<PAGE> 1
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 Section 240.14a-11(c) or Section 240.14a-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 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
Mt. Prospect, Illinois 60056
April 13, 2000
Dear Stockholder:
On behalf of the board of directors, I cordially invite you to attend the
2000 Annual Meeting of Stockholders of Illinois Superconductor Corporation, to
be held on May 17, 2000, beginning at 1:00 p.m. local time, at the Renaissance
Chicago Hotel located at One West Wacker, Chicago, Illinois 60601.
The matters that we expect will be acted upon at the meeting are
described in the attached Proxy Statement. One of these matters is a proposed
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 60,000,000 shares to 250,000,000
shares and the number of authorized shares of the Preferred Stock of the Company
from 100,000 shares to 300,000 shares.
The Board of Directors unanimously recommends that shareholders vote
"FOR" all of the proposals in the proxy statement.
It is important that your shares 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.
Your vote is very important, regardless of the amount of stock that you
own. The affirmative vote of a majority of the outstanding shares of Common
Stock of the Company entitled to vote as of April 10, 2000 is required to
approve the amendment to the Certificate of Incorporation. If you fail to return
your proxy card and do not attend the meeting, your failure will count as a vote
against the amendment.
Let me tell you why we consider it vital that you approve the proposed
amendment to the Certificate of Incorporation:
- - In order for the Company to pursue opportunities involving third-generation
(3G) wireless telecommunications and other important potential applications
of its product, the Company must be in a position to raise capital and to
enter into strategic relationships. Both of these may require the issuance
of common stock, which the Company cannot do without stockholder approval
of the proposed amendment.
- - As with most technology companies, we rely heavily on equity-based
compensation to attract, retain and incentivize our employees. Here again,
it will be difficult to accomplish this vital function without more shares
being authorized.
- - In November 1999, the Company entered into a financing arrangement that not
only allowed the Company to stay in business but has given us a stable
financial footing and has funded important research and development
activities. The investors that provided this financing hold conversion
<PAGE> 3
rights, warrants and options that the Company cannot honor in full without
authorizing more shares of common stock. Accordingly, the Company
contractually committed to obtain this authorization at the upcoming
shareholders' meeting. If the Company fails to do so, the investors will
have the right to redeem their convertible notes for cash at a price that
is designed to give them the economic equivalent of their conversion
rights. The stockholders can and should avoid this outcome by approving the
proposed amendment.
The Company has made great strides over the last several months to get
its financial house in order and to refocus its efforts on the potentially
exciting opportunities that lie ahead. Your support for the proposals described
in the Proxy Statement is essential for us to continue with this program. Please
return your proxy card as soon as possible.
Sincerely,
/s/ George Calhoun
----------------------------------------
GEORGE CALHOUN, Chief Executive Officer
------------------------
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have questions about the annual meeting or would like additional
copies of the Proxy Statement or the proxy card, you should contact our proxy
solicitor:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
By telephone: (212) 929-5500
By facsimile: (212) 929-0308
By email: [email protected]
Or
Call Toll Free: (800) 322-2885
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<PAGE> 4
[ILLINOIS SUPERCONDUCTOR LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2000
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 Renaissance Hotel located at One West Wacker, Chicago,
Illinois 60601, on May 17, 2000, beginning at 1:00 p.m. local time, for the
following purpose:
(1) To elect two Class I directors to the Company's board of directors;
(2) To approve the amendment and restatement of the Company's
Certificate of Incorporation, as amended, to increase the
Company's authorized capital stock to 250,300,000 shares,
consisting of 250,000,000 shares of Common Stock and 300,000
shares of Preferred Stock;
(3) To approve the amendment and restatement of 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,
2000; and
(5) To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The board of directors has fixed the close of business on April 10, 2000
as the record date for determining stockholders entitled to notice of, and to
vote at, the meeting. Only stockholders of record of the Company as of the close
of business on April 10, 2000 will be entitled to vote at the meeting.
If you have questions about the annual meeting or would like additional
copies of the Proxy Statement or the proxy card, you should contact our proxy
solicitor:
Mackenzie Partners, INC.
156 Fifth Avenue
New York, New York 10010
By telephone: (212) 929-5500
By facsimile: (212) 929-0308
By email: [email protected]
Or
Call Toll Free: (800) 322-2885
By Order of the Board of Directors,
/s/ Cynthia Quigley
------------------------------------
CYNTHIA QUIGLEY, Secretary
<PAGE> 5
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT
MT. PROSPECT, ILLINOIS 60056
---------
PROXY STATEMENT
---------
The accompanying proxy is solicited on behalf of the board of directors
of Illinois Superconductor Corporation, a Delaware corporation (the "Company"),
for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be held
at 1:00 p.m., local time, on May 17, 2000 at the Renaissance Chicago Hotel
located at One West Wacker, Chicago, Illinois 60601, and any adjournment or
postponement thereof. This Proxy Statement and accompanying proxy are being
mailed to stockholders on or about April 13, 2000.
Record Date and Outstanding Shares. The board of directors has fixed the
close of business on April 10, 2000 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 30,274,667 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. As of the Record Date, none of the
Company's Preferred Stock, par value $.001 per share (the "Preferred Stock"),
was outstanding.
Voting of Proxies. Dr. George Calhoun and Ms. Cynthia Quigley, 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. Calhoun and Ms. Quigley are officers 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 nominees for
director. The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote thereon (30,274,667 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 present in person or represented by proxy
at the meeting and entitled to vote on the matter is required to approve the
amendment and restatement (the "Amendment and Restatement") of the Company's
Amended and Restated 1993 Stock Option Plan (the "1993 Stock Option Plan").
