<PAGE> 1
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
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
ILLINOIS SUPERCONDUCTOR LOGO
451 Kingston Court
Mount Prospect, IL 60056
May 8, 1998
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the
1998 Annual Meeting of Stockholders of Illinois Superconductor Corporation. The
Annual Meeting will be held on Thursday, June 11, 1998, beginning at 3:30 p.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
EDWARD W. LAVES
President and Chief Executive
Officer
<PAGE> 3
ILLINOIS SUPERCONDUCTOR LOGO
------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 11, 1998
------------------------------------------------------------------------------
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 the Ida Noyes Hall, 1212 East 59th Street, Chicago, Illinois on Thursday,
June 11, 1998 at 3:30 p.m., local time, for the following purposes:
(1)To elect two Class II directors to the Company's Board of Directors;
(2)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 year ended December 31, 1998; and
(3)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 15, 1998,
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 15, 1998 will be entitled to vote at the meeting.
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.
By Order of the Board of Directors,
STEPHEN G. WASKO
STEPHEN G. WASKO
Secretary
Mount Prospect, Illinois
May 8, 1998
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.
<PAGE> 4
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT
MOUNT PROSPECT, ILLINOIS 60056
(847) 391-9400
---------------------
PROXY STATEMENT
---------------------
The accompanying proxy is solicited by 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 3:30 p.m., local time, Thursday, June 11, 1998
at Ida Noyes Hall, and any adjournments thereof. This Proxy Statement and
accompanying form of proxy are being mailed to stockholders on or about May 8,
1998.
RECORD DATE AND OUTSTANDING SHARES -- The Board of Directors has fixed the
close of business on April 15, 1998, as the record date (the "Record Date") for
the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. As of the Record Date, the Company
had outstanding 12,067,955 shares of Common Stock, par value $.001 per share,
including 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, Stephen G. Wasko and Mary K.
Williams, 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. Wasko and Ms. Williams 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 -- A plurality of the shares of Common Stock voted in person
or by proxy is required to elect the nominees for director. The affirmative vote
of a majority of the shares of Common Stock voted in person or by proxy is
required to ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company's financial statements for the year ending December 31,
1998. Each stockholder will be entitled to vote the number of shares of Common
Stock held as of the Record Date by such stockholder for the number of directors
to be elected. Stockholders will not be allowed to cumulate their votes in the
election of directors.
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 election inspectors appointed for
the meeting and will determine whether or not a quorum is present. The election
inspectors will treat abstentions and broker non-votes as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum, but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
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 commencing June 1, 1998, and continuing through
the date of the Annual Meeting at the principal offices of the Company, 451
Kingston Court, Mount Prospect, Illinois 60056.
<PAGE> 5
ANNUAL REPORT TO STOCKHOLDERS -- The Company's Annual Report to
Stockholders for the year ended December 31, 1997, containing financial and
other information pertaining to the Company, is being furnished to stockholders
simultaneously with this Proxy Statement.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of seven directors.
Article Seven of the Company's Certificate of Incorporation, as amended,
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, two Class II directors are to be elected for a
term of three years expiring at the Year 2001 Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEES NAMED IN THIS PROXY STATEMENT TO CONTINUE TO SERVE AS A
DIRECTORS OF THE COMPANY. See "Nominees" below.
The five directors whose terms of office expire in 1999 and 2000 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 any of the nominees should be unable
or decline to serve, the person named in the proxy will vote for such substitute
nominee or nominees 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 any nominee
will be unable or will decline to serve as a director if elected.
NOMINEES
The names of the nominees for the office of director, together with certain
information concerning such nominees, are set forth below:
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
- ---- --- --------------------- ---------
<S> <C> <C> <C>
Peter S. Fuss...................................... 63 Director 1995
Tom L. Powers...................................... 61 Director 1996
</TABLE>
Mr. Fuss has served as a director of the Company since June 1995. Mr. Fuss
is a management consultant, primarily for Tellabs, Inc. ("Tellabs") as a member
of the International Executive Committee of Tellabs International, Inc. Prior to
his retirement from Tellabs in 1993, Mr. Fuss was President of Tellabs
International, Inc., which he founded in 1987 as a subsidiary. Tellabs
International, Inc. is responsible for all Tellabs operations outside of North
America. From 1986 to 1987, he was Senior Vice President, Technical Marketing
and Business Development of Tellabs. Mr. Fuss joined Tellabs as Vice President,
Engineering in 1979. From 1977 to 1979, he was Director of R&D at Teletype
Corporation and from 1958 to 1977 he held engineering and management positions
at AT&T Bell Laboratories. Mr. Fuss holds a B.S. degree in electrical
engineering from the University of Michigan and an M.S.E.E. from New York
University. He served two years as an officer in the United States Air Force. He
holds ten patents, primarily in the area of digital signal processing. He is
also a director of Clear Communications, Inc., NetEdge Systems, Inc., Process
Control Technologies, Inc., and Batterson Venture Partners, L.L.C. He is a
member of the Audit Committee.
