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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. )
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Check the appropriate box:
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Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[X] Definitive additional materials
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ILLINOIS SUPERCONDUCTOR CORPORATION
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(Name of Registrant as Specified in Its Charter)
ILLINOIS SUPERCONDUCTOR CORPORATION
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Payment of filing fee (Check the appropriate box):
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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ILLINOIS SUPERCONDUCTOR CORPORATION
Script Outline for Investor Call - June 13, 2000
GEORGE CALHOUN, CHIEF EXECUTIVE OFFICER: BEFORE I BEGIN, I WOULD LIKE
TO SAY THAT MY REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH REFLECT
THE COMPANY'S CURRENT EXPECTATIONS REGARDING THE FUTURE RESULTS OF OPERATIONS,
PERFORMANCE AND ACHIEVEMENTS OF THE COMPANY. I WILL TRY TO IDENTIFY THESE
FORWARD-LOOKING STATEMENTS THROUGH USE OF WORDS SUCH AS "ANTICIPATES,"
"BELIEVES," "ESTIMATES," "EXPECTS," "PLANS," "INTENDS" AND SIMILAR EXPRESSIONS.
THESE STATEMENTS REFLECT THE COMPANY'S CURRENT BELIEFS AND ARE BASED ON
INFORMATION CURRENTLY AVAILABLE TO IT. ACCORDINGLY, THESE STATEMENTS ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED
IN, OR IMPLIED BY, SUCH STATEMENTS. THE COMPANY'S ANNUAL REPORT ON FORM 10-K
CONTAINS A DESCRIPTION OF SOME OF THESE RISKS, UNDER THE CAPTION "RISK FACTORS."
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO SUCH
FORWARD-LOOKING STATEMENTS.
I would also like to introduce Larry Dennedy of Mackenzie Partners,
the Company's proxy solicitor, who is here today with me and is available to
answer questions after the presentation.
Agenda for the Call
1. The main item of business for this call is to discuss the
decision which we announced last week
- To issue a Revised Proxy Statement
- To reset the Record Date for voting on the items in the
Proxy
2. Regarding the revision of the proxy statement, this was
triggered mainly by the announcement of the pending acquisition
of Spectral Solutions Inc., a thin-film HTS company, which we
announced on May 17; as a result of this move, we are required
to file amended financial information
3. Regarding the new record date, while it was not a legal
requirement to set a new date, we felt that it was a good idea
for several reasons:
- More than two months have elapsed since the first record
date of April 10
- Any shareholders who have purchased our shares since that
date would not be able to vote on the proxy items unless
we reset the date
- There has been heavy trading in our stock since that date,
and we believe that many of the shareholders of record as
of the original date may no longer hold our shares, while
many current shareholders have purchased since that date;
thus, we think that in the interest of fairness, it is
appropriate to reset the date and re-count the vote
4. The resolutions which are being submitted for shareholder vote
in the revised proxy statement have not changed from the
original proxy statement. They deal with the same four issues,
namely:
- Election of directors
- Appointment of the audit firm
- Approval of the Employee Stock Option Plan
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- Approval of an Increase in the Number of Authorized Shares
5. There are also different voting requirements on these
resolutions. For the first two items, either the individual
shareholder or his/her broker can vote. We have actually
received overwhelming approval for these first two resolutions
already. For the last two items, however, broker regulations
require that only individual shareholders (not brokers) can vote
on changes to the capital structure such as an expansion of the
number of authorized shares of common stock. In other words, we
need a majority of the actual shares to be voted in favor of
these resolutions by their actual owners in order to ratify
them. This means that we have to actually make contact with each
individual shareholder and obtain his/her vote.
6. The combination of this requirement, together with the turnover
in the ranks of the shareholders since April 10, have led to a
slow process of accumulation of the necessary votes. While a
large majority of those shareholders voting on these resolutions
have voted in favor of them, the process of tracking down enough
shareholders of record (as of April 10) to reach the needed
absolute majority has been proceeding very slowly. Many
shareholders of record (i.e., shareholders who held shares on
April 10) no longer actually own the shares, and finding them
and encouraging them to vote on these resolutions, pertaining to
a company they may no longer have an interest in, can be quite
challenging. Also, the solicitation was becoming quite
expensive. This is another reason to reset the record date. We
can restart the proxy solicitation process in a more organized
manner, with a much more current list of actual shareholders.
