's business,
including finance, manufacturing, human resources, engineering and the sales and
marketing of the Company's SpectrumMaster(R), RangeMaster(R) and PowerMasterTM
filter products. He brings to his role extensive experience in the wireless
telecommunications industry. Before joining the Company, Dr. Laves served as
general manager of the cellular infrastructure division of Nippon Motorola, Ltd.
where he led Motorola's successful introduction of digital technology into the
Japanese cellular market. Additionally, Dr. Laves managed the development and
introduction of Motorola's CoveragePLUS wide area Special Mobile Radio (SMR)
system to the market. He holds Ph.D. and M.B.A. degrees from the University of
Chicago, and received his B.A. from Cornell University.
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OTHER DIRECTORS
The following persons will continue to serve as directors of the
Company after the Annual Meeting until their terms expire (as indicated below)
or until their successors are duly elected and qualified.
SERVED AS
DIRECTOR TERM
NAME AGE POSITION WITH COMPANY SINCE EXPIRES
Howard S. Hoffmann........................ 45 Director 1998 2001
Robert D. Mitchum......................... 45 Director 1998 2000
Terry S. Parker........................... 53 Director 1998 2000
Tom L. Powers............................. 62 Director 1996 2001
Mr. Hoffmann has served as a director of the Company since July 1998.
He is currently a principal of Nightingale & Associates, LLC, a management
consulting firm. Mr. Hoffmann has over 20 years of financial, operational and
general management experience in a wide range of industries including computer
hardware and software, consumer products, financial services, distribution and
transportation. He joined Nightingale & Associates in 1990 after serving as
interim Chief Financial Officer of two privately held businesses. Mr. Hoffmann
began his career with Irving Trust Company as a commercial lending officer and
later served as Vice President, Corporate Lending at Bank of America in the high
technology group. More recently, he served as Chief Financial Officer of
Applications Systems, Inc., an information technology firm operating in seven
European countries, and as interim Chief Financial Officer and Chief Operating
Officer of a $100 million consumer products company with international
operations. Mr. Hoffmann is a member of the Audit Committee.
Mr. Mitchum has served as a director of the Company since February
1998. He is currently Senior Vice President and Chief Financial Officer of
American Marketing Systems, Inc., a position he has held since August 1998. Mr.
Mitchum had served as Senior Vice President-Finance of APAC TeleServices, Inc.
where he also served on the company's board of directors. Previously, Mr.
Mitchum was Senior Vice President and Chief Financial Officer for Discovery
Zone, a chain of indoor playgrounds for children, where he was instrumental in
executing the company's initial public offering and subsequent sale of
Blockbuster Entertainment. Mr. Mitchum spent much of his career as a partner at
Arthur Andersen L.L.P. and later as lead partner of Andersen's Enterprise Group,
specializing in small, high-growth businesses. Mr. Mitchum is co-founder of
Fashion Encore, a chain of women's consignment retail stores. Mr. Mitchum also
serves on the Board of Trustees of Augustana College. Mr. Mitchum is a member of
the Audit Committee and serves as its Chairman.
Mr. Parker has served as a director of the Company since February 1998.
He previously was Senior Vice President of GTE Corporation where he served on
GTE's Senior Executive Council and was responsible for both GTE's cellular and
PCS businesses. Previously, Mr. Parker served as President of GTE Mobilnet
cellular system from its founding in 1986. Following his distinguished career at
GTE, Mr. Parker was President of Cellstar Corporation, a leading wholesale
distributor of cellular telephones in the United States. Currently, he serves as
a director of Cellstar Corporation, HighwayMaster, a provider of nationwide
communications services to the trucking industry, and Heartland Wireless Inc.
Mr. Parker is a member of the Compensation Committee.
Mr. Powers has served as a director of the Company since October 1996.
He is currently an adjunct professor and associate director of the Advanced
Manufacturing Center at New Mexico State University in Las Cruces, New Mexico,
as well as a consultant to a number of companies. From 1989 to 1991, Mr. Powers
was President of the cellular systems business unit of AT&T Network Systems
Group, now known as Lucent Technologies, Inc. Under his leadership, the business
unit became the market leader in wireless infrastructure equipment in the United
States, opened markets internationally and introduced the industry's first
digital cellular system. In 1983, he became Vice President of AT&T and Philips
Telecommunications B.V., a joint venture located in the Netherlands. He joined
AT&T in 1958 as a member of the technical staff of Bell Laboratories and went on
to management positions in consumer products, customer switching systems
engineering and network planning. Mr. Powers is a member of the Compensation
Committee and serves as its Chairman.
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SECURITYHOLDERS RIGHT TO DESIGNATE DIRECTORS. Pursuant to the terms of
the Securities Purchase Agreement dated as of May 15, 1998 by and between the
Company and the purchasers named therein (the "Investor Group"), as amended, the
Investor Group designated Mark D. Brodsky and Mr. Hoffmann as nominees for
election to the Board of Directors. Mr. Brodsky was elected to the Board in June
1998 and resigned from the Board in March 1999.
DIRECTOR COMPENSATION. During 1998, the Company did not provide any
cash compensation to its directors for their service on the Board of Directors.
Each director of the Company who is not an employee of the Company (a
"Non-Employee Director") participates in the 1993 Stock Option Plan. The 1993
Stock Option Plan provides for the automatic grant of non-qualified stock
options ("NQSOs") to purchase 10,000 shares of Common Stock at the closing price
of the Common Stock as reported on the Nasdaq National Market on the date of
each Non-Employee Director's initial election to the Board of Directors. In
consideration of their service on the Board of Directors, on the date of each
annual meeting of the stockholders of the Company, each Non-Employee Director
who is re-elected or continues to serve as a director because his or her term
has not expired is automatically granted NQSOs to purchase 3,000 shares of
Common Stock; provided that no such automatic grant shall be made to a
Non-Employee Director who is first elected to the Board of Directors at the
first such meeting or was first elected to the Board of Directors within three
months prior to such annual meeting. The stock options vest in three equal
annual installments beginning on the first anniversary of the date of grant and
expire ten years from the date of grant.
In April 1999, the Board of Directors adopted the Amendment to the 1993
Stock Option Plan which amends, among other things, the automatic stock option
grant provisions described above. If Proposal 3 is approved by the stockholders
at the Annual Meeting, on the date of each annual meeting of the stockholders of
the Company (commencing with the Annual Meeting), each Non-Employee Director who
is re-elected or continues to serve as a director because his or her term has
not expired shall be automatically granted NQSOs to purchase not less than 3,000
nor more than 10,000 shares of Common Stock, as determined by the Board on such
date, provided that no such automatic grant shall be made to a Non-Employee
Director who is first elected to the Board of Directors at the first such
meeting or was first elected to the Board of Directors within three months prior
to such annual meeting. Subject to the approval of Proposal 3 by the
stockholders at the Annual Meeting, each Non-Employee Director may also be
granted additional stock options at the discretion of the Board; provided,
however, that during any calendar year, stock options for no more than 100,000
shares of Common Stock may be granted to any individual Non-Employee Director.
The terms of such discretionary stock option grants shall be determined by the
Board. See "Proposal 3 - Amendment to the 1993 Stock Option Plan."
All Non-Employee Directors are reimbursed for their reasonable
out-of-pocket expenses incurred in attending Board and committee meetings.
MEETINGS. During the year ended December 31, 1998, the Board of
Directors held 12 formal meetings. Each director attended at least 75% of the
aggregate of the number of Board meetings (during the period for which he had
been a director) and the total number of committee meetings on which he served
that were held (during the period in which he was a member of such committee)
during 1998.
COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors has
established an Audit Committee and a Compensation Committee, each of which is
comprised entirely of Non-Employee Directors. The Audit Committee consists of
Messrs. Mitchum (Chairman) and Hoffmann. The Compensation Committee consists of
Messrs. Powers (Chairman) and Parker. The Company does not have a standing
Nominating Committee.
The Audit Committee generally has responsibility for recommending
independent auditors to the Board of Directors for selection, reviewing the plan
and scope of the accountants' audit, reviewing the Company's audit and control
functions, oversight of the Company's insider trading policy and reporting to
the full Board of Directors regarding all of the foregoing. The Audit Committee
held four formal meetings in 1998.
The Compensation Committee generally has responsibility for
recommending to the Board of Directors guidelines and standards relating to the
determination of executive compensation, reviewing the Company's executive
compensation policies and reporting to the full Board of Directors regarding the
foregoing. The Compensation Committee also has responsibility for administering
the 1993 Stock Option Plan, determining the
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number of options to be granted to the Company's executive officers and
employees pursuant to the 1993 Stock Option Plan, oversight of the Company's
non-discrimination and anti-harassment policy and reporting to the full Board of
Directors regarding the foregoing functions. The Compensation Committee held one
formal meeting in 1998. See "Report of the Compensation Committee of the Board
of Directors."
EXECUTIVE OFFICERS
Set forth below is a table identifying executive officers of the
Company who are not identified in the tables entitled "Election of Director -
Nominee for Election" or "- Other Directors."
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Amr Abdelmonem........................ 33 Vice President, Development
Dennis M. Craig....................... 40 Vice President, Engineering and Manufacturing
Benjamin Golant....................... 49 Vice President, Technology
William M. Kochlefl................... 37 Vice President, General Counsel and Secretary
Stephen J. Ursino..................... 33 Vice President, Sales
Kenneth E. Wolf....................... 45 Controller and Treasurer
Mr. Abdelmonen joined the Company in January 1995 as Filter Engineer.
He was appointed Director of Engineering in 1998 and Vice President, Development
in April 1999. Before joining the Company, Mr. Abdelmonem was an engineer with
Exxon Corporation in Egypt. Subsequently, he was affiliated with the University
of Maryland in a number of research and teaching positions where much of his
research focused on semi-conductor laser and advanced filter design. Mr.
Abdelmonem earned his B.S. and M.S. degrees in Electrical Engineering from
Ain-Shams University in Cairo, Egypt, and his Ph.D. from the University of
Maryland. He has published numerous research documents for industry conferences
and trade journals, holds two patents and has five patent applications pending.
Mr. Craig joined the Company in December 1996 as Vice President,
Manufacturing. He was appointed Vice President, Engineering and Manufacturing in
September 1998. Before joining the Company, Mr. Craig worked for eight years at
Motorola, Inc., where he most recently served as manufacturing operations
manager in the Component Products Group. During his career at Motorola, his
responsibilities included production management, new product implementation,
cost reduction and capacity analysis and planning. Prior to joining Motorola,
Mr. Craig served as a manufacturing process development engineer at Northrop
Corporation in its defense systems division. Mr. Craig received an M.B.A. degree
from Lake Forest Graduate School of Management and a B.S. degree in mechanical
engineering from the University of Illinois at Chicago.
Mr. Golant joined the Company in January 1996 as Vice President,
Product Development. He was appointed Vice President, Technology in April 1999.
From 1989 until joining the Company, Mr. Golant was at E.F. Johnson Company
where he served as Director of Engineering, Chief Engineer and Director of
Product Marketing. His responsibilities included managing the development of
mobile, portable, and base station equipment for wireless land mobile radio
systems. From 1976 to 1989, Mr. Golant was employed by Motorola, Inc.'s
communications sector, leading teams to develop and commercialize a variety of
radio component and system products. He received a B.S. degree in electrical
engineering from Lehigh University. Mr. Golant holds one patent in the area of
RF filter technology.