Quorum; Abstentions and Broker Non-Votes. A majority of the shares of
Common Stock issued and outstanding as of the Record Date is required to
transact business at the Annual Meeting. Votes cast by proxy or in person at the
Annual Meeting will be tabulated by the inspector of election appointed for the
meeting.
Abstentions and broker non-votes will be included in determining the
presence of a quorum. Abstentions and broker non-votes have no effect on the
election of directors, but will have the same effect as votes "against" the
proposal to approve the amendment to the Certificate of Incorporation. In the
case
<PAGE> 6
of the Amendment and Restatement of the 1993 Stock Option Plan, abstentions will
have the effect of votes against the proposition, but broker non-votes will have
no effect on the outcome.
Stockholder List. A list of stockholders entitled to vote at the Annual
Meeting, arranged in alphabetical order, showing the address 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 April 30, 2000 and continuing through
the date of the Annual Meeting at the principal offices of the Company, 451
Kingston Court, Mt. Prospect, Illinois 60056.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have questions about the annual meeting or would like additional
copies of this proxy statement, you should contact our proxy solicitor:
Mackenzie Partners, INC.
156 Fifth Avenue
New York, New York 10010
By telephone: (212) 929-5500
By facsimile: (212) 929-0308
By email: [email protected]
Or
Call Toll Free: (800) 322-2885
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this document. These
forward-looking statements are subject to risks and uncertainties, including
those that are enumerated under the heading "Risk Factors" in the Company's
Annual Report to Stockholders on Form 10-K for the year ended December 31, 1999
and the uncertainty as to whether certain discussions by the Company will lead
to, or result in consummation of any strategic business opportunities. Such
risks and uncertainties could cause actual results to differ materially from
those projected. Therefore, there can be no assurance that such statements will
prove to be correct. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "plans," "believes,"
"anticipates," "expects" and "intends," or the negative of such terms and
similar terminology. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to release publicly the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of anticipated events.
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<PAGE> 7
PROPOSAL 1
ELECTION OF DIRECTORS
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, two
Class I directors are to be elected for a term of three years expiring at the
2003 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 director of the company. See "Nominees for Election"
below.
The three directors whose terms of office expire in 2001 and 2002 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 a 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 nominees will be unable or will decline to serve as
directors if elected.
NOMINEES FOR ELECTION
The name of each nominee for the office of director, together with
certain information concerning such nominees, is set forth below:
SERVED AS
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE
George Calhoun..... 47 Director and Chief Executive Officer 1999
Samuel Perlman..... 30 Director 1999
Dr. Calhoun has served as a Director and as the Chief Executive Officer
of the Company since November 1999. He has more than 20 years of experience in
high-tech wireless systems development, beginning in 1980 as the co-founder of
InterDigital Communications Corporation (formerly IMM Corporation), where he
participated in the development of the first commercial application of digital
TDMA radio technology, and introduced the first wireless local loop system to
the North American telecommunications industry. While at InterDigital, Dr.
Calhoun held a number of executive positions, including Senior Vice-President of
the North American business unit, Senior VP of technology & strategy, and
President of IMM Technology, an intellectual property and licensing subsidiary.
In 1992, Dr. Calhoun joined Geotek Communications to help lead its technology
development program for a spread spectrum frequency hopping radio system for
fleet applications. Dr. Calhoun was a Director and Vice-Chairman of Geotek
(which filed for reorganization under Chapter 11 of the Federal Bankruptcy Code
in 1998), and served as the Chairman of the company's engineering joint venture
in Israel, PowerSpectrum Technologies, Ltd. until 1998. In 1998, Dr. Calhoun
founded Davinci Solutions, LLC, a consulting firm focused on wireless and
Internet technology companies. Dr. Calhoun is also Chairman of ExpertCall LLC,
an Internet start-up focused on B2B customer care applications. He is the author
of two technical books on digital wireless technology, and of the forthcoming
Third Generation Wireless Systems: Volume I, Post-Shannon Architectures. Dr.
Calhoun holds a Ph.D. in Systems Science from the Wharton School at the
University of Pennsylvania, as well as a B.A. from the same university.
3
<PAGE> 8
Mr. Perlman has served as a director of the Company since November 1999.
He is chairman of the Audit Committee and a member of the Compensation Committee
of the Company's board of directors. Since 1997 he has been a Portfolio Analyst
at Stonington Management Corporation ("Stonington"). In that capacity, Mr.
Perlman provides services for the benefit of Elliott Associates, L.P. ("Elliott
Associates") and Westgate International, L.P. ("Westgate"). Elliott Associates
and Westgate are institutional investment firms having combined capital of $1.3
billion, and are two of the three principal investors in the Company. Prior to
joining Stonington, Mr. Perlman was an Associate in the Corporate Finance Groups
at Bear Stearns & Co. and Needham & Company. Mr. Perlman holds an M.B.A. with
Honors from the University of Chicago Graduate School of Business and a B.S. in
Economics from the Wharton School of the University of Pennsylvania.
OTHER DIRECTORS
The following persons will continue to serve as directors of the Company
after the Annual Meeting until their respective terms expire (as indicated
below) or until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR TERM
NAME AGE POSITION WITH COMPANY SINCE EXPIRES
<S> <C> <C> <C> <C>
Howard S. Hoffman.. 46 Director 1998 2001
Tom L. Powers...... 63 Director 1996 2001
Mark D. Brodsky.... 46 Director and Chairman of the Board 1999 2002
</TABLE>
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. Powers has served as a director of the Company since October 1996. He
is currently an adjunct professor of the Advanced Manufacturing Center at New
Mexico State University (which he served as associate director until March 1999)
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.