Mr. Powers has served as a director of the Company since October 1996. Mr.
Powers is a college 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, he was
president of the cellular systems business unit of AT&T Network Systems Group,
now known as Lucent Technologies. 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
2
<PAGE> 6
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 holds a B.S. degree in electrical
engineering with high honors from the University of Arkansas and a master's
degree in electrical engineering from New York University. He also is a graduate
of the Wharton Advanced Marketing Program and the Stanford Executive Program. He
is a member of the Compensation Committee and serves as its Chairman.
OTHER DIRECTORS
The following persons will continue to serve as directors of the Company
after the Annual Meeting until their terms of office expire (as indicated below)
or until their successors are elected and qualified.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR TERM
NAME AGE POSITION WITH COMPANY SINCE EXPIRES
- ---- --- --------------------- --------- -------
<S> <C> <C> <C> <C>
Steven Lazarus............................ 66 Director 1992 1999
Ora E. Smith.............................. 50 Chairman of the Board 1990 2000
of Directors
Edward W. Laves........................... 50 President and CEO and 1997 1999
Director
Robert D. Mitchum......................... 44 Director 1998 2000
Terry S. Parker........................... 52 Director 1998 2000
</TABLE>
Mr. Lazarus has served as a director of the Company since January 1992 and
served as Chairman of the Board from August 1993 until July 1997. He is Managing
Director of ARCH Venture Partners L.P. and served previously as President and
Chief Executive Officer of ARCH Development Corporation ("ARCH"), an affiliate
of the University of Chicago. The Company was founded by ARCH in 1989. As
President of ARCH, he also served as Associate Dean of the University of
Chicago's Graduate School of Business. Before joining ARCH in 1987, he was the
Group Vice President of the Health Care Services Group of Baxter Travenol
Laboratories, Inc., ("Baxter") the predecessor of Baxter Healthcare Corporation.
During his 13 years at Baxter, he was also Senior Vice President for Technology,
with responsibilities for manufacturing, materials management, R&D and
engineering. Mr. Lazarus holds a bachelors degree from Dartmouth College and an
M.B.A. degree from the Harvard Graduate School of Business Administration. Mr.
Lazarus is a director of Amgen Corporation, Primark Corporation, New Era of
Networks, Inc. and Nanophase Technologies Corporation, all of which are public
companies. He is a member of the Compensation Committee.
Mr. Smith has served as a director of the Company since October 1990. From
October 1990 until July 1997, Mr. Smith served as the President and Chief
Executive Officer of the Company. Mr. Smith was elected Chairman of the Board in
July 1997. Prior to joining the Company, Mr. Smith was the Vice President and
Chief Marketing Officer of Conductus, Inc., a superconducting electronics
company, during 1989-1990. From 1979 to 1989, Mr. Smith served in a number of
executive positions with Rockwell International Corporation, including Corporate
Director of External Technology Development. Between 1984 and 1985, Mr. Smith
served as the Industrial Research Fellow in The White House Science Office. Mr.
Smith holds S.B. and S.M. degrees in Mechanical Engineering from the
Massachusetts Institute of Technology and a J.D. degree from Harvard Law School.
Dr. Laves 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
PowerMaster(R) filter products. He brings to his role extensive experience in
the wireless 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
3
<PAGE> 7
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.
Mr. Mitchum has served as a director of the Company since February 1998. He
previously was senior vice president-finance of APAC TeleServices, a
telemarketing company, where he was also a board member. 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 to 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. He currently
serves as a director of Profile Systems, a private, early stage technology
company, as well as on the board of the Chicago Lighthouse for the Blind. Mr.