Mr. Kochlefl joined the Company in January 1999 as Vice President,
General Counsel and Secretary. Before joining the Company, Mr. Kochlefl served
as Assistant General Counsel and Assistant Secretary for 360(degree)
Communications Company, a major wireless communications company. There he played
a key role in company financing, acquisition and divestiture activities,
including 360(degree) Communications' spinoff from Sprint Corporation in 1996,
and its subsequent acquisition by ALLTEL Corporation in 1998. Mr. Kochlefl had
previously been associated with the law firms of Chapman and Cutler in Chicago,
Illinois, for three years, and Winthrop, Stimson, Putnam & Roberts in New York,
New York, for six years, where he concentrated on corporate securities matters,
financing
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transactions and mergers and acquisitions. He earned his B.A. in Economics from
the University of Illinois (Champaign-Urbana), and earned his law degree from
Northwestern University School of Law.
Mr. Ursino joined the Company in October 1996 as Sales Account Manager.
He was appointed Sales Director in 1997, Senior Sales Director in 1998 and Vice
President, Sales in April 1999. Before joining the Company, Mr. Ursino served as
Sales Manager for NTK Technical Ceramics, a Japanese based company, marketing
filters and resonators to domestic wireless telecommunication companies. Mr.
Ursino previously served in sales manager positions for a variety of companies,
including Futaba. He graduated from the University of Detroit with a B.S. in
Electrical Engineering.
Mr. Wolf joined the Company in July 1998 as Controller. He was
appointed Treasurer of the Company in January 1999. With more than 20 years of
accounting experience, he has served as the senior financial manager at a number
of manufacturing companies, as well as auditor with one of the major accounting
firms. Prior to joining the Company, Mr. Wolf served as Corporate Controller for
Triangle Home Products Inc., with responsibility for general and cost accounting
functions, as well as payroll and benefit administration, for 8 years. Mr. Wolf
earned his B..A. in Finance from the University of Illinois (Champaign-Urbana)
and his M.B.A. from the University of Chicago.
The Board of Directors elects officers annually and such officers,
subject to the terms of certain employment agreements, serve at the discretion
of the Board. See "Executive Compensation and Certain Transactions - Employment
Agreements." Mr. Craig and Dr. Laves each have employment agreements with the
Company. There are no family relationships among any of the directors or
officers of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires the Company's
officers (as defined under Section 16(a)), directors and persons who own greater
than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and
Commission. Based solely on a review of the forms it has received and on written
representations from certain reporting persons that no such forms were required
for them, the Company believes that during 1998, all of the Section 16(a) filing
requirements applicable to its officers, directors and 10% beneficial owners
were complied with by such persons, except that a Form 3, covering his initial
beneficial ownership of securities, was inadvertently filed late by Mr. Wolf.
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EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
The following table provides information concerning the annual and
long-term compensation for services in all capacities to the Company for the
years ended December 31, 1998, 1997 and 1996 of those persons who were at
December 31, 1998, (i) the chief executive officer of the Company or (ii) the
three other most highly compensated (based on combined salary and bonus)
executive officers of the Company whose total salary and bonus exceeded $100,000
during 1998 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
------------------------------ --------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ---------------------------------------- ----------- ------------ -------------- ------------ -----------------
EDWARD W. LAVES, PH.D. 1998 $186,590 $0 100,000 $0
Chairman of the Board of Directors, 1997 $170,000 $0 0 $0
President and Chief Executive Officer 1996 $147,000 $44,100 20,000 $0
MICHAEL C. BALDUZZI (2) 1998 $113,750 $65,825 (3) 25,000 $0
Vice President, Sales 1997 N/A N/A N/A N/A
1996 N/A N/A N/A N/A
DENNIS M. CRAIG (4) 1998 $141,060 $0 70,000 $0
Vice President, Engineering and 1997 $130,000 $0 0 $0
Manufacturing 1996 $3,160 $0 25,000 $0
BENJAMIN GOLANT 1998 $120,750 $0 50,000 $0
Vice President,Technology 1997 $120,750 $0 0 $0
1996 $115,000 $23,000 0 $0
(1) None of the Named Officers had any restricted stock holdings as of December
31, 1998.
(2) Mr. Balduzzi commenced employment with the Company in February 1998.
(3) Mr. Balduzzi received a sign-on bonus in the amount of $35,000. The
remaining amount was earned in 1998 for performance during that year.
(4) Mr. Craig commenced employment with the Company in December 1996.
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OPTION GRANTS IN 1998
The following table contains information concerning the grant of stock
options by the Company to the Named Officers during 1998.
PERCENTAGE
NUMBER OF OF TOTAL
SHARES OPTIONS POTENTIAL REALIZABLE
UNDERLYING GRANTED TO EXERCISE VALUE AT ASSUMED ANNUAL
OPTIONS EMPLOYEES OR BASE EXPIRATION RATES OF STOCK PRICE
NAME GRANTED IN FISCAL PRICE DATE (1) APPRECIATION FOR OPTION
(1)(#) YEAR ($/SHARE) TERM (2)
- -------------------------------- ----------- ------------ ------------ ----------- -------------------------
5%($) 10%($)
----------- ------------
Edward W. Laves, Ph.D.......... 100,000 13.70% $1.6875 1/7/08 106,130 268,940
Michael C. Balduzzi............ 25,000 3.42% $1.0940 2/5/08 17,200 43,590
Dennis M. Craig................ 70,000 9.60% $1.6875 1/7/08 74,291 188,258
Benjamin Golant................ 50,000 6.85% $1.6875 1/7/08 53,065 134,470
(1) Subject to certain restrictions, these options vest over a four-year period
as follows: one-fourth of the options vest on the first anniversary of the
grant date and one-thirty-sixth of the remaining options vest each month
thereafter. The grant dates are 10 years prior to the respective expiration
dates.
(2) Potential realizable value is presented net of the option exercise price
but before any federal or state income taxes associated with exercise.
These amounts represent certain assumed rates of appreciation only. Actual
gains are dependent on the future performance of the Common Stock and the
option holder's continued employment throughout the vesting period. The
amounts reflected in the table may not necessarily be achieved.
YEAR-END 1998 OPTION VALUES
The following table provides information concerning the Named Officers'
unexercised options at December 31, 1998. None of the Named Officers exercised
any stock options during 1998.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT YEAR-END IN-THE-MONEY OPTIONS AT
1998 (#) YEAR-END 1998 ($) (1)
---------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------
Edward W. Laves, Ph.D. 50,416 114,584 $0 $0
Michael C. Balduzzi 0 25,000 $0 $0
Dennis M. Craig 13,021 81,979 $0 $0
Benjamin Golant 15,417 54,583 $0 $0
- ----------------
(1) The value per option is calculated by subtracting the exercise price from
the closing price of the Common Stock on the Nasdaq National Market on
December 31, 1998 (the last business day of 1998) of $1.00.
EMPLOYMENT AGREEMENTS. Effective July 1, 1998, the Company entered into
an employment agreement with Dr. Laves. The agreement terminates on December 31,
1999 and stipulates an annual base salary of $200,000. Effective November 9,
1998, the Company entered into an employment agreement with Mr. Craig. The
agreement terminates on December 31, 1999 and stipulates an annual base salary
of $150,000. Each agreement includes a provision for a bonus to be paid at the
discretion of the Board of Directors, severance payments if the executive is
terminated other than for "Cause" (as defined in such agreement), and certain
non-competition and confidentiality provisions.
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REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The following report of the Compensation Committee is provided solely
to stockholders of the Company pursuant to the requirements of Schedule 14A
promulgated under the Securities Exchange Act of 1934, as amended, and shall not
be deemed to be "filed" with the Securities and Exchange Commission for the
purpose of establishing statutory liability. This Report shall not be deemed to
be incorporated by reference in any document previously or subsequently filed
with the Securities and Exchange Commission that incorporates by reference all
or any portion of this Proxy Statement.
The objectives of the Compensation Committee in determining the levels
and components of executive compensation are (i) providing them with both cash
and equity incentives to further the interests of the Company and its
stockholders, (ii) compensating them at appropriate levels with a recognition of
compensation levels of executive officers at other high technology companies at
a comparable stage of development, and (iii) attracting outstanding executive
officers to the Company. Generally, the compensation of all executive officers
is composed of a base salary plus a discretionary bonus based upon achievement
of specified goals. In addition, the Company grants stock options, from time to
time in its discretion, to base potential compensation on stockholder return and
to provide for compensation based upon the Common Stock performance over time.
The Compensation Committee determined the terms of employment
agreements for each of Mr. Craig and Dr. Laves. In determining the base salaries
of the executive officers, the Compensation Committee considered the performance
of each executive, the nature of the executive's responsibilities, the salary
levels of executives at high technology companies at a comparable stage of
development, including other publicly held companies that are developing
products using superconducting materials, and the Company's general compensation
practices.
Discretionary bonuses for each of the Company's executive officers are
based on achievement of specified goals of the Company and are a function of the
criteria which the Compensation Committee believes appropriately take into
account the specific areas of responsibility of the particular officer.
The Compensation Committee typically grants stock options to executive
officers and other employees in order to provide a long-term incentive which is
directly tied to the performance of the Company's stock. These options provide
an incentive to maximize stockholder value because they reward option holders
only if stockholders also benefit. The exercise price of these stock options is
the fair market value of the Common Stock on the dates of grant. Vesting periods
are used to retain key employees and to emphasize the long-term aspect of
contribution and performance. In making stock option grants to executives under
the 1993 Stock Option Plan, the Compensation Committee considers a number of
factors, including the performance of the executive, achievement of goals, the
responsibilities of the executive, review of compensation of executives in high
technology companies at a comparable stage of development, and review of the
number of stock options each executive currently possesses. Stock options were
granted to all executive officers January 7, 1998.
COMPLIANCE WITH SECTION 162(M). The Compensation Committee currently
intends for all compensation paid to the executive officers to be tax deductible
to the Company pursuant to Section 162(m) of the Internal Revenue Code of 1986,
as amended ("Section 162(m)"). Section 162(m) provides that compensation paid to
the executive officers in excess of $1,000,000 cannot be deducted by the Company
for Federal income tax purposes. However, this limitation does not apply to
performance-based compensation, provided that certain conditions are satisfied.
Although the Company's policy is generally to preserve the federal income tax
deductibility of compensation paid, the Compensation Committee retains the
authority to approve payments that may not be deductible if it believes that
such payments are in the best overall interests of the Company and its
stockholders.
COMPENSATION COMMITTEE
Tom L. Powers (Chairman)
Terry S. Parker
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PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns
during the period commencing on January 1, 1994 for the Company, the Nasdaq
Market Composite Index, an index of peer companies selected by the Company and
the Hambrecht & Quist Technology Sector Communication Index (the "H&Q
Communication Index"). The Company is replacing the index of peer companies with
the H&Q Communication Index because the H&Q Communication Index contains a
number of companies that are in the same line of business as the Company, and
the Company believes that this index is more readily accessible to the
stockholders than the index of peer companies. The comparison assumes that $100
was invested on January 1, 1994 in the Company's Common Stock and in each index,
and assumes the reinvestment of all dividends, if any.