Mr. Brodsky has served as a director of the Company since November 1999
and was previously a director between June 1998 and March 1999. Since 1996 he
has been a Portfolio Manager at Stonington, which is described above. Prior to
joining Stonington, Mr. Brodsky served for two years as a vice president and
partner at Dickstein Partners, L.P., another investment institution. Before
that, he practiced
4
<PAGE> 9
law for 16 years, primarily at Kramer, Levin, Naftalis & Frankel in New York
City, where he was a partner for several years. Mr. Brodsky holds a J.D. degree,
cum laude, from Harvard Law School and an M.A. and B.A. in Political Science,
summa cum laude, from the University of Pennsylvania.
Securityholders' Right to Designate Directors. The Securities Purchase
Letter Agreement dated as of November 5, 1999 by and between the Company,
Elliott Associates, Westgate and Alexander Finance, LP ("Alexander" and with
Elliott Associates and Westgate, the "Investors"), as amended (the "Letter
Agreement"), granted the Investors the right to designate for selection as
members of the Company's board of directors up to two-thirds of the Company's
board of directors and affords the Investors the right to accelerate the
Investor Notes in the event that, with certain exceptions, and after specified
periods, such selections are not appointed or elected as directors. The board of
directors accepted the resignations of board members Robert Mitchum and Terry
Parker on November 5, 1999, expanded the board to six members and, effective
November 8, 1999, appointed Mark Brodsky and Samuel Perlman of Elliott
Associates and George Calhoun of DaVinci Partners, each a designee of the
Investors, to the Company's board of directors. Mr. Howard Hoffman, who was
designated by the Investors (and other investors in the Company) in July, 1998
to be a director of the Company pursuant to designation rights under the terms
of the Securities Purchase Agreement dated as of May 15, 1998, between the
Company, the Investors and other investor named therein, has served on the board
since that time and continues as a director. On November 24, 1999, upon the
resignation of Dr. Edward W. Laves as CEO and a director, the board of directors
decreased the size of the board to five members.
Director Compensation. During 1999, 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 reported closing price of the
Common Stock on the date of each Non-Employee Director's initial election to the
board of directors. Assuming stockholder approval of Proposal 3, 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 shall be automatically granted NQSOs to purchase 10,000
shares of Common Stock in consideration of his or her service on the board of
directors, 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. These 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.
The 1993 Stock Option Plan was amended in April 1999 to provide that 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.
On November 5, 1999, the board of directors amended the 1993 Stock Option
Plan to suspend the automatic grants of options to Non-Employee Directors during
the period commencing on November 5, 1999 and ending on the date of
effectiveness, if any, of an amendment to the Company's Certificate of
Incorporation providing for at least 120,000,000 authorized shares of Common
Stock. In the event such an amendment is adopted, the 1993 Stock Option Plan
provides that any automatic grants of options that would otherwise have been
made during such period shall be made on the first business day following the
effective date of the amendment to Certificate of Incorporation authorizing at
least 120,000,000 shares of Common Stock. Effectiveness of the amendment
contained in Proposal 3 would result in the suspended grants being automatically
awarded.
5
<PAGE> 10
On March 15, 2000, the board of directors amended the 1993 Stock Option
Plan, among other things, (i) to increase the maximum number of shares for which
stock options may be issued to any individual Non-Employee Director during any
calendar year from 100,000 to 500,000 and (ii) to modify the annual automatic
option grants to provide that continuing Non-Employee Directors shall
automatically receive an option to purchase 10,000 shares of Common Stock on the
date of the annual meeting of the stockholders of the Company. Before this
change, the 1993 Stock Option Plan provided for an automatic grant of options to
purchase not less than 3,000 nor more than 10,000 shares of Common Stock, as
determined by the board of directors on the date of the annual stockholder's
meeting.
On December 10, 1999, the Company granted stock options to purchase
50,000 shares of common stock to each of Messrs. Brodsky, Hoffmann, Perlman and
Powers. Such stock options are subject to a one-year vesting period, have an
exercise price of $0.4531 per share and expire on December 10, 2009. Also on
December 10, 1999, the Company granted a stock option to purchase 100,000 shares
of common stock to Dr. Calhoun on the same terms.
On March 24, 2000 the Company granted stock options to purchase an
additional 500,000 shares of Common Stock to Dr. Calhoun. These options vest
according to the following schedule - 10% after one year, 20% after two years,
30% after three years and 100% after four years. The exercise price is the
price of the stock on the date of the grant (i.e. March 24, 2000).
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, 1999, the board of directors
held 17 meetings. Each director attended at least 75% of the aggregate of the
number of board meetings (during the period of his service as a director) and
the total number of meetings of committees on which he served that were held
(during the period of his service as a member of such committee) during 1999.
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. Perlman (Chairman) and Hoffmann. The Compensation Committee consists of
Messrs. Powers (Chairman) and Perlman. 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 two meetings in 1999.
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 number of options to be granted to the
Company's executive officers and employees pursuant to the 1993 Stock Option
Plan and reporting to the full board of directors regarding the foregoing
functions. The Compensation Committee held six formal meetings in 1999. 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
for Election" or "- Other Directors." Biographical information for Dr. Calhoun
is set forth above under "Nominees for Election".
6
<PAGE> 11
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
Dennis M. Craig................... 41 President
Cynthia Quigley................... 40 Chief Financial Officer
Amr Abdelmonem.................... 34 Chief Technology Officer
Mr. Craig joined the Company in December 1996 and served initially as
Vice President, Engineering and Manufacturing. He was appointed President on
November 24, 1999. Before joining the Company, Mr. Craig was at Motorola, Inc.,
where he served as Manufacturing and Technical Operations Manager in the
Component Products Division, where his responsibilities included the management
of engineering, process engineering, manufacturing operations and development of
new product platforms. Prior to joining Motorola, Mr. Craig spent 4 years at
Northrop/Grumman Defense Systems Division, leading teams to develop numerous
cost reduction and production process improvement programs. He holds a B.S.
degree in mechanical engineering from the University of Illinois at Chicago and
an M.B.A. degree from Lake Forest Graduate School of Management. He currently
holds two patents.