Mitchum, a CPA, holds a bachelor of arts degree from Augustana College, where he
serves on its Board of Trustees. 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 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, and HighwayMaster, a provider of nationwide communications
services to the trucking industry. Mr. Parker is a member of the Compensation
Committee.
DIRECTOR COMPENSATION -- During 1997, 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") is granted 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 their 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 elected, re-elected or continues to serve as a
director because his term has not expired shall be 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. On June 11, 1998, all of the
Non-Employee directors will each be granted options to purchase 3,000 shares of
Common Stock at the fair market value of the stock on the date of grant.
MEETINGS -- During the year ended December 31, 1997, the Board of Directors
held nineteen formal meetings. Each director attended at least 75% of the
aggregate of the number of Board meetings (during the period for which he has
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 1997.
COMMITTEES OF THE BOARD OF DIRECTORS -- The Board of Directors has
established an Audit Committee and a Compensation Committee. The Audit Committee
includes Messrs. Fuss and Mitchum (Chairman). The Compensation Committee
includes Messrs. Lazarus, Powers (Chairman) and Parker. The Company does not
have a 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 and reporting to the full Board of Directors regarding all of the
foregoing. The Audit Committee held two formal meetings in 1997.
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 Amended and
Restated 1993 Stock
4
<PAGE> 8
Option Plan, as amended (the "1993 Option Plan"), determining the number of
options to be granted to the Company's executive officers and employees pursuant
to the 1993 Option Plan, and reporting to the full Board of Directors regarding
the foregoing functions. The Compensation Committee held four formal meetings in
1997. 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
Directors -- Nominees" or "-- Other Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen G. Wasko..................... 38 Senior Vice President, Corporate Development and
Chief Financial Officer, Treasurer and Secretary
Michael C. Balduzzi.................. 39 Vice President, Sales
Dennis M. Craig...................... 39 Vice President, Manufacturing
Benjamin Golant...................... 48 Vice President, Product Development
James P. Pajcic...................... 46 Vice President, Human Resources
</TABLE>
Mr. Wasko joined the Company in November 1990, and has served as Vice
President and Treasurer since January 1992. He was elected Secretary of the
Company in April 1993 and Chief Financial Officer in August 1993. Mr. Wasko has
served as Senior Vice President, Corporate Development since July 1997. He is
responsible for the Company's financial and administrative operations. Prior to
joining the Company's management team, he was Manager of Commercial Development
in the Space Station Division of McDonnell Douglas Corporation. Additionally,
Mr. Wasko served as Program Manager for Technology Development on the Rockwell
International Corporation National Aerospace Plane Program and managed external
technology development activities for Rockwell from 1986 to 1988. Mr. Wasko
holds a B.S. degree in aerospace engineering from the University of Michigan, an
M.S. in the same field from the University of Southern California and an M.B.A.
from the Harvard Graduate School of Business Administration.
Mr. Balduzzi joined the Company in February 1998 as its Vice President,
Sales. From 1995 to 1997, he was vice president -- sales & marketing for CSS
(Cellular Systems Supply) Power, Inc., an early stage DC power equipment and
antenna provider, where he was instrumental in increasing their sales to the
wireless telecommunications market. From 1993 to 1994, Mr. Balduzzi was director
of sales for Pulse Communications, Inc., a manufacturer of digital loop carrier
plug-ins. From 1984 to 1993, he served in various senior sales and marketing
positions at Reliance Communications, a supplier of transmission, power, outside
plant, and automated subscriber loop test equipment. He received a B.S. degree
from Shippensburg University in Pennsylvania.
Mr. Craig joined the Company in December 1996 as Vice President,
Manufacturing. 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, Inc.,
his responsibilities included production management, new product implementation,
cost reduction and capacity analysis and planning. Prior to joining Motorola,
Inc., 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. 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. He holds one patent in the area of RF filter
technology.
5
<PAGE> 9
Mr. Pajcic joined the Company in January 1995 as Director, Human Resources.
He has served as Vice President, Human Resources since January 1997. Before
joining the Company, Mr. Pajcic spent 15 years at Morton International where he
most recently served as Director, Employment and Human Resource Development on
the corporate staff. Prior to his employment with Morton International, Mr.