[GRAPHIC OMITTED]
1/1/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
------ -------- -------- -------- -------- --------
ILLINOIS SUPERCONDUCTOR 100.00 79.07 158.14 159.30 16.86 9.30
PEER GROUP INDEX 100.00 88.17 153.60 147.10 176.94 177.52
H&Q COMMUNICATION INDEX 100.00 110.98 176.85 202.91 192.09 283.61
NASDAQ MARKET INDEX 100.00 104.99 136.18 169.23 207.00 291.96
The companies in the peer group, all of which are in the wireless
communication equipment market or superconductor product market, include
Illinois Superconductor Corporation, Superconductor Technologies Inc.,
Conductus, Inc., Qualcomm Inc. and Stanford Telecommunications, Inc. The H&Q
Communication Index includes approximately 50 publicly traded technology
companies within the communications industry sector.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, certain
information with respect to the beneficial ownership of the Common Stock by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each Company director, (iii) each Named
Officer and (iv) all Company executive officers and directors as a group.
NUMBERS OF PERCENT OF
SHARES SHARES
NAME AND ADDRESS BENEFICIALLY BENEFICIALLY
OWNED(1)(10) OWNED(10)
- ----------------------------------------------------------------------------- --------------- -----------------
Elliott Associates, L.P. (2)............................................... 1,379,774(2) 9.9%(2)
712 Fifth Avenue
New York, New York 10019
Westgate International, L.P. (2)........................................... (2) (2)
c/o Midland Bank Trust Corporation
(Cayman) Limited
P.O. Box 1109
Mary Street, Grand Cayman
Cayman Islands, British West Indies
State Farm Mutual Automobile Insurance Company (3)......................... 1,379,774(3) 9.9%(3)
One State Farm Plaza
Bloomington, Illinois 16701
Edward W. Laves, Ph.D. (4).................................................. 119,167 *
Michael C. Balduzzi (5)..................................................... 58,021 *
Dennis Craig (6)............................................................ 51,958 *
Benjamin Golant (8)......................................................... 34,167 *
Tom L. Powers (7)........................................................... 10,067 *
Robert Mitchum (8).......................................................... 3,333 *
Terry S. Parker (8)......................................................... 3,333 *
Howard S. Hoffmann.......................................................... -- --
All executive officers and directors as a group (11 persons) (9)............ 218,684 1.7%
- -------------
* Denotes beneficial ownership of less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Unless otherwise indicated below, the
persons in the above table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) According to a Schedule 13D/A, dated April 9, 1999, Elliott Associates,
L.P. ("Elliott"), Westgate International, L.P. ("Westgate") and Martley
International, Inc. ("Martley") together have sole voting and investment
power with respect to 1,379,774 shares. Martley is the investment manager
for Westgate and expressly disclaims beneficial ownership of all shares
beneficially held by either Westgate or Elliott. As of March 31, 1999,
Elliott held the following securities of the Company that are convertible
into, or exercisable for, an aggregate of 4,066,774 shares (the "Elliott
Shares") (i) $833,334 face principal amount of Senior Convertible Notes due
May 15, 2002, bearing interest at 6% ("6% Notes"), which are convertible
into 740,741 shares of Common Stock; (ii) $1,111,111 face principal amount
of Senior Convertible Notes due May 15, 2002, bearing interest at 2% ("2%
Notes"), which are convertible into 740,740 shares of Common Stock; (iii)
$1,388,889 face principal amount of Senior Convertible Notes due May 15,
2002, bearing interest at 6% ("Amended 6% Notes"), which are convertible
into 1,234,568 shares of Common Stock; (iv) warrants expiring on March 31,
2002 exercisable for 333,334 shares of Common Stock ("6% Warrants"); (v)
warrants expiring on March 31, 2002 exercisable for 555,556 shares of
Common Stock ("Amended 2% Warrants"); (vi) warrants expiring on May 15,
2001
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exercisable for 444,444 shares of Common Stock ("2% Warrants"); and (vii)
warrants expiring on October 29, 2001 exercisable for 17,391 shares of
Common Stock. As of March 31, 1999, Westgate held the following securities
of the Company that are convertible into, or exercisable for, an aggregate
of 4,066,772 shares (the "Westgate Shares") (i) $833,333 face principal
amount of 6% Notes which are convertible into 740,740 shares of Common
Stock; (ii) $1,111,112 face principal amount of 2% Notes which are
convertible into 740,741 shares of Common Stock; (iii) $1,388,888 face
principal amount of Amended 6% Notes which are convertible into 1,234,567
shares of Common Stock; (iv) 6% Warrants exercisable for 333,333 shares of
Common Stock; (v) Amended 2% Warrants exercisable for 555,555 shares of
Common Stock; (vi) 2% Warrants exercisable for 444,445 shares of Common
Stock; and (vii) warrants expiring on October 29, 2001 exercisable for
17,391 shares of Common Stock. Elliott disclaims beneficial ownership of
2,687,000 of the Elliott Shares, and Westgate disclaims beneficial
ownership of 2,686,998 of the Westgate Shares, because the amount of
shares into which Elliott's and Westgate's 6% Notes, 2% Notes, 6%
Warrants, Amended 2% Warrants and 2% Warrants are each convertible or
exercisable is limited, pursuant to the terms of such instruments, to that
amount which would result in Elliott and Westgate together, and their
affiliates, having beneficial ownership of shares not exceeding 9.9% of
all of the outstanding shares of Common Stock. Excludes 58,488 shares, in
the case of Elliott, and 58,488 shares, in the case of Westgate, which may
be issued as interest on the notes, at the option of the Company, within
60 days of April 15, 1999.
(3) As of March 31, 1999, State Farm Mutual Automobile Insurance Company
("State Farm") held the following securities of the Company that are
convertible into, or exercisable for, an aggregate of 1,564,446 shares (i)
$300,000 face principal amount of 6% Notes which are convertible into
266,667 shares of Common Stock; (ii) $500,000 face principal amount of 2%
Notes which are convertible into 333,334 shares of Common Stock; (iii)
$500,000 face principal amount of Amended 6% Notes which are convertible
into 444,445 shares of Common Stock; (iv) 6% Warrants exercisable for
120,000 shares of Common Stock; (v) Amended 2% Warrants exercisable for
200,000 shares of Common Stock; and (vi) 2% Warrants exercisable for
200,000 shares of Common Stock. State Farm effectively disclaims beneficial
ownership of 184,672 of such shares because the amount of shares into which
State Farm's 6% Notes, 2% Notes, 6% Warrants, Amended 2% Warrants and 2%
Warrants are convertible or exercisable is limited, pursuant to the terms
of such instruments, to that amount which would result in State Farm, and
its affiliates, having beneficial ownership of shares not exceeding 9.9% of
all of the outstanding shares of Common Stock. Includes 225,000 shares
beneficially held on March 31, 1999. Excludes 4,959 shares which may be
issued as interest on the notes, at the option of the Company, within 60
days of April 15, 1999.
(4) Includes 90,000 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 31, 1999. Excludes 291,864
shares held by the State of Illinois and 69,080 shares of Common Stock
issuable upon exercise of warrants presently exercisable and held by the
State of Illinois. Dr. Laves, as the chief executive officer of the
Company, has an irrevocable proxy to vote these shares. Therefore, Dr.
Laves may be deemed the beneficial owner of the shares of Common Stock
directly owned by the State of Illinois. Dr. Laves disclaims this
beneficial ownership.
(5) Includes 13,021 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 31, 1999. Includes 10,000
shares beneficially owned by Mr. Balduzzi's spouse. These numbers represent
the last known amount of shares beneficially held by Mr. Balduzzi on March
8, 1999, the date Mr. Balduzzi terminated his employment with the Company.
(6) Includes 38,958 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 31, 1999.
(7) Includes 7,667 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 31, 1999.
(8) Represents shares issuable upon exercise of options exercisable currently
or within 60 days of March 31, 1999.
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(9) Includes 204,451 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 31, 1999. Includes shares
beneficially held by all current executive officers and directors of the
Company as of April 12, 1999.
(10) As of March 31, 1999, Alexander Finance, LP ("Alexander") held the
following securities of the Company that are convertible into, or
exercisable for, an aggregate of 6,479,013 shares (i) $1,333,333 face
principal amount of 6% Notes which are convertible into 1,185,185 shares of
Common Stock; (ii) $1,777,778 face principal amount of 2% Notes which are
convertible into 1,185,186 shares of Common Stock; (iii) $2,222,222 face
principal amount of Amended 6% Notes which are convertible into 1,975,309
shares of Common Stock; (iv) 6% Warrants exercisable for 533,333 shares of
Common Stock; (v) Amended 2% Warrants exercisable for 888,889 shares of
Common Stock; and (vi) 2% Warrants exercisable for 711,111 shares of Common
Stock. Alexander effectively disclaims beneficial ownership of 5,863,704 of
such shares because the amount of shares into which Alexander's 6% Notes,
2% Notes, 6% Warrants, Amended 2% Warrants and 2% Warrants are convertible
or exercisable is limited, pursuant to the terms of such instruments, to
that amount which would result in Alexander, and its affiliates, having
beneficial ownership of shares not exceeding 4.9% of all of the outstanding
shares of Common Stock. Excludes 93,580 shares which may be issued as
interest on the notes, at the option of the Company, within 60 days of
April 15, 1999.
PROPOSAL 2
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE COMPANY'S AUTHORIZED CAPITAL STOCK
AND THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In February 1999, the Board of Directors proposed and recommended for
approval by the Company's stockholders an amendment to the Certificate of
Incorporation to increase the total authorized capital stock of the Company from
30,100,000 shares to 60,100,000 shares and to increase the number of authorized
shares of Common Stock from 30,000,000 shares to 60,000,000 shares. No changes
will be made to the number of authorized shares of the Company's Preferred
Stock. The Company's stockholders are asked to approve this amendment.
The proposed amendment provides that the first sentence of Article 4 of
the Certificate of Incorporation be amended to read in its entirety as follows:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Sixty Million One Hundred
Thousand (60,100,000), of which Sixty Million (60,000,000) shares are
of a class designated "Common Stock" (referred to in this certificate
as "Common"), and One Hundred Thousand (100,000) shares are of a class
designated "Preferred Stock" (referred to in this certificate as
"Preferred")."
REASONS FOR THE PROPOSAL. As of March 31, 1999, there were 12,557,344
shares of Common Stock issued and outstanding. In addition, as of such date
there were (i) 1,705,000 shares of Common Stock reserved for issuance under the
1993 Stock Option Plan, (ii) 4,678,686 shares of Common Stock reserved for
issuance pursuant to certain outstanding warrants and (iii) 11,055,557 shares of
Common Stock reserved for issuance upon conversion of $13,650,000 in aggregate
face principal amount of the Company's Senior Convertible Notes due May 15, 2002
(the "Senior Notes"). Consequently, only 3,413 shares of Common Stock were
available for future issuance by the Company as of March 31, 1999.
In March 1999, the Board of Directors reserved for issuance, subject to
the approval of Proposal 2 by the stockholders at the Annual Meeting (i)
1,320,000 shares of Common Stock (the "Unauthorized Warrant Shares") issuable
upon conversion of 6% Warrants issued on March 31, 1999 and (ii) up to 2,000,000
shares of Common Stock issuable, at the option of the Company, as the payment of
accrued interest on the Senior Notes. In the event that the stockholders fail to
approve Proposal 2, under the terms of the Securities Purchase Agreement dated
as of March 31, 1999 by and among the Company and the purchasers named therein,
the Company (i) will be required to repurchase
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such principal amount of the Senior Notes as are convertible into an amount of
shares of Common Stock equal to the Unauthorized Warrant Shares and (ii) the
Company will no longer be permitted to pay accrued interest on the Senior Notes
in shares of Common Stock.