In addition to acting as Chief Financial Officer for Illinois
Superconductor Corporation since August, 1999, Cynthia T. Quigley is a partner
of Tatum CFO Partners, LLP in the Chicago area. Prior to joining Tatum CFO, Ms.
Quigley was the Chief Financial Officer for Chart House Enterprises, Inc., a 60
unit, $150 million NYSE restaurant company. Before joining Chart House, Ms.
Quigley held two positions in Boston, Massachusetts. She served as the Vice
President of Finance for Allied Domecq Retailing USA (Baskin Robbins/Dunkin
Donuts), a $3 billion subsidiary of its British parent. Before that, she served
as Senior Vice President of Strategic Development for DAKA International, a $600
million restaurant/foodservice company. Earlier in her career she held various
consulting/technical positions in management consulting (Hewitt Associates)
where she specialized in Executive Compensation, accounting (Arthur Andersen &
Co.) where she worked in litigation consulting and audit, and commercial banking
(Northern Trust Co.) where she performed cash management consulting for bank
clients. She also spent five years at Kraft General Foods in various financial
positions. Ms. Quigley holds a B.A. in Economics and Political Science from Duke
University and an M.B.A. from the University of Chicago in finance. She also
studied at Oxford University and is a Certified Public Accountant in the State
of Illinois.
Dr. Abdelmonem joined the Company in January 1995 as Filter Engineer and
was promoted to Director of Engineering in August 1998 and to Vice President of
Development Engineering in March 1999. Before joining the Company, Dr.
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. Dr. 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. Much of his research focused on semi-conductor
laser design, superconducting technology and advanced filter design. Dr.
Abdelmonem is a Senior Member of the IEEE and has published numerous documents
for industry conferences and trade journals. He holds three patents and has four
patent applications pending.
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. Craig and Abdelmonem had employment agreements that expired
on December 31, 1999. The Company intends to negotiate new employment agreements
with those officers. The Company also intends to negotiate an agreement with Dr.
Calhoun. Ms. Quigley has an existing employment agreement. There are no family
relationships among any of the directors or officers of the Company.
7
<PAGE> 12
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 1999, 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 Dr. Calhoun filed a late Form 3 and Ms.
Quigley filed late Forms 3, 4 and 5.
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, 1999, 1998 and 1997 of (i) each person who served as
the chief executive officer of the Company during 1999 and (ii) the three other
most highly compensated (based on combined salary and bonus) executive officers
of the Company whose total salary and bonus exceeded $100,000 during 1999
(collectively, the "Named Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS (1)
----------------------------- -------------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ----------------------------------------- ----------- --------------- ------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
1999 $4,730 $10,000 100,000(3) $0
GEORGE CALHOUN (2) 1998 n/a n/a n/a n/a
Chief Executive Officer 1997 n/a n/a n/a n/a
1999 $189,615 0 100,000 0
TED LAVES (3) 1998 $186,590 0 100,000 0
Former Chief Executive Officer 1997 $170,000 0 0 0
1999 $116,345 0 69,575 0
AMR ABDELMONEM (4) 1998 $95,675 0 5,000 0
Chief Technical Officer 1997 $51,000 0 0 0
1999 $150,575 $0 95,000 $0
DENNIS M. CRAIG (5) 1998 $141,760 $0 70,000 $0
President 1997 $130,000 $0 0 $0
1999 $69,325 $12,000 30,000 0
CYNTHIA QUIGLEY (6) 1998 n/a n/a n/a n/a
Chief Financial Officer 1997 n/a n/a n/a n/a
</TABLE>
(1) None of the Named Officers had any restricted stock holdings as of
December 31, 1999.
(2) Dr. Calhoun commenced employment with the Company in December 1999.
(3) Dr. Calhoun was granted options to purchase an additional 500,000 shares
of stock on March 24, 2000. See "OTHER DIRECTORS -- Director Compensation"
above.
(4) Dr. Laves tendered, and the board of directors accepted in November 1999,
his resignation as a director and as chairman of the board, chief
executive officer and president of the Company.
(5) Mr. Amr Abdelmonem was elected chief technical officer of the Company by the
Board on December 10, 1999.
(6) Mr. Craig was elected president of the Company by the Board in
November 1999.
(7) Ms. Quigley commenced employment with the Company in August 1999.
8
<PAGE> 13
OPTION GRANTS IN 1999
The following table contains information concerning the grant of stock
options by the Company to the Named Officers during 1999. There were no stock
appreciation rights granted in 1999.
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE
SHARES GRANTED TO EXERCISE VALUE AT ASSUMED ANNUAL
UNDERLYING EMPLOYEES OR BASE RATES OF STOCK PRICE
OPTIONS GRANTED IN FISCAL PRICE EXPIRATION APPRECIATION FOR OPTION
NAME (1) (#) YEAR ($/SHARE) DATE (1) TERM (2)
- ----------------------------------- ---------------- ------------- ------------ ------------ -------------------------
5% ($) 10% ($)
------------ ------------
<S> <C> <C> <C> <C> <C> <C>
George Calhoun ............... 100,000(3) 5.17% $0.4531 12/10/09 28,495 72,212
Ted Laves (4)................. 100,000 5.17% $0.5625 05/10/09 35,375 89,648
Amr Abdelmonem (5)............ 69,575 3.59% (4) (4) 27,207 68,947
Dennis M. Craig............... 95,000 4.91% $0.5625 05/10/09 33,611 85,166
Cynthia Quigley............... 30,000 1.55% $0.5625 10/05/09 10,614 26,894
</TABLE>
(1) Subject to certain restrictions, these options vest over a one-year period.