Pajcic held Human Resource positions at General Foods Corporation and American
Hospital Supply Corporation. He holds a B.S. degree in psychology from
Northwestern University and a Masters Degree in Management from Northwestern
University's Kellogg School of Management, with emphases in Industrial
Relations, Organizational Behavior and Finance.
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." Messrs. Smith, Wasko 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 of
the Securities and Exchange Act of 1934, as amended (the "1934 Act"), requires
the Company's officers (as defined under Section 16), 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
Exchange Commission (the "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 1997 all
of the Section 16 filing requirements applicable to its officers, directors and
10% beneficial owners were complied with by such persons.
6
<PAGE> 10
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, 1997, 1996 and 1995 of those persons who were at
December 31, 1997, (i) the chief executive officer; or (ii) the four other most
highly compensated (based on combined salary and bonus) executive officers of
the Company and a former employee who was an executive officer of the Company
for part of 1997, each of whose total salary and bonus exceeded $100,000 during
1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
----------------------------- ------------
SECURITIES ALL OTHER
BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) OPTIONS (#) ($)
- --------------------------- ---- ---------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ora E. Smith.............................. 1997 $203,960 $ 0 0 $ 0
Chairman of the Board of Directors 1996 $194,250 $58,275 75,000(2) $ 0
1995 $185,000 $92,500 0 $ 0
Edward W. Laves, Ph.D..................... 1997 $170,000 $ 0 0 $ 0
President and Chief Executive Officer 1996 $147,000 $44,100 60,000(3) $ 0
1995 $140,097 $70,000 0 $ 0
Dennis M. Craig(4)........................ 1997 $130,000 $ 0 0 $ 0
Vice President, Manufacturing 1996 $ 3,160 $ 0 25,000 $ 0
1995 n/a n/a n/a n/a
Stephen G. Wasko.......................... 1997 $115,500 $12,675 0 $ 0
Senior Vice President, Corporate 1996 $115,500 $17,325 17,500(5) $ 0
Development and Chief Financial Officer, 1995 $105,833 $38,500 0 $ 0
Treasurer and Secretary
James D. Hodge, Ph.D.(6).................. 1997 $126,000 $ 0 0 $ 0
Vice President and Chief Scientist 1996 $120,000 $ 0 15,000(7) $ 0
1995 $110,000 $25,000 0 $3,500(8)
Benjamin Golant(9)........................ 1997 $120,750 $ 0 0 $ 0
Vice President, Product Development 1996 $115,000 $23,000 10,000(10) $ 0
1995 n/a n/a 20,000 n/a
</TABLE>
- ---------------
(1) None of the Named Officers had any restricted stock holdings as of December
31, 1997.
(2) Options for 50,000 of these shares of Common Stock are subject to
cancellation based on the Company's attainment of certain performance
targets.
(3) Options for 40,000 of these shares of Common Stock are subject to
cancellation based on the Company's attainment of certain performance
targets.
(4) Mr. Craig commenced employment with the Company in December 1996.
(5) Options for 10,000 of these shares of Common Stock are subject to
cancellation based on the Company's attainment of certain performance
targets.
(6) Dr. Hodge ceased to be an executive officer of the Company in June 1997 and
terminated employment with the Company in January 1998.
(7) Options for these shares of Common Stock were cancelled after Dr. Hodge's
employment with the Company was terminated.
(8) This amount represents the balance forgiven in connection with a loan made
to Dr. Hodge in April 1993.
(9) Mr. Golant commenced employment with the Company in January 1996. Mr.
Golant was granted an option to purchase 20,000 shares of the Company's
Common Stock on December 20, 1995, subject to the commencement of his
employment in January 1996.
(10) Options for these shares of Common Stock are subject to cancellation based
on the Company's attainment of certain performance targets.
7
<PAGE> 11
OPTION GRANTS IN 1997
There were no grants of stock options or stock appreciation rights by the
Company to the Named Officers during 1997.