7. Therefore, ISC shareholders will be receiving a new proxy
statement and a new proxy card. These materials were mailed
yesterday. They should be reaching you this week. If people do
not receive the materials by the end of the week, or if they
have questions about the solicitation, they should contact
Mackenzie Partners. While previously completed proxy cards will
remain effective in some cases, we urge people to submit the new
proxy card to make sure their vote is counted. We hope that the
new process will go much more smoothly and quickly.
8. I certainly want to encourage all shareholders to vote in favor
of all the resolutions. I want to take now a few more moments to
tell you why these resolutions are good for the company, and why
you should vote Yes.
Comments on the Employee Stock Option Plan
1. I would like to address a few comments first to the resolution
regarding the approval of the Employee Stock Option Plan.
2. In any high-tech company like ISC, one of the most important
assets of the company is its people. To accomplish our business
plans, we have to be able to attract and retain high quality
people--engineers, scientists, sales/marketing, and executive
talent.
3. In today's economy, to attract and hold key people, a company
has to use stock options. This has become an essential component
of any compensation package. It is very good for the company,
because it means that our current cash compensation costs are
lower. Our employees are effectively participating with all the
shareholders in the risk-reward equation of the company. If they
can achieve the technical and business goals, they will benefit
from the appreciation of their options. This gives them a stake
in the
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company, and incentivizes them to meet the goals we set.
4. The stock options are not gifts. They are earned. They vest over
a four year period -- 10/20/30/40 percent. An employee has to
stay with us to enjoy the benefits of an option grant.
5. The stock options normally have no tangible value at the time of
the grant, because they are not yet vested and are granted at
the current market price. They will only have value if the
company is successful over time and this gives the employees a
real stake in the company's success.
6. The specific amount of options granted to employees is
determined on a case by case basis, must be approved by the
Compensation Committee of the Board of Directors, and must
account for the competitive conditions of the employment market.
We are competing with other companies when we offer options, and
just as our salaries must be "in line" with general industry
benchmarks, so too must our option packages. In fact, SEC
regulations now require us to report extensively on the use of
options, their value, and other competitive comparisons with
companies that are in the same industry. For example, we looked
at the amount of shares or options owned by management of other
comparable companies, and even with the new grants the ownership
position of management is still lower than for some of our
competitors.
7. Until recently, no employee held options that were in the money
and vested. When I joined the Company, I believe not one single
employee held a vested in-the-money option. This can be a real
problem when trying to hire and retain key employees.
8. So -- I strongly urge you to vote in favor of the option
program. This is an absolutely normal part of any high-tech
company, and I cannot run this company effectively without it. I
need to be able to recruit the people we need, and to retain the
people we have. If we can't use options, it will certainly
increase the cash compensation we would be forced to pay. And
quite simply, we might not be able under any circumstances to
attract many of the most valuable people without options. Every
key employee in today's high-tech economy expects to receive
options as a part of his/her compensation package.
9. One final note on this Option Program: It used to be that the
Option Program was limited in terms of the total number of
shares in the plan, as this one is, but had no limit on
individual grants. This was the way that all Option Programs
used to be constructed. Recently, the IRS has stepped in and has
required that in order to obtain certain favorable tax
treatments for the company, there must be a limit on individual
grants as well. Our previous limit was 100,000 shares. We
believe this number is too low for recruiting certain key
executives. For this reason, we have set a limit of 500,000
shares per person per year. This is not intended as a guideline
for actual grants. It is a limit to meet the IRS requirements.
It was set high enough to allow for the normal administration of
the plan, in our judgment.
Increase in the Number of Authorized Shares
1. The other important resolution that requires approval by
individual shareholders is the proposed increase in the number
of authorized shares of common stock.
2. Why are we asking for this? The main reason is that we need
these shares to be
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able to pursue various strategic objectives in the course of our
business. For example, we have announced the purchase of SSI for
3.5 million shares of ISC common stock. We might have paid cash
for SSI, but it is much better for the company and in my view
much better for the current shareholders if we can acquire SSI
for stock rather than cash. If we had to use cash -- at today's
prices -- we would have to pay more than $20 million for SSI. It
is a much better deal for us to be able to use our stock, and to
take advantage of our market value as leverage in this sort of
acquisition.