The grant dates are ten years prior to the respective expiration date.
(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.
(3) Dr. Calhoun was granted options to purchase an additional 500,000 shares of
stock on March 24, 2000. See "OTHER DIRECTORS -- Director Compensation"
above.
(4) Dr. Laves' options expired upon his resignation in November 1999.
(5) Dr. Abdelmonem was granted stock options four times in 1999, as follows:
Number of Shares Exercise Price Expiration Date
---------------- -------------- ---------------
1,000 $ 1.125 1/14/09
30,000 $ 0.75 4/12/09
13,575 $0.5625 5/10/09
25,000 $ 0.48 11/15/09
9
<PAGE> 14
YEAR-END 1999 OPTION VALUES
The following table provides information concerning the Named Officers'
unexercised options at December 31, 1999. None of the Named Officers exercised
any stock options, or held or exercised any stock appreciation rights, during
1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT YEAR-END IN-THE-MONEY OPTIONS AT
1999(#) YEAR-END 1999 ($) (1)
-------------------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George Calhoun.................. 0 100,000 $ 0 $151,570
Ted Laves (2)................... 0 0 $ 0 $ 0
Amr Abdelmonem.................. 2,396 2,604 $ 1,423 $ 1,546
Dennis M. Craig................. 33,542 36,458 $ 9,435 $ 10,256
Cynthia Quigley................. 30,000 0 $42,189 $ 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 OTC Bulletin Board on
December 31, 1999 (the last business day of 1999) of $1.9688.
(2) Under the terms of his stock options, Dr. Laves had 30 days within which
to exercise such options following his resignation from the Company on
November 24, 1999. Dr. Laves did not choose to exercise his stock options
in that period.
Employment Agreements. Effective July 1, 1998, the Company entered into
an employment agreement with Dr. Laves. The agreement terminated on December 31,
1999 and stipulated an annual base salary of $200,000. Dr. Laves resigned as
Chief Executive Officer, President and Chairman of the Board on November 24,
1999. Effective November 9, 1998, the Company entered into an employment
agreement with Mr. Craig. The agreement, which terminated on December 31, 1999,
provided for an annual base salary of $150,000. Effective April 12, 1999, the
Company entered into an employment agreement with Dr. Abdelmonem. The agreement,
which terminated on December 31, 1999, provided for an annual base salary of
$120,000. Each of the aforementioned agreements included 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.
Effective August 11, 1999, the Company entered into an employment agreement with
Ms. Quigley and Tatum CFO Partners LLP. The agreement provides for a base salary
of $175,000, plus a quarterly bonus of up to 33% of Ms. Quigley's base salary.
The Company has agreed to compensate Dr. Calhoun with an annual base salary of
$175,000, effective February 1, 2000. The Company intends to negotiate
employment agreements with Dr. Calhoun, Mr. Craig and Dr. Abdelmonem.
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.
10
<PAGE> 15
The objectives of the Compensation Committee in determining the levels
and components of executive compensation are (i) providing executives 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, Dr. Abdelmonem and Dr. Laves. The Compensation Committee
will determine the final terms of the employment agreements the Company intends
to negotiate with Dr. Calhoun, Mr. Craig and Dr. Abdelmonem. 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 Dr. Laves in May 1999, to Mr. Craig in May 1999, to Dr. Calhoun in
December 1999 and to Dr. Abdelmonem in January, April, May and November 1999.
Compliance with Section 162(m). The Compensation Committee generally
intends for 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)
Samuel Perlman
11
<PAGE> 16
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns
during the period commencing on January 1, 1995 for the Company, the Nasdaq
Market Composite Index and the Hambrecht & Quist Technology Sector Communication
Index (the "H&Q Communication Index"). The comparison assumes that $100 was
invested on January 1, 1995 in the Company's Common Stock and in each index, and
assumes the reinvestment of all dividends, if any.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG ILLINOIS SUPERCONDUCTOR CORP.,
NASDAQ MARKET INDEX AND H&Q COMMUNICATION INDEX
ASSUMES $100 INVESTED ON JAN. 1, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1999
<TABLE>
<CAPTION>
1/1/95 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Illinois Superconductor 100.00 200.00 201.47 21.32 11.76 23.16
H&Q Communication Index 100.00 159.36 182.84 173.10 255.56 799.78
NASDAQ Market Index 100.00 129.71 161.18 197.16 278.08 490.46
</TABLE>
12
<PAGE> 17
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
AND THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK
Effective March 6, 2000, the board of directors proposed and unanimously
recommended for approval by the Company's stockholders an amendment to the
Certificate of Incorporation to increase the total number of shares of
authorized capital stock of the Company from 60,100,000 shares to 250,300,000
shares by increasing the number of authorized shares of Common Stock from
60,000,000 shares to 250,000,000 shares and by increasing the number of
authorized shares of Preferred Stock from 100,000 shares to 300,000 shares (the
"Charter Amendment"). The Company's stockholders are asked to approve the
Charter Amendment.
The proposed Charter 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 Two Hundred Fifty
Million, Three Hundred Thousand (250,300,000), of which Two
Hundred Fifty Million (250,000,000) shares are of a class
designated "Common Stock" (referred to in this certificate as
"Common"), and Three Hundred Thousand (300,000) shares are of
a class designated "Preferred Stock" (referred to in this
certificate as "Preferred").
Reasons for the Proposal to Increase the Authorized Shares of Common Stock
General. It is important to the Company's future that the amendment to
the Certificate of Incorporation be approved. Stockholders are urged to consider
the following:
- - Approval of the proposed Charter Amendment will allow the Company to use
its Common Stock to undertake future financings and pursue strategic
business opportunities. The board of directors believes that the
flexibility to engage in such transactions is essential to the Company's
growth and viability.