Furthermore, the Board of Directors believes that it is desirable and
essential for the Company to have available additional authorized but unissued
shares of Common Stock to provide the Company with shares of Common Stock to be
used for general corporate purposes, including future equity and/or debt
financings. Approval of Proposal 2 will provide the Company with the flexibility
to consummate potential financings involving the issuance of additional shares
of Common Stock, or securities convertible into shares of Common Stock, in a
timely manner and to take advantage of other favorable financial opportunities.
If the Company's stockholders fail to approve Proposal 2, the Company will be
limited in its ability to act promptly with respect to potential financing
opportunities which are presented to it. If the Company cannot obtain adequate
funds when needed, the Company may be required to delay, scale-back or eliminate
the manufacturing, marketing or sales of one or more of its products or some or
all of its research and development programs. Inadequate funding also could
impair the Company's ability to compete in the marketplace. In particular, if
the Company is unable to secure adequate financing during the third quarter of
1999, it will have to substantially reduce its operating plans in order to
continue its operations beyond such date.
EFFECT OF INCREASE. The additional shares of Common Stock (other than
the Unauthorized Warrant Shares) may be issued, subject to certain exceptions,
by the Board of Directors at such times, in such amounts and upon such terms as
the Board of Directors may determine without further approval of the
stockholders. The Company's current stockholders could suffer a dilution of
voting rights and tangible book value per share of the Common Stock as the
result of any such issuance of Common Stock depending on the number of shares
issued and the terms and conditions of the issuance. The additional shares of
Common Stock could have an "anti-takeover" effect in that they could discourage
an attempt to obtain control of the Company by means of a merger, tender offer,
proxy contest or otherwise. Such shares could be issued for the purpose of
making more difficult, time-consuming or costly an acquisition of a controlling
interest in the Company deemed undesirable by the Board of Directors, even if
such acquisition is desired by certain stockholders of the Company. The Company
does not, however, currently intend to issue shares for such purpose.
The Company's stockholders have no preemptive rights to subscribe for
additional shares of Common Stock when issued.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT TO THE
CERTIFICATE OF INCORPORATION IS IN THE BEST LONG-TERM INTERESTS OF STOCKHOLDERS
AND THEREFORE RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO INCREASE THE COMPANY'S AUTHORIZED CAPITAL STOCK
AND THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
PROPOSAL 3
AMENDMENT TO THE 1993 STOCK OPTION PLAN
BACKGROUND. On August 19, 1993, the Board of Directors adopted the
Illinois Superconductor Corporation 1993 Stock Option Plan (the "Old Plan")
pursuant to which options to acquire up to 380,000 shares of Common Stock were
authorized for issuance. In 1994, the size of the Old Plan was increased to
reserve an aggregate of 455,000 shares of Common Stock. This increase reserved
375,000 shares of Common Stock for issuance to employees and consultants and
80,000 shares for Non-Employee Directors. In 1994, the stockholders of the
Company also approved the amendment and restatement of the Old Plan and adopted
the 1993 Stock Option Plan. In 1995, stockholders approved an increase of an
additional 200,000 shares to be reserved for issuance to employees and
consultants under the 1993 Stock Option Plan. In 1996, stockholders approved a
further increase of 400,000 shares to be reserved for issuance to employees and
consultants under the 1993 Stock Option Plan. In 1997, stockholders approved an
increase of an additional 650,000 shares, of which 600,000 were reserved for
issuance to employees and consultants and 50,000 shares were reserved for
issuance to Non-Employee Directors, bringing the
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total number of shares of Common Stock currently reserved for issuance under the
1993 Stock Option Plan to 1,705,000.
In April 1999, the Board of Directors adopted and voted to present a
Fourth Amendment to the 1993 Stock Option Plan, which is set forth in Exhibit A,
for stockholder approval at the Annual Meeting. The Amendment provides for (1)
an additional 806,468 shares to be reserved for issuance under the 1993 Stock
Option Plan; (2) the elimination of the distinction between the number of shares
reserved for issuance to employees and consultants and the number of shares
reserved for issuance to Non-Employee Directors; (3) a change to the provisions
providing for the automatic grant of stock options to Non-Employee Directors;
(4) discretionary grants of options to Non-Employee Directors as determined by
the discretion of the Board of Directors; and (5) an acceleration of the time
during which options granted under the 1993 Stock Option Plan may be exercised
upon the occurrence of certain events constituting a "Change of Control" (as
defined in the Amendment). Assuming the approval of Proposal 3 by the
stockholders, if options for all 2,511,468 shares of Common Stock available
under the 1993 Stock Option Plan were issued, such shares would constitute
approximately 20% of the issued and outstanding Common Stock as of March 31,
1999. The Amendment will not be implemented if it is not approved by a majority
of the shares voted affirmatively or negatively at the Annual Meeting. The Board
believes that the size of the 1993 Stock Option Plan, as amended by the
Amendment, is appropriate.
The Board of Directors believes that the well recognized benefits of
stock option plans outweigh any burden to the stockholders attendant to the
award of incentive options, and include (i) the ability to attract and retain
qualified engineering, technical and administrative personnel, as well as
Non-Employee Directors, in the face of an increasingly competitive hiring
environment; (ii) the encouragement of the acquisition by key employees and
Non-Employee Directors of a proprietary interest in the Company; (iii) the
ability to fashion attractive incentive awards based upon the performance of the
Company and the price for the Common Stock; and (iv) better alignment of the
interests of employees, Non-Employee Directors and consultants with the
interests of the Company's stockholders. In adopting the Amendment, the Board of
Directors noted that many other companies have adopted equity plans to
compensate their employees and Non-Employee Directors with size comparable to
that to be affected by the Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT TO THE 1993 STOCK OPTION PLAN, AND BELIEVES THAT THE AMENDMENT IS
APPROPRIATE TO COMPENSATE EMPLOYEES, NON-EMPLOYEE DIRECTORS AND CONSULTANTS.
The following brief summary of certain features of the Amendment and
the 1993 Stock Option Plan is qualified in its entirety by reference to the full
text of the Amendment, which is set forth in Exhibit A, and the full text of the
1993 Stock Option Plan, as previously amended, which is set forth in Exhibit B.
SUMMARY OF PROVISIONS. The 1993 Stock Option Plan is administered by
the Compensation Committee of the Board of Directors which is authorized in its
discretion, subject to the provisions of the 1993 Stock Option Plan, to allocate
options to such employees (including officers), consultants and, subject to
stockholder approval of Proposal 3, Non-Employee Directors of the Company as the
Compensation Committee may select and to determine the number of shares covered
by, and terms of, each option. The Compensation Committee is comprised of
Non-Employee Directors. Certain options will also be granted to Non-Employee
Directors based on a formula, all as described below. During any calendar year,
options for no more than 100,000 shares of Common Stock shall be granted to any
employee, consultant or Non-Employee Director. An employee who has been granted
an option may be granted additional options. Certain stock options (as described
below) were granted to a group of key management personnel in 1998, including
Non-Employee Directors and officers of the Company.
Assuming stockholder approval of Proposal 3, on the date of the annual
meeting of stockholders of the Company in each calendar year (commencing with
the Annual Meeting), each Non-Employee Director who is reelected at that
meeting, or whose term of office does not expire at that meeting, shall be
automatically granted an option to purchase not less than 3,000 shares nor more
than 10,000 shares of Common Stock, as determined by the Board on such date;
provided that no such automatic annual grant shall be made to a Non-Employee
Director (i) who
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is first elected to the Board of Directors at such annual meeting or was first
elected to the Board of Directors within three months prior to such annual
meeting or (ii) if there are not sufficient shares remaining and available to
all Non-Employee Directors eligible for an automatic annual grant at the time at
which an automatic annual grant would otherwise be made. Each option granted
pursuant to this formula to Non-Employee Directors shall have the following
terms: (i) the options shall expire ten years after the date of grant, (ii) the
options shall become exercisable in three equal annual installments on each of
the first, second and third anniversaries of the date of grant; and (iii) the
exercise price per share of Common Stock shall be the fair market value on the
date of grant of the option. Subject to the approval of Proposal 3 by the
stockholders, each Non-Employee Director may be granted additional stock options
at the discretion of the Board; provided, however, that during any calendar
year, stock options for no more than 100,000 shares of Common Stock may be
granted to any individual Non-Employee Director.
Assuming stockholder approval of Proposal 3, an aggregate of 2,511,468
shares of Common Stock, which may be authorized and unissued or treasury shares,
will be available for issuance under the 1993 Stock Option Plan. If any option
granted under the 1993 Stock Option Plan shall expire or terminate for any
reason without having been exercised in full, options for the unpurchased shares
subject thereto may again be granted under the 1993 Stock Option Plan.
Any options may be exercised in whole or in part at such times and upon
such terms and conditions as the Compensation Committee shall determine, in
accordance with the 1993 Stock Option Plan. If approved by the Compensation
Committee, payment may be made by (i) delivering Common Stock already owned by
the option holder; (ii) executing and delivering a note satisfactory to the
Compensation Committee; (iii) authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the option having a
total fair market value on the date of delivery equal to the exercise price of
such option; (iv) delivery of cash by a broker-dealer to whom the option holder
has submitted an irrevocable notice of exercise; and (v) any combination of the
foregoing.
Options granted under the 1993 Stock Option Plan may be assigned or
transferred by will or laws of descent or distribution, or otherwise, only if
the option agreement entered into by the option grantee and the Company in
connection with the option grant so provides. If an option holder's employment
by the Company, or term as director, ends, the option, to the extent exercisable
at such time, may be exercised until the earlier of the expiration date of the
option or the time specified in the option agreement. To the extent such option
is not exercisable at the date of such termination, the option shall terminate.
The price at which the Common Stock may be purchased pursuant to the
exercise of each option under the 1993 Stock Option Plan is determined by the
Compensation Committee in its sole discretion, but may not in any event be less
than its fair market value on the date of grant. On April 12, 1999, the closing
price of a share of the Common Stock on the Nasdaq National Market was $0.75 per
share. No stock option shall be exercisable later than the tenth anniversary
date of its grant.
Upon the happening of certain circumstances, such as a stock dividend,
split, recapitalization, merger, consolidation, combination, exchange of shares
or other similar corporate change, the Company will appropriately adjust the
number of shares available under the 1993 Stock Option Plan, the number of
shares covered by outstanding options and the exercise price of such outstanding
options.
The Compensation Committee is authorized to construe the provisions of
the 1993 Stock Option Plan and to adopt rules and regulations for administering
the 1993 Stock Option Plan to the extent necessary to comply with the applicable
rules and regulations of the stock exchange or market on which the Common Stock
is then listed for trading or with Section 422 of the Code (as defined in the
1993 Stock Option Plan). The 1993 Stock Option Plan may be amended as provided
in the 1993 Stock Option Plan from time to time by the Board of Directors or by
the Compensation Committee, provided that the consent of the affected option
holder shall be necessary to alter or impair any options which have been
previously granted. Otherwise, an amendment is subject to stockholder approval
if required by law or the applicable rules and regulations of the stock exchange
or market on which the Common Stock is then listed for trading. No options may
be granted under the 1993 Stock Option Plan on or after August 31, 2003.