YEAR-END 1997 OPTION VALUES
The following table provides information concerning the Named Officers'
unexercised options at December 31, 1997. None of the Named Officers exercised
any stock options during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT YEAR-END 1997 (#) YEAR-END 1997 ($)(1)
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Ora E. Smith.......................... 71,146 66,354 $ 0 $ 0
Edward W. Laves, Ph.D................. 45,416 59,584 $ 0 $ 0
Dennis Craig.......................... 6,771 18,229 $ 0 $ 0
Stephen G. Wasko...................... 35,619 19,131 $23,167 $ 4,312
James D. Hodge, Ph.D.(2).............. 10,000 73,950 $48,493 $12,396
Benjamin Golant....................... 12,917 17,083 $ 0 $ 0
</TABLE>
- ---------------
(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, 1997 (the last business day of 1997) of $1.8125.
(2) Dr. Hodge ceased to be an executive officer of the Company in June 1997 and
terminated employment with the Company in January 1998.
EMPLOYMENT AGREEMENTS -- Effective July 7, 1997, the Company entered into
employment agreements with each of Messrs. Smith, Wasko and Dr. Laves. Each
agreement terminates on July 1, 1998 and stipulates an annual base salary of
$203,960, $115,500, and $170,000, respectively. Each agreement also 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.
8
<PAGE> 12
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 tie potential compensation to 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 Messrs. Smith and Wasko 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. Based on these criteria, Dr. Laves received a base
salary of $170,000 in 1997, which will also be his base salary for 1998. The
base salaries under the employment agreements are effective through the end of
June 1998.
Discretionary bonuses for each of the Company's executive officers are
directly tied to 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. Although the Company was successful in introducing new products,
enhancing manufacturing and increasing sales, the decrease in the price of the
Company's Common Stock, among other factors, led to the determination that no
bonuses were given to most of the Company's executive officers, including Dr.
Laves, during 1997.
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 Option Plan, the Compensation Committee considers a number of factors,
including the performance of the executive, achievement of specific delineated
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.
Although no stock options were granted to executive officers, including Dr.
Laves, in 1997, stock options were granted to executive officers, including Dr.
Laves, in January 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 unless, in general, such compensation is
performance based, is established by a committee of independent directors, is
objective and the plan or agreement providing for such performance based
compensation has been approved in advance by stockholders. The Compensation
Committee believes that the requirements of Section 162(m) are uncertain and may
arbitrarily impact the Company. In the
9
<PAGE> 13
future, the Compensation Committee may determine to adopt a compensation program
that does not satisfy the conditions of Section 162(m) if in its judgment, after
considering the additional costs of not satisfying Section 162(m), such program
is appropriate.
COMPENSATION COMMITTEE
-------------------------------------------------------------
Tom L. Powers (Chairman), Steve Lazarus, Terry S. Parker
10
<PAGE> 14
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns during
the period commencing on October 26, 1993, the date of the Company's initial
public offering, and ending on December 31, 1997, for the Company, the Nasdaq
Market Composite Index and an index of peer companies selected by the Company.
The comparison assumes $100 was invested on October 26, 1993, in the Common
Stock, the Nasdaq Market Composite Index and the peer group of companies
selected by the Company and assumes the reinvestment of all dividends, if any.
Although the Common Stock was offered at $11.25 in the initial public offering,
the performance graph must begin with the closing price of the Common Stock on
the date of the initial public offering, which was $14.75.
COMPARISON OF CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
ILLINOIS NASDAQ NATIONAL
MEASUREMENT PERIOD SUPERCONDUCTOR MARKET COMPOSITE
(FISCAL YEAR COVERED) CORPORATION INDEX PEER GROUP
<S> <C> <C> <C>
10/26/93 100.00 100.00 100.00
12/31/93 72.88 98.64 74.05
12/31/94 57.63 103.56 65.27
12/31/95 115.25 134.33 113.73
12/31/96 116.10 166.92 108.94
12/31/97 12.29 204.18 130.98
</TABLE>
The companies in the peer group, all of which are in the wireless
communication equipment market or superconductor product market, are: Illinois
Superconductor Corporation, Superconductor Technologies Inc., Conductus, Inc.,
Qualcomm Inc. and Stanford Telecommunications, Inc.