- - Equity-based compensation is a key aspect of the Company's hiring and
retention strategy. The additional shares of capital stock authorized by
the proposed Charter Amendment may be used by the Company to attract and
retain qualified directors, officers and other employees.
- - Late in 1999, the Company entered into a Letter Agreement to close a
financing transaction entailing the issuance and modification of certain
convertible notes and warrants. To facilitate this financing, the Company
agreed to amend its Certificate of Incorporation to increase its authorized
capital stock.
Failure to approve the amendment could have material adverse effects on
the Company. As described below, the terms of the November financing provide
that if the Company does not increase its authorized capital stock, Elliott
Associates, Westgate and Alexander will have the right to redeem their notes at
a price that, given the Company's current financial state, we would not likely
be able to pay.
13
<PAGE> 18
Background. As of March 31, 2000, there were 60 million authorized
shares of Common Stock of which 30,274,670 shares of Common Stock were issued
and outstanding. In addition, as of such date, there were 68,651,855 shares of
Common Stock reserved for issuance (with the reservation of 38,926,525 shares of
the 68,651,855 so reserved conditioned upon approval of the Charter Amendment)
as follows:
- - 2,422,980 shares of Common Stock reserved for issuance under the 1993 Stock
Option Plan, which represents a maximum of 2,511,468 shares issuable under
the Plan, less 88,488 shares exercised under the Plan.
- - 175,129 shares of Common Stock reserved for issuance pursuant to certain
outstanding warrants issued by the Company prior to November 5, 1999 to
investors in the Company other than the Investors (the "Other Warrants");
and
- - 66,053,746 shares of Common Stock reserved for issuance on conversion of
$15,254,741 in aggregate principal amount of the Company's senior
convertible notes held by the Investors ("Investor Notes") (including pay
in kind interest thereon) and on exercise of the Company's warrants held by
the Investors ("Investor Warrants") to acquire an aggregate of 5,074,782
shares of Common Stock.
As described above, the aggregate number of shares of Common Stock that
the Investors would have the right to acquire on exercise of the Investor
Warrants and conversion of the Investor Notes (with in-kind interest payments
accrued through March 31, 2000) would be 66,053,746 shares, except that the
Company does not have sufficient shares of Common Stock authorized to cover such
exercises and conversions. Accordingly, by agreement with the Investors, unless
and until the Company amends its charter so as to authorize the shares of Common
Stock issuable upon such exercise or conversion , the Company's obligation to
issue shares of Common Stock upon conversion of the Investor Notes and the
exercise of the Investor Warrants (whether or not transferred at any time to any
transferee) is limited to the shares reserved, as described above.
As of March 31, 2000, the Investors had outstanding Investor Notes of
$14,604,778 in aggregate principal amount (excluding interest). If the Charter
Amendment is not adopted at the annual stockholders' meeting prior to June 30,
2000 (upon which adoption the limitation on conversion and exercise by the
Investors is eliminated), the Investors would have the right to have their
outstanding Investor Notes redeemed for an amount equal to the greater of (i)
the outstanding principal amount at the time the Investor Notes are tendered to
the Company (the "Tender Date"), plus accrued and unpaid cash interest on the
tendered Investor Notes (at March 31, 2000, such interest would have been
$649,963) or (ii) the average closing bid price per share of the Common Stock
for the 5 trading days preceding the Tender Date multiplied by the number of
shares the Investors would have received if they had been able to convert the
outstanding aggregate principal amount of such Investor Notes into shares of
Common Stock at a conversion price of $.25 as provided under the terms of the
Investor Notes (at March 31, 2000, such amount would have been $426,751,990).
The Company, at this time, does not have sufficient liquid assets to comply with
such a redemption demand. See Financial Statements and Management
14
<PAGE> 19
Discussion and Analysis included in the Company's Annual Report to Stockholders
on Form 10-K for the year ended December 31, 1999.
Ability to Pursue Corporate Opportunities. Because all of the Company's
60 million authorized shares of Common Stock are either issued and outstanding,
or reserved for issuance, the Company does not have any authorized shares of
Common Stock available for issuance in connection with any business purposes,
including future financing transactions, acquisitions, strategic business
alliances and option grants. Although the Company has the ability to grant
additional options, such option grants would require consent of the Investors
until the Charter Amendment is approved. Such consent would not be in the
interest of the Investors because it would reduce the number of shares available
for conversion of their Investor Notes and exercise of their Investor Warrants.
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
and/or the pursuit of strategic business opportunities. Approval of the Charter
Amendment will provide the Company with the flexibility to consummate potential
financings or strategic business opportunities 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 or strategic business opportunities. The Company is currently in
discussions concerning potential strategic transactions, although there can be
no assurance that any such transaction will be consummated. If the Company's
stockholders fail to approve the Charter Amendment, the Company will be limited
in its ability to act promptly with respect to potential financing or strategic
business opportunities which are presented to it.
The Company is currently conducting discussions with several unrelated
parties regarding potential strategic business opportunities, acquisitions or
alliances that may take a number of different forms, including contractual
licensing relationships or joint venture relationships. These discussions have
not developed to a point where a structure or specific terms and conditions have
been definitively agreed upon. There can be no assurance that the discussions
will lead to any business opportunities or alliances, or that any transactions
will be consummated. These discussions may, however, result in agreements,
arrangements or alliances that create a need to issue shares of Common Stock.
Approval of the Charter Amendment would provide flexibility to the board of
directors, without requiring further action or authorization by the stockholders
(except as may be required by applicable law or stock exchange or stock market
requirements, in the event that at some future time, the Company's stock is
listed on a stock exchange or the NASDAQ Small Cap Stock Market to which the
Company has submitted an application for listing) to issue additional shares of
Common Stock from time to time to respond to the Company's business needs and
business opportunities as they arise.