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Upon the occurrence of a sale of the Company, a sale of substantially
all of the assets of the Company, certain business combinations, and certain
other events constituting a Change of Control, each stock option shall become
exercisable for all shares of Common Stock then subject to such stock option
regardless of any vesting conditions otherwise expressed therein.
As of April 12, 1999, stock options for 1,208,665 shares (net of
cancellations) have been granted under the terms of the 1993 Stock Option Plan.
The benefits to be received by participants in the 1993 Stock Option Plan are
not currently determinable.
PROPOSED AMENDMENT. The principal reasons for amending the 1993 Stock
Option Plan at this time are (i) to provide for an increase in the number of
shares available for future grant under the 1993 Stock Option Plan, (ii) to
provide for discretionary grants of stock options to Non-Employee Directors as a
means to attract and retain qualified individuals to serve on the Board of
Directors and (iii) to define the events constituting a Change of Control, upon
the occurrence of which, an acceleration of the time during which options
granted under the 1993 Stock Option Plan may be exercised would occur.
An aggregate of 1,705,000 shares have previously been authorized for
issuance upon exercise of options since the 1993 Stock Option Plan was
originally approved by stockholders in 1994. The Amendment would provide
authorization for the grant of an additional 806,468 shares under the 1993 Stock
Option Plan. As of March 31, 1999, the Company had 12,557,344 shares
outstanding. If options for all shares, including this additional authorization,
available under the 1993 Stock Option Plan were issued, these shares would
constitute approximately 20% of the Common Stock outstanding on such date.
NEW PLAN BENEFITS
1993 STOCK OPTION PLAN
NUMBER OF
NAME AND POSITION DOLLAR VALUE ($) (1) SHARES(2)
- ----------------------------------------------------------------- --------------------------- -------------
Edward W. Laves, Ph.D., President and Chief Executive Officer -- 100,000
Michael C. Balduzzi, Vice President, Sales.................... -- 25,000
Dennis M. Craig, Vice President, Engineering and
Manufacturing.............................................. 70,000
Benjamin Golant, Vice President, Technology................... -- 50,000
Executive Officer Group....................................... -- 380,000
Non-Employee Director Group................................... -- 55,000
Non-Executive Officer Employee Group.......................... -- 295,900
- -------------------
(1) The dollar value of the grants is indeterminate at this time as these
grants are subject to a vesting schedule and the value of the grants are
dependent on the price of the Common Stock achieving levels above the
grant price. All of the grants were granted at the fair market value of
the Common Stock on the date of grant.
(2) These options were granted in 1998 pursuant to the 1993 Stock Option Plan.
EFFECT OF FEDERAL INCOME TAXATION. Stock options granted under the 1993
Stock Option Plan may be either incentive stock options intended to qualify
under Section 422 of the Code ("ISOs") or NQSOs. The following summary of tax
consequences with respect to the stock options that may be granted under the
1993 Stock Option Plan is not comprehensive and is based upon laws and
regulations in effect on April 12, 1999. Such laws and regulations are subject
to change.
There are generally no federal income tax consequences either to the
option holder or to the Company upon the grant of a stock option. On exercise of
an ISO, the option holder will not recognize any income and the Company will not
be entitled to a deduction for tax purposes, although such exercise may give
rise to liability for the option holder under the alternative minimum tax
provisions of the Code. Generally, if the option holder disposes of shares
acquired upon exercise of an ISO within two years of the date of grant or one
year of the date of exercise, the option holder will recognize compensation
income and the Company will then be entitled to a deduction for tax
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purposes in the amount of the excess of the fair market value of the shares on
the date of exercise over the option exercise price (or the gain on sale, if
less). Otherwise, the Company will not be entitled to any deduction for tax
purposes upon disposition of such shares, and the entire gain for the option
holder will be treated as a capital gain. On exercise of a NQSO, the amount by
which the fair market value of the shares on the date of exercise exceeds the
option exercise price will generally be taxable to the participant as
compensation income and will generally be deductible for tax purposes by the
Company. The dispositions of shares acquired upon exercise of a NQSO will
generally result in a capital gain or loss for the option holder, but will have
no tax consequences for the Company. See "Report of Compensation Committee of
the Board of Directors" for the description of the implications of Section
162(m) of the Code.
In the event any payments or rights accruing to an option holder upon a
"change in control" constitute "parachute payments" under Section 280G of the
Code, depending upon the amount of such payments or rights accruing and the
other income of the option holder from the Company, the option holder may be
subject to an excise tax (in addition to ordinary income tax) and the Company
may be disallowed a deduction to the extent such payments might constitute
"excess parachute payments" under Section 280G of the Code.
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee,
has appointed Ernst & Young LLP, independent certified public accountants, as
auditors of the Company's financial statements for 1999. Ernst & Young LLP has
acted as auditors for the Company since the Company's inception in October 1989.
The Board of Directors has determined to afford stockholders the
opportunity to express their opinions on the matter of auditors, and,
accordingly, is submitting to the stockholders at the Annual Meeting a proposal
to ratify the Board of Directors' appointment of Ernst & Young LLP. If a
majority of the shares voted at the Annual Meeting, in person or by proxy, are
not voted in favor of the ratification of the appointment of Ernst & Young LLP,
the Board of Directors will interpret this as an instruction to seek other
auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF
THE COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
It is expected that representatives of Ernst & Young LLP will be
present at the meeting and will be available to respond to questions. They will
be given an opportunity to make a statement if they desire to do so.
MISCELLANEOUS AND OTHER MATTERS
SOLICITATION. The cost of this proxy solicitation will be borne by the
Company. The Company may request banks, brokers, fiduciaries, custodians,
nominees and certain other record holders to send proxies, proxy statements and
other materials to their principals at the Company's expense. Such banks,
brokers, fiduciaries, custodians, nominees and other record holders will be
reimbursed by the Company for their reasonable out-of-pocket expenses of
solicitation. The Company does not anticipate that costs and expenses incurred
in connection with this proxy solicitation will exceed an amount normally
expended for a proxy solicitation for an election of directors in the absence of
a contest.
PROPOSALS OF STOCKHOLDERS. Proposals of stockholders intended to be
considered at the Company's 2000 Annual Meeting of Stockholders must be received
by the Secretary of the Company not less than 120 days nor more than 150 days
prior to May 4, 2000. Proposals of stockholders intended to be included in the
Company's proxy statement and proxy for the Company's 2000 Annual Meeting of
Stockholders must be received by the Secretary of the Company not less than 120
days prior to May 4, 2000.
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OTHER BUSINESS. The Board of Directors is not aware of any other
matters to be presented at the Annual Meeting other than those mentioned in the
Company's Notice of Annual Meeting of Stockholders enclosed herewith. If any
other matters are properly brought before the Annual Meeting, however, it is
intended that the persons named in the proxy will vote as the Board of Directors
directs.
ADDITIONAL INFORMATION. THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY
OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998,
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULE THERETO, UPON THE WRITTEN REQUEST OF ANY PERSON WHO IS A
STOCKHOLDER AS OF THE RECORD DATE, AND WILL PROVIDE COPIES OF THE EXHIBITS TO
SUCH ANNUAL REPORT UPON PAYMENT OF A REASONABLE FEE WHICH SHALL NOT EXCEED THE
COMPANY'S REASONABLE EXPENSES INCURRED IN CONNECTION THEREWITH. REQUESTS FOR
SUCH MATERIALS SHOULD BE DIRECTED TO ILLINOIS SUPERCONDUCTOR CORPORATION, 451
KINGSTON COURT, MT. PROSPECT, ILLINOIS 60056, ATTENTION: SECRETARY.
By Order of the Board of Directors,
WILLIAM M. KOCHLEFL
May 4, 1999 Secretary
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EXHIBIT A
FOURTH AMENDMENT
TO THE
ILLINOIS SUPERCONDUCTOR CORPORATION
AMENDED AND RESTATED 1993 STOCK PLAN
RESOLVED, that the Illinois Superconductor Corporation Amended and
Restated 1993 Stock Option Plan, as amended (the "Plan"), be and hereby is
amended, subject to stockholder approval, effective June 9, 1999, as follows
(capitalized terms used herein shall have the meanings ascribed to such terms in
the Plan):
I
Section 3 (which describes the maximum aggregate number of Shares
issuable under the Plan) is hereby amended by deleting the first sentence of the
first paragraph of Section 3 and inserting in its place the following sentence:
"Subject to the provisions of Section 10 of this Plan, and unless
otherwise amended by the Board and approved by the stockholders of the
Company as required by law, the maximum aggregate number of Shares
issuable under this Plan is 2,511,468, and such Shares are hereby made
available and shall be reserved for issuance under this Plan."
II
Section 5(b) (which describes the amount of Options that may be granted
to Outside Directors) is hereby amended as follows:
(A) The words "shall be automatic and nondiscretionary and" following
the words "under this Plan" are hereby deleted from the first sentence of
Section 5(b).
(B) The words "or to determine the number of Shares to be covered by
options granted to Outside Directors" following the words "shall be granted
options" are hereby deleted from Section 5(b)(i).
(C) The second sentence of Section 5(b)(ii) is hereby deleted and the
following sentence is hereby inserted in its place:
"On the date of the Annual Meeting of Stockholders of the Company in
each calendar year, each Outside Director who is reelected at that
meeting, or whose term of office does not expire at that meeting, shall
be automatically granted an option to purchase not less than 3,000
Shares nor more than 10,000 Shares, such number of Shares to be
determined by the Board on such date (subject to adjustment as provided
in Section 10 below); provided that no such automatic annual grant
shall be made to an Outside Director (i) who is first elected to the
Board at such Annual Meeting or was first elected to the Board within
three months prior to such Annual Meeting, or (ii) if there are not
sufficient Shares remaining and available to all Outside Directors
eligible for an automatic grant at the time at which an automatic
annual grant would otherwise be made under this Section 5(b)(ii)."
(D) Section 5(b)(iii) is hereby amended by deleting the words "this
Section 5(b)" following the words "granted under" and inserting the words
"Section 5(b)(ii) above" in their place.
(E) The following language is hereby inserted as a new Section 5(b)(iv)
following Section 5(b)(iii):
"(iv) Subject to the limitation set forth in Section 5(a) above, each
Outside Director may be granted additional Options at the discretion of
the Board. Subject to the provisions of this Plan, the terms of such
discretionary Options shall be set forth in the Option agreement."
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III
Section 10(c) (which describes adjustments to Options in the event of a
sale or merger) is hereby amended by deleting such Section 10(c) in its entirety
and inserting the following language in its place:
"(c) Change of Control. For purposes of this Plan, a "Change
of Control" shall be deemed to have occurred if (i) any corporation,
person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, or an employee
benefit plan (or related trust) sponsored or maintained by the
Company), including a "group" as defined in Section 13(d)(3) of the
Exchange Act, becomes the beneficial owner of stock (other than as a
result of a purchase of such stock from the Company) representing more
than 25% of the combined voting power of the Company's then outstanding
securities; (ii)(A) the stockholders of the Company approve a
definitive agreement to merge or consolidate the Company with or into
another corporation other than a majority-owned subsidiary of the
Company, or to sell or otherwise dispose of all or substantially all of
the Company's assets, and (B) the persons who were the members of the
Board prior to such approval do not represent a majority of the
directors of the surviving, resulting or acquiring entity or the parent
thereof; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in (i) above) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board. Immediately prior to a
Change of Control, each Option shall become exercisable for all Shares
then subject to such Option regardless of any vesting conditions
otherwise expressed therein."