3. We need to expand the authorized shares in order to have those
3.5 million shares to pay for the SSI acquisition. In fact, this
is really the main outstanding condition for us to be able to
close the SSI deal. If the resolution increasing the number of
authorized shares is not approved, it is quite likely that we
cannot complete the SSI transaction. I will tell you more in a
few minutes about why this transaction is so strategically
important for our company. But the fact is that I need the
additional shares that will be authorized by the approval of
this resolution in order to complete the deal.
4. But SSI requires only 3.5 million shares -- why are we seeking
the authorization of 250 million shares? Well, you can infer
from this that we expect to make other similar moves in the
future, or at least we would like to be in a position to do so.
We will need additional shares for a number of possible
undertakings in the future, including:
- Any other acquisitions, similar to SSI, that might
strengthen our technical and business base; I think there
are interesting opportunities that we may come across, and
I want to be able to use our equity as the means of
completing any such transaction -- but I need new
authorized shares to do that.
- The retirement of debt -- we currently owe a substantial
amount in convertible debt instruments, which were part of
the earlier financings of the company that enabled the
company to survive and continue in business; I would like
to be able to convert this debt to common equity and take
it off our balance sheet, but I need new authorized shares
to do that.
- New financing -- I believe that we should be in a position
to consider raising additional funds, additional capital,
to expand and strengthen our company for 3G and other
opportunities; I have previously indicated that I would
like to find strategic investors, or blue-chip financial
investors, to strengthen our shareholder base. But to do
this, I need new authorized shares.
- Employee options -- I do not currently have enough
authorized shares for the options we have granted to our
employees. They have been confident enough in the company
and in the good judgment of the shareholders to accept
options subject to shareholder approval. In other words,
they are working for you, based on their assumption that
you will approve the options in their employment packages
-- which they still have to earn and to render valuable
through achieving the success of the company's programs.
To hold up my end of the bargain with them, I need new
authorized shares.
- Any stock split or stock dividend or rights offering will
also require additional shares. These are not things that
we are currently contemplating, but I wouldn't rule out
such steps in the future. But to even think about things
like this, I need new authorized shares.
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- Finally, regarding two items that I know are of interest
to some of you, the authorization of additional shares is
a precondition for both relisting the stock on NASDAQ, and
for obtaining a clear "going-concern" opinion from our
auditors, Ernst & Young.
5. In short, it is normal for any company to have a significant
pool of potentially issuable shares of its stock, already
authorized by the shareholders, to allow the company to pursue
various business goals like the ones I have described here. In
fact, it is normal (in my experience) for a company to have 2-3
times the number of authorized shares as compared to currently
issued shares. When a company reaches its limit on authorized
shares, it is very typical to go back to the shareholders for
additional authorized shares. As a matter of fact, several of
the companies that I happen to have ordinary investments in are
seeking share expansions in their proxy statements this year.
6. Why 250 million shares? Well, the total committed shares today
-- including the conversion of our debt and outstanding options
and warrants, and including the SSI acquisition -- comes to
approximately 100 million shares today. We have made this number
clear in our previous press releases. So we are asking for
authorization of about 2.5 times the real existing base. I
believe this is reasonable and in line with many other companies
in our industry. In fact, I would point out that both of our
main competitors, Super Tech & Conductus, have authorized
additional shares for issuance.
7. One other point to emphasize: The authorization of these shares
is not the same as the issuance of the shares. We will only
issue shares for value received, either in capital (if we raise
money), or in other assets (if we make an acquisition), or to
retire debt, or to attract and hold employees, or to support
share splits, rights offerings, and the like. The decision to
issue shares is subject to the Board's approval, and subject to
your scrutiny and review. We are a public company and everything
we do, especially as it relates to the issuance of new shares
for a legitimate business purpose, is subject to full SEC
disclosure, and we on the Board and as Officers of the company
are required to exercise our fiduciary responsibility on behalf
of the shareholders in anything that we do.
8. This is a normal aspect of adjusting the capital structure of a
growing company. Our market value has increased by more than ten
times in the past six months, and we have many opportunities in
front of us now that we may not have had previously. We need to
have the ability to issue additional shares to complete various
strategic business steps, including the SSI acquisition. And
since it is the most concrete example of this kind, I would now
like to take a few additional moments to comment on the
rationale for the SSI acquisition, and what it means for our
company and your value as shareholders.
SSI Comments
Repeat comments made in my Address to the Shareholders on May 17 in
connection with the SSI transaction.