Ability to Make Option and Other Equity Grants. The board of directors
believes that in order to attract and retain qualified Non-Employee Directors,
officers and other key employees of the Company, it is essential for the Company
to have available additional authorized but unissued shares of Common Stock to
reserve for issuance in connection with grants of options and other forms of
equity compensation to such employees and Non-Employee Directors. (See also
discussion under Proposal 3 regarding the Amendment and Restatement of the Stock
Option Plan.)
On February 15, 2000, four key employees of the Company were granted (i)
options on 585,000 shares of Common Stock and (ii) deferred stock units ("DSUs")
on 440,000 shares of Common Stock. These option and DSU grants are contingent on
stockholder approval of the Charter Amendment and of the Amendment and
Restatement of the 1993 Stock Option Plan.
15
<PAGE> 20
Ability to Obtain Additional Financing. If the Company cannot issue
additional equity to 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 Investors and other investors in the
Company are not able to convert their respective Company notes and the Investors
do not seek to have their Company notes redeemed, the Company will have
substantial debt with maturity dates in 2001 and 2002 that must be refinanced.
In addition, if the Company is unable to secure adequate financing during the
second quarter of 2000, it will have to substantially reduce its operating plans
in order to continue its operations beyond such date. See "Financial Statements"
and "Management's Discussion and Analysis" included in the Company's Annual
Report to Stockholders on Form 10-K for the year ended December 31, 1999.
Past Financing. Beginning in 1997, the Company has issued warrants and
convertible notes to the Investors in privately placed Company financings, as
described below:
- - In October, 1997, as part of a transaction in which Elliott Associates and
Westgate purchased Series G convertible preferred stock for $3.5 million,
which Series G preferred stock they have since converted into Common Stock,
Elliott Associates and Westgate also purchased the "G Warrants" for 34,782
shares;
- - On May 15, 1998, the Investors purchased for an aggregate price of $9
million an aggregate of $9 million in initial principal amount (out of a
private placement of an aggregate of $10.35 million initial principal
amount) of senior convertible notes (the "May Notes") and warrants
exercisable for an aggregate of 3.6 million shares of Common Stock (out of
an aggregate private placement of warrants exercisable for an aggregate of
4.14 million shares of Common Stock (the "May Warrants");
- - On March 31, 1999, the Investors purchased, for an aggregate price of $3
million, an aggregate of $3 million initial principal amount (out of a
private placement of an aggregate of $3.3 million initial principal amount)
of senior convertible notes due May 15, 2002 (the "March Notes") and
warrants exercisable for an aggregate of 1.2 million shares of Common Stock
(out of an aggregate private placement of warrants exercisable for an
aggregate of 1.32 million shares of Common Stock ("March Warrants"); and
- - Concurrently, with the issuance of the March Notes, the Company amended
certain terms of $5.5 million in initial principal amount of the May Notes
("Amended May Notes"), of which $5 million in aggregate initial principal
of such Amended May Notes were held by the Investors, and the May Warrants
exercisable for an aggregate of 2.2 million shares of Common Stock (the
"Amended May Warrants"), of which Amended May Warrants for an aggregate of
2 million shares of Common Stock were held by the Investors.
The tables below show information, at November 4, 1999, concerning the
terms of the May Notes, Amended May Notes, March Notes, May Warrants, Amended
May Warrants, March Warrants and G Warrants held by the Investors.
16
<PAGE> 21
Notes Held by Investors at November 4, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
SHARES ISSUABLE UPON
AGGREGATE ORIGINAL INTEREST CONVERSION CONVERSION OF
NOTE PRINCIPAL AMOUNT DATE DUE RATE PRICE PRINCIPAL(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
May Notes (2) $4,000,000 (2) 5/15/02 2% $ 1.50 2,666,668 (2)
Amended May Notes (2) $5,000,000 (2) (3) 5/15/02 6% $1.125 4,444,445 (2) (3)
March Notes (2) $3,000,000 (2) 5/15/02 6% $1.125 2,666,668 (2)
</TABLE>
NOTES:
(1) The numbers in this column include only shares of Common Stock issuable
upon conversion of the aggregate initial principal amount of the
respective notes. Such numbers do not include the shares of Common
Stock issuable upon conversion of any accrued in-kind interest payable
at the time of such conversion.
(2) Each of Elliott Associates and Westgate purchased 27.78% and Alexander
purchased 44.44% of the aggregate initial principal amount of each of
the May Notes, the March Notes and the Amended May Notes shown on the
table. (Other investors purchased $1,650,000 of aggregate principal
amount of such notes.)
(3) Does not reflect conversion, on May 21, 1999, by each of Elliott
Associates and Westgate of $100,000 in principal amount (plus in-kind
interest accrued until May 21, 1999 on such amount) at a conversion
price of $1.125 to 93,157 shares of Common Stock.
<TABLE>
<CAPTION>
Warrants Held by Investors at November 4, 1999
- ----------------------------------------------------------------------------------------------------
EXERCISE PRICE AGGREGATE
WARRANTS SHARES ISSUABLE EXPIRATION DATE PER SHARE EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May Warrants (1) 1,600,000 (1) 5/15/01 $ 3.75 $6,000,000 (1)
Amended May Warrants (1) 2,000,000 (1) 3/31/02 $ 1.4625 $2,925,000 (1)
March Warrants (1) 1,200,000 (1) 3/31/02 $ 1.4625 $1,755,000 (1)
G Warrants 34,782 (2) 10/29/01 $10.0625 $ 349,994 (2)
</TABLE>
NOTES:
(1) Each of Elliott Associates and Westgate has a right to purchase 27.78%
and Alexander has a right to purchase 44.44% of the aggregate shares
issuable under each of the Amended May Warrants, May Warrants and March
Warrants shown on the table.