IV
Section 12(a) (which describes amendments to the Plan) is hereby amended
by deleting such Section 12(a) in its entirety and inserting the following
language in its place:
"(a) Amendment and Termination. The Board or the Committee may
amend, waive or terminate this Plan from time to time in such respects
as it shall deem advisable; provided that, to the extent necessary to
comply with the applicable rules and regulations of the stock exchange
or market on which the Common Stock is then listed for trading or with
Section 422 of the Code (or any successor or applicable law or
regulation), the Company shall obtain stockholder approval of any Plan
amendment in such manner and to such a degree as is required by the
rule, regulation or law."
V
In all other respects, the Plan shall continue in full force and
effect.
Dated: April 12, 1999
By Order of the Board of Directors,
/s/ William M. Kochlefl
William M. Kochlefl
Secretary
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EXHIBIT B
ILLINOIS SUPERCONDUCTOR CORPORATION
a Delaware corporation
Amended and Restated
1993 Stock Option Plan
1. Purpose. The purposes of this Amended and Restated 1993 Stock
Option Plan are to attract and retain the best available personnel, to provide
additional incentive to the Employees, Consultants and Outside Directors of
Illinois Superconductor Corporation, a Delaware corporation (the "Company"), and
to promote the success of the Company's business.
Options granted hereunder may, consistent with the terms of this Plan,
be either Incentive Stock Options or Nonstatutory Stock Options, at the
discretion of the Committee and as reflected in the terms of the written option
agreement.
2. Definitions. As used in this Plan, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.
(c) "Committee" means the Committee appointed by the Board or
otherwise determined in accordance with Section 4(a) of this Plan.
(d) "Common Stock" means the common stock of the Company, par value
$.001 per share.
(e) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting services and is compensated for such
consulting services; provided that the term Consultant shall not include
directors who are not compensated for their services or are paid only a
director's fee by the Company.
(f) "Continuous Status as an Employee, Consultant or Outside Director"
means the absence of any interruption or termination of service as an Employee,
Consultant or Outside Director, as applicable. Continuous Status as an Employee,
Consultant or Outside Director shall not be considered interrupted in the case
of sick leave or military leave, any other leave provided pursuant to a written
policy of the Company in effect at the time of determination, or any other leave
of absence approved by the Board or the Committee; provided that such leave is
for a period of not more than the greatest of (i) 90 days, (ii) the date of the
resumption of such service upon the expiration of such leave which is guaranteed
by contract or statute or is provided in a written policy of the Company which
was in effect upon the commencement of such leave, or (iii) such period of leave
as may be determined by the Board or the Committee in its sole discretion.
(g) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3), or any successor definition adopted by the Commission, provided the
person is also an "outside director" under Section 162(m) of the Code.
(h) "Employee" means any person employed by the Company or any Parent
or Subsidiary of the Company, including employees who are also officers or
directors or both of the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder.
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(j) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, and the
rules and regulations promulgated thereunder.
(k) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(l) "Option" means a stock option granted pursuant to this Plan.
(m) "Optioned Stock" means the Common Stock subject to an Option.
(n) "Optionee" means an Employee, Consultant or Outside Director who
receives an Option.
(o) "Outside Director" means any member of the Board of Directors of
the Company who is not an Employee or Consultant.
(p) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this Illinois Superconductor Corporation 1993 Stock
Option Plan, as amended from time to time.
(r) "Rule 16b-3" means Rule 16b-3, as promulgated by the Securities
and Exchange Commission under Section 16(b) of the Exchange Act, as such rule is
amended from time to time and as interpreted by the Securities and Exchange
Commission.
(s) "Share" means a share of the Common Stock, as adjusted in
accordance with Section of this Plan.
(t) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Scope of Plan. Subject to the provisions of Section 10 of this
Plan, and unless otherwise amended by the Board and approved by the stockholders
of the Company as required by law, the maximum aggregate number of Shares
issuable under this Plan is 455,000, 375,000 of which shall be reserved for
issuance to Employees and Consultants and 80,000 of which shall be reserved for
issuance to Outside Directors, and such Shares are hereby made available and
shall be reserved for issuance under this Plan. The Shares may be authorized but
unissued, or reacquired, Common Stock.
If an Option shall expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares subject thereto
shall (unless this Plan shall have terminated) become available for grants of
other Options under this Plan.
4. Administration of Plan.
(a) Procedure. This Plan shall be administered by the Committee
appointed pursuant to this Section 4(a). The Committee shall consist of two or
more Outside Directors appointed by the Board, but all Committee members must be
Disinterested Persons. If the Board fails to appoint such persons, the Committee
shall consist of all Outside Directors who are Disinterested Persons.
(b) Powers of Committee. Subject to Section 5(b) below and otherwise
subject to the provisions of this Plan, the Committee shall have full and final
authority in its discretion to: (i) grant Incentive Stock Options and
Nonstatutory Stock Options, (ii) determine, upon review of relevant information
and in accordance with Section below, the Fair Market Value of the Common Stock;
(iii) determine the exercise price per share of Options to be granted, in
accordance with this Plan, (iv) determine the Employees and Consultants to whom,
and the time or times at which, Options shall be granted, and the number of
shares to be represented by each Option; (v) cancel, with the consent of the
Optionee, outstanding Options and grant new Options in substitution therefor;
(vi) interpret this Plan;
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(vii) accelerate or defer (with the consent of Optionee) the exercise date of
any Option; (viii) prescribe, amend and rescind rules and regulations relating
to this Plan; (ix) determine the terms and provisions of each Option granted
(which need not be identical) by which Options shall be evidenced and, with the
consent of the holder thereof, modify or amend any provisions (including without
limitation provisions relating to the exercise price and the obligation of any
Optionee to sell purchased Shares to the Company upon specified terms and
conditions) of any Option; (x) require withholding from or payment by an
Optionee of any federal, state or local taxes; (xi) appoint and compensate
agents, counsel, auditors or other specialists as the Committee deems necessary
or advisable; (xii) correct any defect or supply any omission or reconcile any
inconsistency in this Plan and any agreement relating to any Option, in such
manner and to such extent the Committee determines to carry out the purposes of
this Plan, and; (xiii) construe and interpret this Plan, any agreement relating
to any Option, and make all other determinations deemed by the Committee to be
necessary or advisable for the administration of this Plan.
A majority of the Committee shall constitute a quorum at any meeting,
and the acts of a majority of the members present, or acts unanimously approved
in writing by the entire Committee without a meeting, shall be the acts of the
Committee. A member of the Committee shall not participate in any decisions with
respect to himself under this Plan.
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Optionees and
any other holders of any Options granted under this Plan.
5. Eligibility.
(a) Options may be granted to any Employee, Consultant or Outside
Director as the Committee may from time to time designate, provided that (i)
Incentive Stock Options may be granted only to Employees, and (ii) Options may
be granted to Outside Directors only in accordance with the provisions of
Section 5(b) below. In selecting the individuals to whom Options shall be
granted, as well as in determining the number of Options granted, the Committee
shall take into consideration such factors as it deems relevant in connection
with accomplishing the purpose of this Plan. Subject to the provisions of
Section above, an Optionee may, if he or she is otherwise eligible, be granted
an additional Option or Options if the Committee shall so determine. During any
calendar year, Options for no more than 100,000 shares of Common Stock shall be
granted to any individual Employee, Consultant or Outside Director.
(b) All grants of Options to Outside Directors under this Plan shall
be automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted options or to determine the number of Shares to be
covered by options granted to Outside Directors; provided, that nothing in this
Plan shall be construed to prevent an Outside Director from declining to receive
an Option under this Plan.
(ii) Each Outside Director who is first elected to the Board after the
adoption of this Plan shall be automatically granted on the date of such
election (whether by the stockholders or by the Board of Directors) an Option to
purchase 10,000 Shares (subject to adjustment as provided in Section 10 below).
On the date of the Annual Meeting of Stockholders of the Company in each
calendar year commencing with the first Annual Meeting of the Stockholders of
the Company held after the adoption of this Plan, each Outside Director who is
elected or reelected at that meeting, or whose term of office does not expire at
that meeting, shall be automatically granted an option to purchase 2,000 Shares
(subject to adjustment as provided in Section 10 below); provided that no such
automatic annual grant shall be made to an Outside Director (i) who is first
elected to the Board at such Annual Meeting or was first elected to the Board
within three months prior to such Annual Meeting, or (ii) if there are not
sufficient shares remaining and available to all Outside Directors eligible for
an automatic annual grant at the time at which an automatic annual grant would
otherwise be made under this Section 5(b).
(iii) The terms of each Option granted under this Section 5(b) shall be
as follows:
(A) the term of the option shall be ten (10) years;
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(B) the Option shall become exercisable cumulatively
with respect to one-third of the Shares on each of the
first, second and third anniversaries of the date of
grant; provided, however, that in no event shall any
option be exercisable prior to obtaining stockholder
approval of this Plan; and
(C) the exercise price per share of Common Stock shall
be 100% of the "Fair Market Value" (as defined in
Section 7(b) below) on the date of grant of the Option.
(c) Each Option granted under Section 5(b) above shall be a
Nonstatutory Stock Option. Each other Option shall be designated in the written
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. Notwithstanding such designations, if and to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company) exceeds
$100,000, such options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 5(c), Options shall be taken into account in the order
in which they are granted, and the Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(d) This Plan shall not confer upon any Optionee any right with
respect to continuation of employment by or the rendition of services to the
Company or any Parent or Subsidiary, nor shall it interfere in any way with his
or her right or the right of the Company or any Parent or Subsidiary to
terminate his or her employment or services at any time, with or without cause.
The terms of this Plan or any Options granted hereunder shall not be construed
to give any Optionee the right to any benefits not specifically provided by this
Plan or in any manner modify the Company's right to modify, amend or terminate
any of its pension or retirement plans.
6. Term of Plan. This Plan shall become effective upon the later to
occur of its adoption by the Board of Directors of the Company (such adoption to
include the approval of at least two Outside Directors) or its approval by vote
of the holders of a majority of the outstanding shares of the Company entitled
to vote on the adoption of this Plan, and shall terminate no later than August
31, 2003. No grants shall be made under this Plan after the date of termination
of this Plan. Any termination, either partially or wholly, shall not affect any
Options then outstanding under this Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the Committee as
follows:
(i) In the case of an Incentive Stock Option granted to any Employee,
the per Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant, but if granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(ii) In the case of an Incentive Stock Option granted to any person
other than an Outside Director, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant, but if
granted to an Employee who, at the time of the grant of such Incentive Stock
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant. The exercise price of Options granted pursuant to
Section 5(b) above shall be 100% of the Fair Market Value on the date of grant
of the Option.
For purposes of this Section 7(a), if an Option is amended to reduce
the exercise price, the date of grant of such option shall thereafter be
considered to be the date of such amendment.
(iii) With respect to (i) or (ii) above, the per Share exercise price
is subject to adjustment as provided in Section 10 below.