11
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 23, 1998, 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.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED(1) OWNED
---------------- ------------ ------------
<S> <C> <C>
Ora E. Smith(2)............................................. 153,139 1.4%
Edward W. Laves, Ph.D.(3)................................... 56,834 *
Stephen G. Wasko(4)......................................... 41,834 *
James D. Hodge, Ph.D.(5).................................... 33,700 *
Peter S. Fuss(6)............................................ 20,167 *
Benjamin Golant(4).......................................... 16,042 *
Steven Lazarus(7)........................................... 13,334 *
Dennis Craig(4)............................................. 9,375 *
Tom L. Powers(8)............................................ 5,734 *
Robert Mitchum.............................................. -- --
Terry Parker................................................ -- --
All executive officers and directors as a group (12
persons)(9)............................................... 328,167 2.9
</TABLE>
- ---------------
* Denotes beneficial ownership less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
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) Includes 84,166 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 23, 1998.
(3) Includes 55,834 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 23, 1998. 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.
(4) Represents shares issuable upon exercise of options exercisable currently or
within 60 days of March 23, 1998.
(5) Dr. Hodge was no longer deemed an executive officer of the Company as of
June 1997. He ceased being an employee of the Company as of January 1998.
(6) Includes 7,667 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 23, 1998.
(7) Includes 4,334 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 23, 1998.
(8) Includes 3,334 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 23, 1998.
(9) Includes 233,944 shares of Common Stock issuable upon exercise of options
exercisable currently or within 60 days of March 23, 1998. Excludes 33,720
shares of Common Stock held by Dr. Hodge, who was no longer deemed an
executive officer of the Company as of June 1997 and whose employment was
terminated as of January 1998.
12
<PAGE> 16
PROPOSAL 2
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 1998. 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 AUDITORS OF THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1998.
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 1999 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 8, 1999.
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 ITS YEAR ENDED DECEMBER 31, 1997, AS FILED
WITH THE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES 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, MOUNT PROSPECT,
ILLINOIS 60056, ATTENTION: SECRETARY.
By Order of the Board of Directors,
STEPHEN G. WASKO
13
STEPHEN G. WASKO
Secretary
Mount Prospect, Illinois
May 8, 1998
14
<PAGE> 17
PROXY
ILLINOIS SUPERCONDUCTOR CORPORATION
451 Kingston Court, Mount Prospect, IL 60056
The undersigned hereby appoints EDWARD W. LAVES, STEPHEN G. WASKO and MARY
K. WILLIAMS 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 15, 1998 at the Annual Meeting of Stockholders of Illinois
Superconductor Corporation, to be held on June 11, 1998, at Ida Noyes, 1212 E.
59th Street, Chicago, Illinois at 3:30pm, 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ALL NOMINEES
LISTED IN PROPOSAL 1 AND "FOR" PROPOSAL 2.
1. ELECTION OF DIRECTOR:
<TABLE>
<S> <C>
[ ] FOR PETER S. FUSS [ ] WITHHOLD AUTHORITY for PETER S. FUSS
[ ] FOR TOM L. POWERS [ ] WITHHOLD AUTHORITY for TOM L. POWERS
</TABLE>
2. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF
THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1998:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED "FOR" THE NOMINEES LISTED ON THIS PROXY, "FOR" THE RATIFICATION OF
APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY'S
FINANCIAL STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1998, AND IN ACCORDANCE
WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
<TABLE>
<S> <C>
Dated , 1998
[ ] PLEASE CHECK THIS BOX IF YOU PLAN TO ATTEND THE
Signature MEETING.
Signature (if held jointly)
</TABLE>
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 a executor, administrator, personal representative,
trustee, officer, etc.
PLEASE SIGN, DATE AND RETURN PROXY IMMEDIATELY IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
................................................................................
ADMISSION CARD FOR ANNUAL MEETING
If you plan to attend the annual meeting of
stockholders,
this is your admittance card. Please be
sure to bring the
card with you to gain admittance to the
meeting.
===========================================
ADMITTANCE PASS -- 1998 ANNUAL MEETING OF
STOCKHOLDERS
THIS IS AN ADMITTANCE PASS FOR THE 1998
ANNUAL MEETING
OF STOCKHOLDERS OF ILLINOIS SUPERCONDUCTOR
CORPORATION.
IN ORDER TO ATTEND THE ANNUAL MEETING, YOU
MUST BRING THIS PASS WITH YOU.
ILLINOIS SUPERCONDUCTOR CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
JUNE 11, 1998
IDA NOYES HALL
3:30 P.M.