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(b) Fair Market Value. The "Fair Market Value" of the Common Stock
shall be determined by the Committee in its discretion; provided, that if the
Common Stock is listed on a stock exchange, the Fair Market Value per Share
shall be the closing price on such exchange on the date of grant of the Option
as reported in the Wall Street Journal (or, (i) if not so reported, as otherwise
reported by the exchange, and (ii) if not reported on the date of grant, then on
the last prior date on which a sale of the Common Stock was reported); or if not
listed on an exchange but traded on the National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ"), the Fair Market
Value per Share shall be the closing price per share of the Common Stock for the
date of grant, as reported in the Wall Street Journal (or, (i) if not so
reported, as otherwise reported by NASDAQ, and (ii) if not reported on the date
of grant, then on the last prior date on which a sale of the Common Stock was
reported); or, if the Common Stock is otherwise publicly traded, the mean of the
closing bid price and asked price for the last known sale.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Committee (and in the case of an Incentive Stock Option, shall
be determined at the time of grant) and may consist entirely of (i) cash; (ii)
check; (iii) the Optionee's personal interest bearing full recourse promissory
note with such terms and provisions as the Committee may authorize (provided
that no person who is not an Employee of the Company may purchase Shares with a
promissory note); (iv) other Shares of Common Stock which (X) either have been
owned by the Optionee for more than six (6) months on the date of surrender or
were not acquired directly or indirectly from the Company, and (Y) have a Fair
Market Value on the date of surrender (determined without regard to any
limitations on transferability imposed by securities laws) equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (v) any combination of such methods of payment; or (vi) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable laws.
(d) Withholding. No later than the date as of which an amount first
becomes includable in the gross income of the Optionee for Federal income tax
purposes with respect to an option, the Optionee shall pay to the Company (or
other entity identified by the Committee), or make arrangements satisfactory to
the Company or other entity identified by the Committee regarding the payment
of, any Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company to obtain
a current deduction. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock underlying
the subject option, provided that any applicable requirements under Section 16
of the Exchange Act are satisfied so as to avoid liability thereunder. The
obligations of the Company under this Plan shall be conditional upon such
payment or arrangements, and the Company shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment otherwise due to the
Optionee.
8. Options.
(a) Term of Option. The term of each Option granted (other than an
Option granted under Section 5(b) above) shall be for a period of no more than
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Option Agreement.
(b) Exercise of Options.
(i) Procedure for Exercise; Rights as a Shareholder. Any Option
granted under this Plan (other than an Option granted pursuant to Section 5(b)
above) shall be exercisable at such times and under such conditions as
determined by the Committee, including performance criteria with respect to the
Company and/or the Optionee, and as shall otherwise be permissible under the
terms of this Plan.
An Option may not be exercised for a fraction of a Share.
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30
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Committee, consist of any
consideration and method of payment allowable under Section 7 of this Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. If the
exercise of an Option is treated in part as the exercise of an Incentive Stock
Option and in part as the exercise of a Nonstatutory Stock Option pursuant to
Section 5(b) above, the Company shall issue a separate stock certificate
evidencing the Shares treated as acquired upon exercise of an Incentive Stock
Option and a separate stock certificate evidencing the Shares treated as
acquired upon exercise of a Nonstatutory Stock Option and shall identify each
such certificate accordingly in its stock transfer records. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section of this
Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of this
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Method of Exercise. An Optionee may exercise an Option, in whole
or in part, at any time during the option period by the Optionee's giving
written notice of exercise on a form provided by the Committee (if available) to
the Company specifying the number of shares of Common Stock subject to the
Option to be purchased. Such notice shall be accompanied by payment in full of
the purchase price by cash or check or such other form of payment as the Company
may accept. If approved by the Committee, payment in full or in part may also be
made (A) by delivering Common Stock already owned by the Optionee having a total
Fair Market Value on the date of such delivery equal to the exercise price of
the subject Option; (B) by the execution and delivery of a note or other
evidence of indebtedness (and any security agreement thereunder) satisfactory to
the Committee; (C) by authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Option having a total
Fair Market Value on the date of delivery equal to the exercise price of the
subject Option; (D) by the delivery of cash by a broker-dealer to whom the
Optionee has submitted an irrevocable notice of exercise (in accordance with
Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-called
"cashless" exercise); or (E) by any combination of the foregoing. In the case of
an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Option may be authorized only at the time the Option is granted. No shares
of Common Stock shall be issued until full payment therefor has been made. An
Optionee shall have all of the rights of a shareholder of the Company holding
the class of Common Stock that is subject to such Option (including, if
applicable, the right to vote the shares and the right to receive dividends),
when the Optionee has given written notice of exercise, has paid in full for
such shares and such shares have been recorded on the Company's official
shareholder records as having been issued or transferred.
(iii) Termination of Status as an Employee, Consultant or Outside
Director. If an Optionee's Continuous Status as an Employee, Consultant or
Outside Director (as the case may be) is terminated for any reason whatever,
such Optionee may, but only within such period of time as provided in the Option
agreement, after the date of such termination (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
agreement), exercise the Option to the extent that such Employee, Consultant or
Outside Director was entitled to exercise it at the date of such termination
pursuant to the terms of the Option agreement. To the extent that such Employee,
Consultant or Outside Director was not entitled to exercise the Option at the
date of such termination, or if such Employee, Consultant or Outside Director
does not exercise such Option (which such Employee, Consultant or Outside
Director was entitled to exercise) within the time specified in the Option
agreement, the Option shall terminate.
(iv) Company Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Option agreement and the discretion of the Committee,
the Company may at the request of the Optionee; (A) lend to the Optionee, with
recourse, an amount equal to such portion of the option exercise price as the
Committee may
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31
determine; or (B) guarantee a loan obtained by the Optionee from a third-party
for the purpose of tendering the option exercise price.
9. Non-transferability of Options. An Option granted hereunder shall
by its terms not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or the laws of descent and
distribution. An Option may be exercised during the Optionee's lifetime only by
the Optionee.
10. Adjustments Upon Changes in Capitalization or Merger.
(a) Capitalization. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock which have been authorized
for issuance under this Plan but as to which no Options have yet been granted or
which have been returned to this Plan upon cancellation or expiration of an
Option, and the number of shares of Common Stock subject to each outstanding
Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock of the Company or the payment of a stock dividend with respect
to the Common Stock. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Committee. The Committee may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Committee and give each Optionee the right to exercise his or
her Option as to all or any part of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.
(c) Sale or Merger. "Sale" means: (i) sale (other than a sale by the
Company) of securities entitled to more than 75% of the voting power of the
Company in a single transaction or a related series of transactions; or (ii)
sale of substantially all of the assets of the Company; or (iii) approval by the
stockholders of the Company of a reorganization, merger or consolidation of the
Company, as a result of which the persons who were the stockholders of the
Company immediately prior to such reorganization, merger or consolidation do not
own securities immediately after the reorganization, merger or consolidation
entitled to more than 25% of the voting power of the reorganized, merged or
consolidated company. Immediately prior to a Sale, each Optionee may exercise
his or her Option as to all Shares then subject to the Option, regardless of any
vesting conditions otherwise expressed in the Option. Voting power, as used in
this Section 10(c), shall refer to those securities entitled to vote generally
in the election of directors, and securities of the Company not entitled to vote
but which are convertible into, or exercisable for, securities of the Company
entitled to vote generally in the election of directors shall be counted as if
converted or exercised, and each unit of voting securities shall be counted in
proportion to the number of votes such unit is entitled to cast.
(d) Purchased Shares. No adjustment under this Section 10 shall apply
to any purchased Shares already deemed issued at the time any adjustment would
occur.
(e) Notice of Adjustments. Whenever the purchase price or the number
or kind of securities issuable upon the exercise of the Option shall be adjusted
pursuant to Section 10, the Company shall give each Optionee written notice
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, and the method by which such adjustment was
calculated.
(f) Certain Cash Payments. If an Optionee would not be permitted to
exercise an Option or any portion thereof (for purposes of this subsection (f)
only, each such Option being referred to as a "Subject Option") or dispose of
the Shares received upon the exercise thereof without loss or liability (other
than a loss or liability for the exercise price, applicable withholding or any
associated transactional cost), or if the Board determines that the Optionee may
not be permitted to exercise the same rights or receive the same consideration
with respect to the Sale of the Company as a shareholder of the Company with
respect to any Subject Options or portion thereof or the
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32
Shares received upon the exercise thereof, then notwithstanding any other
provision of this Plan and unless the Committee shall provide otherwise in an
agreement with such Optionee with respect to any Subject Options, such Optionee
shall have the right, whether or not the Subject Option is fully exercisable or
may be otherwise realized by the Optionee, by giving notice during the 60-day
period from and after a Sale to the Company, to elect to surrender all or part
of any Subject Options to the Company and to receive cash, within 30 days of
such notice, in an amount equal to the amount by which the "Sale Price" (as
defined herein) per share of Common Stock on the date of such election shall
exceed the amount which the Optionee must pay to exercise the Subject Options
per share of Common Stock under such Subject Options (the "Spread") multiplied
by the number of shares of Common Stock granted under the Subject Options as to
which the right granted hereunder shall be applicable and shall have been
exercised; provided, however, that if the end of such 60-day period from and
after a Sale is within six months of the date of grant of a Subject Option held
by an Optionee (except an Optionee who has deceased during such six month
period) who is an officer or director of the Company (within the meaning of
Section 16(b) of the Exchange Act), such Subject Option shall be canceled in
exchange for a payment to the Optionee, effective on the day which is six months
and one day after the date of grant of such Subject Option, equal to the Spread
multiplied by the number of shares of Common Stock granted under the Subject
Option. With respect to any Optionee who is an officer or director of the
Company (within the meaning of Section 16(b) of the Exchange Act), the 60-day
period shall be extended, if necessary, to include the "window period" of Rule
16(b)-3 which first commences on or after the date of the Sale, and the
Committee shall have sole discretion, if necessary, to approve the Optionee's
exercise hereunder and the date on which the Spread is calculated may be
adjusted, if necessary, to a later date if necessary to avoid liability to such
Optionee under Section 16(b). For purposes of the Plan, "Sale Price" means the
higher of (a) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on NASDAQ during the 60-day period prior to and including the date of a Sale
or (b) if the Sale is the result of a tender or exchange offer or a corporate
transaction, the highest price per share of Common Stock paid in such tender or
exchange offer or a corporate transaction, except that, in the case of Incentive
Stock Options, such price shall be based only on the Fair Market Value of the
Common Stock on the date such Incentive Stock Option is exercised. To the extent
that the consideration paid in any such transaction described above consists all
or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
(g) Mitigation of Excise Tax. If any payment or right accruing to an
Optionee under this Plan (without the application of this Section), either alone
or together with other payments or rights accruing to the Optionee from the
Company or an affiliate ("Total Payments") would constitute a "parachute
payment" (as defined in Section 280G of the Code and regulations thereunder),
the Committee may in each particular instance determine to (a) reduce such
payment or right to the largest amount or greatest right that will result in no
portion of the amount payable or right accruing under the Plan being subject to
an excise tax under Section 4999 of the Code or being disallowed as a deduction
under Section 280G of the Code, or (b) take such other actions, or make such
other arrangements or payments with respect to any such payment or right as the
Committee may determine in the circumstances. Any such determination shall be
made by the Committee in the exercise of its sole discretion, and such
determination shall be conclusive and binding on the Optionee. The Optionee
shall cooperate as may be requested by the Committee in connection with the
Committee's determination, including providing the Committee with such
information concerning such Optionee as the Committee may deem relevant to its
determination.
11. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of the determination shall be given to each
Employee, Consultant or Outside Director to whom an Option is so granted within
a reasonable time after the date of such grant. If the Committee cancels, with
the consent of Optionee, any Option granted under this Plan, and a new Option is
substituted therefor, the date that the canceled Option was originally granted
shall be the date used to determine the earliest date for exercising the new
substituted Option under Section 7 so that the Optionee may exercise the
substituted Option at the same time as if the Optionee had held the substituted
Option since the date the canceled Option was granted.
12. Amendment and Termination of Plan.
(a) Amendment and Termination. The Board or the Committee may amend,
waive or terminate this Plan from time to time in such respects as it shall deem
advisable; provided that, to the extent necessary to comply
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33
with Rule 16b-3 or with Section 422 of the Code (or any other successor or
applicable law or regulation), the Company shall obtain shareholder approval of
any Plan amendment in such a manner and to such a degree as is required by the
applicable law, rule or regulation. Notwithstanding the foregoing, neither the
provisions of Section 5(b), nor any other provisions pertaining to the automatic
option grants to Outside Directors, shall be amended more than once every six
months, other than to comport with changes in the Code or other applicable laws
or any rules or regulations promulgated thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
termination of this Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Committee, which agreement must be in writing and signed by the Optionee and
the Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
14. Restrictions on Shares. Shares of Common Stock issued upon
exercise of an Option shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in the grant. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange
(or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an affiliate to obtain a deduction with respect to the exercise of an
Option. The Company may cause any certificate for any share of Common Stock to
be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in this Plan or as
the Committee may otherwise require. The Committee may require any person
exercising an Option to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
15. Shareholder Rights. No person shall have any rights of a
shareholder as to shares of Common Stock subject to an Option until, after
proper exercise of the Option or other action required, such shares shall have
been recorded on the Company's official shareholder records as having been
issued or transferred. Subject to the preceding Section and upon exercise of the
Option or any portion thereof, the Company will have thirty (30) days in which
to issue the shares, and the Optionee will not be treated as a shareholder for
any purpose whatsoever prior to such issuance. No adjustment shall be made for
cash dividends or other rights for which the record date is prior to the date
such shares are recorded as issued or transferred in the Company's official
shareholder records, except as provided herein or in an agreement.
16. Best Efforts To Register. If there has been a public offering, the
Company may register under the Securities Act the Common Stock delivered or
deliverable pursuant to Options on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, as soon as such forms are available for registration to the Company for
this purpose. The Company will, if it so determines, use its good faith efforts
to cause the registration statement to become effective as soon as possible and
9
34
will file such supplements and amendments to the registration statement as may
be necessary to keep the registration statement in effect until the earliest of
(a) one year following the expiration of the option period of the last Option
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Optionees have disposed of all shares
delivered pursuant to any Option. The Company may delay the foregoing actions at
any time and from time to time if the Committee determines in its discretion
that any such registration would materially and adversely affect the Company's
interests or if there is no material benefit to Optionees.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to permit the exercise of all Options outstanding under this Plan.
The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained for any
reason.
18. Option Agreements. Options shall be evidenced by written Option
agreements in such form as the Committee shall approve.
19. Information to Optionees. To the extent required by applicable
law, the Company shall provide to each Optionee, during the period for which
such Optionee has one or more Options outstanding, copies of all annual reports
and other information which are provided to all stockholders of the Company.
Except as otherwise noted in the foregoing sentence, the Company shall have no
obligation or duty to affirmatively disclose to any Optionee, and no Optionee
shall have any right to be advised of, any material information regarding the
Company or any Parent or Subsidiary at any time prior to, upon or otherwise in
connection with, the exercise of an Option.
20. Funding. Benefits payable under this Plan to any person shall be
paid directly by the Company. The Company shall not be required to fund or
otherwise segregate assets to be used for payment of benefits under this Plan.
21. Controlling Law. This Plan shall be governed by the laws of the
State of Delaware applicable to contracts made and performed wholly in Delaware
between Delaware residents.
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35
FIRST AMENDMENT TO THE
ILLINOIS SUPERCONDUCTOR CORPORATION
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
RESOLVED, that the Illinois Superconductor Corporation Amended and
Restated 1993 Stock Option Plan (the "Plan") be and hereby is amended, subject
to stockholder approval, effective June 16, 1995, as follows:
I
Section 3 (which describes the maximum aggregate number of shares
issuable under the Plan) hereby is amended by deleting the first sentence of the
first paragraph and inserting in its place the following sentence:
"Subject to the provisions of Section 10 of this Plan, and unless
otherwise amended by the Board and approved by the stockholders of the
Company as required by law, the maximum aggregate number of Shares
issuable under this Plan is 655,000, 575,000 of which shall be reserved
for issuance to Employees and Consultants and 80,000 of which shall be
reserved for issuance to Outside Directors, and such Shares are hereby
made available and shall be reserved for issuance under this Plan."
II
In all other respects, the Plan shall continue in full force and
effect.
Dated: January 23, 1995
By Order of the Board of Directors,
/s/ Stephen G. Wasko
Stephen G. Wasko
Secretary
36
SECOND AMENDMENT TO THE
ILLINOIS SUPERCONDUCTOR CORPORATION
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
RESOLVED, that the Illinois Superconductor Corporation Amended and
Restated 1993 Stock Option Plan, as amended (the "Plan") be and hereby is
amended, subject to stockholder approval, effective June 13, 1996, as follows:
I
Section 3 (which describes the maximum aggregate number of shares
issuable under the Plan) hereby is amended by deleting the first sentence of the
first paragraph thereof and inserting in its place the following sentence:
"Subject to the provisions of Section 10 of this Plan, and unless
otherwise amended by the Board and approved by the stockholders of the
Company as required by law, the maximum aggregate number of Shares
issuable under this Plan is 1,055,000, 975,000 of which shall be
reserved for issuance to Employees and Consultants and 80,000 of which
shall be reserved for issuance to Outside Directors, and such Shares
are hereby made available and shall be reserved for issuance under this
Plan."
II
Section 5(b)(ii), which describes the amount of stock options granted
annually to Outside Directors, hereby is amended by deleting the second sentence
thereof and inserting in its place the following sentence:
"On the date of the Annual Meeting of Stockholders of the Company in
each calendar year commencing with the first Annual Meeting of
Stockholders of the Company held after the adoption of this Plan, each
Outside Director who is elected or reelected at that meeting, or whose
term of office does not expire at that meeting, shall be automatically
granted an option to purchase 3,000 Shares (subject to adjustment as
provided in Section 10 below); provided that no such automatic annual
grant shall be made to an Outside Director (i) who is first elected to
the Board at such Annual Meeting or was first elected to the Board
within three months prior to such Annual Meeting, or (ii) if there are
not sufficient shares remaining and available to all Outside Directors
eligible for an automatic annual grant at the time at which an
automatic annual grant would otherwise be made under this Section
5(b)."
III
In all other respects, the Plan shall continue in full force and
effect.
Dated: February 23, 1996
By Order of the Board of Directors,
/s/ Stephen G. Wasko
Stephen G. Wasko
Secretary
37
THIRD AMENDMENT TO THE
ILLINOIS SUPERCONDUCTOR CORPORATION
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
RESOLVED, that the Illinois Superconductor Corporation Amended and
Restated 1993 Stock Option Plan, as amended (the "Plan") be and hereby is
amended, subject to stockholder approval, effective June 11, 1997, as follows:
I
Section 3 (which describes the maximum aggregate number of shares
issuable under the Plan) hereby is amended by deleting the first sentence of the
first paragraph thereof and inserting in its place the following sentence:
"Subject to the provisions of Section 10 of this Plan, and unless
otherwise amended by the Board and approved by the stockholders of the
Company as required by law, the maximum aggregate number of Shares
issuable under this Plan is 1,705,000, 1,575,000 of which shall be
reserved for issuance to Employees and Consultants and 130,000 of which
shall be reserved for issuance to Outside Directors, and such Shares
are hereby made available and shall be reserved for issuance under this
Plan."
II
Section 9 (which discusses the restrictions on transferability of
options granted under the Plan) hereby is amended and restated in its entirety
to read as follows:
"9. Non-transferability of Options. Except as otherwise
provided in an Option Agreement, an Option granted hereunder shall by
its terms not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or the laws of descent and
distribution. Except as otherwise provided in an Option Agreement, an
Option may be exercised during the Optionee's lifetime only by the
Optionee."
III
In all other respects, the Plan shall continue in full force and
effect.
Dated: February 28, 1997
By Order of the Board of Directors,
/s/ Stephen G. Wasko
Stephen G. Wasko
Secretary
38
PROXY ILLINOIS SUPERCONDUCTOR CORPORATION
451 Kingston Court o Mt. Prospect, IL 60056
The undersigned hereby appoints EDWARD W. LAVES, WILLIAM M. KOCHLEFL
and KENNETH E. WOLF and each or any of them as proxies, each with power
of substitution, and hereby authorizes them to represent the
undersigned and to vote, as designated below, all the shares of COMMON
STOCK held of record by the undersigned on April 14, 1999 at the Annual
Meeting of Stockholders of Illinois Superconductor Corporation, to be
held on June 9, 1999, at Ida Noyes Hall, 1212 East 59th Street,
Chicago, Illinois, beginning at 11:30 a.m. local time, or at any
adjournments thereof, upon the matters set forth in the Notice of
Annual Meeting of Stockholders and Proxy Statement, receipt of which is
hereby acknowledged.
1. ELECTION OF DIRECTOR:
|_| FOR EDWARD W. LAVES |_| WITHHOLD AUTHORITY for EDWARD W. LAVES
2. APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE
COMPANY'S AUTHORIZED CAPITAL STOCK AND THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK:
|_| FOR |_| AGAINST |_| ABSTAIN
3. APPROVAL OF THE FOURTH AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED
1993 STOCK OPTION PLAN:
|_| FOR |_| AGAINST |_| ABSTAIN
4. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
OF THE COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING DECEMBER
31, 1999:
|_| FOR |_| AGAINST |_| ABSTAIN
5. In their discretion, the proxies are authorized to vote on such other
business as may properly come before the meeting or any adjournments
thereof.
(Continued and to be signed on reverse side)
39
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDER-SIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL BE
VOTED "FOR" THE NOMINEE LISTED ON THIS PROXY, "FOR" THE PROPOSAL TO APPROVE THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE COMPANY'S
AUTHORIZED CAPITAL STOCK AND THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK,
"FOR" THE PROPOSAL TO APPROVE THE FOURTH AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED 1993 STOCK OPTION PLAN AND "FOR" THE RATIFICATION OF APPOINTMENT OF
ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY'S FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
Dated , 1999
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Signature
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Signature (if held jointly)
NOTE: Please date your proxy and sign
exactly as the name or names appear on your
stock certificate. All joint owners of
stock should sign above. Sign your full
title when signing as an executor,
administrator, personal representative,
trustee, etc.
PLEASE SIGN, DATE AND RETURN PROXY IMMEDIATELY IN THE ENCLOSED POSTAGE PAID
ENVELOPE.