(2) Elliott Associates and Westgate each has a right to purchase 50% of the
aggregate shares issuable under the G Warrants and each is responsible
for payment of 50% of the aggregate exercise price upon exercise of the
G Warrants.
- On November 5, 1999, the board of directors, in order to address the
Company's critical lack of liquidity, approved the terms of a new financing
transaction ("November Financing") with the Investors in which they
purchased, for an aggregate price of $1 million, $1.0 million in aggregate
initial principal amount of senior secured convertible notes due January 2,
2001 at an interest rate of 10% and a conversion price of $0.25 and Company
warrants exercisable at a price of $0.25 per share for an aggregate of
400,000 shares of Common Stock. The Investors also received the right
("Additional Investment Option"), but not the obligation, to invest up to
an additional $5 million
17
<PAGE> 22
during the next nine months on the same terms, of which they invested $1
million in December, 1999. The Company's notes and warrants issued to the
Investors in the November Financing in November and December, 1999, and
March 2000, are referred to collectively as the November Notes and the
November Warrants.
At the same time as the November Financing, the conversion and exercise
prices, respectively, of the Company's notes and warrants held by the
Investors at the time of the November Financing were reduced to $0.25 per
share. Those notes and the November Notes (and any additional notes issued
under the Additional Investment Option) are secured by a pledge of the
Company's assets.
- - On March 27, 2000 the Investors, pursuant to the Additional Investment
Option, purchased an additional $4.0 million in aggregate initial principal
amount of senior secured convertible notes due January 2, 2001 at an
interest rate of 10% and a conversion price of $0.25. At the same time, the
Investors purchased Company warrants exercisable at a price of $0.25 per
share for an aggregate of 1,600,000 shares of Common Stock.
- The tables below show information at March 31, 2000 concerning the terms
of the outstanding May Notes, Amended May Notes, March Notes, May Warrants,
Amended May Warrants, March Warrants and G Warrants, each as amended by the
November Financing, and the outstanding November Notes and outstanding
November Warrants held by the Investors.
Investor Notes as of March 31, 2000(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CONVERSION
OUTSTANDING SHARES ISSUABLE
AGGREGATE PRINCIPAL UPON CONVERSION
INVESTOR NOTES AMOUNT DATE DUE INTEREST RATE CONVERSION RATE OF PRINCIPAL (2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
May Notes $4,550,000 5/15/02 2% $0.25 18,200,000
Amended May Notes $1,054,778 5/15/02 6% $0.25 4,219,112
March Notes $3,000,000 5/15/02 6% $0.25 12,000,000
November Notes $6,000,000 (3) 1/2/01 10% $0.25 24,000,000
</TABLE>
NOTES:
(1) Each of Elliott Associates and Westgate purchased 27.78% and Alexander
purchased 44.44% of the aggregate initial principal amount of each of
the May Notes, the March Notes, the Amended May Notes and the November
Notes shown on the table. (Other investors purchased $1,650,000 of
aggregate principal amount.) As of March 31, 2000, each of Elliott
Associates and Westgate held 26.8% and Alexander held 46.4% of such
outstanding notes.
(2) The numbers in this column include only shares of Common Stock issuable
upon conversion of the outstanding principal amount of the respective
Investor Notes. Such numbers do not include the shares of Common Stock
issuable upon conversion of any accrued in-kind interest payable at the
time of such conversion.
18
<PAGE> 23
INVESTOR WARRANTS AS OF MARCH 31, 2000 (1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
EXERCISE PRICE AGGREGATE
INVESTOR WARRANTS SHARES ISSUABLE EXPIRATION DATE PER SHARE EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
G Warrants (2) 34,782 10/29/01 $0.25 $ 8,696
May Warrants 1,111,112 5/15/01 $0.25 $277,778
Amended May Warrants 288,888 3/31/02 $0.25 $ 72,222
March Warrants 1,200,000 3/31/02 $0.25 $300,000
November Warrants 2,400,000 11/5/04 $0.25 $600,000
</TABLE>
NOTES:
(1) Each of Elliott Associates and Westgate has a right to purchase 27.78%
and Alexander has a right to purchase 44.44% of the aggregate shares
issuable under each of the Amended May Warrants, May Warrants, March
Warrants and November Warrants set forth on this table. As of March
31, 2000, each of Elliott Associates and Westgate held 34.0% and
Alexander held 32.0% of such outstanding warrants.
(2) Elliott Associates and Westgate each has a right to purchase 50% of the
aggregate shares issuable under the G Warrants and each is responsible
for payment of 50% of the aggregate exercise price upon exercise of the
G Warrants.
If the Charter Amendment is approved at the annual stockholders' meeting
by June 30, 2000, the Investors will have the right to convert or exercise,
respectively, their Investor Notes and Investor Warrants into shares of Common
Stock set forth in the tables above titled "Notes Held by Investors at March
31, 2000" and "Warrants Held by Investors at March 31, 2000," subject to
certain contractual limitations not currently applicable.
The November Financing also grants the Investors certain registration
rights with respect to the Common Stock issuable on the conversion of the
November Notes and November Warrants, similar to their registration rights with
respect to Common Stock issuable on exercise of their other Company notes and
warrants.
The November Financing restricts the Company's ability to incur
additional debt and defers from the second quarter of 2000 to the second quarter
of 2001 the Company's obligation to achieve break-even or positive operating
income; the Company's failure to meet that obligation would constitute a default
under the Investors' May Notes, Amended May Notes, March Notes (as amended) and
November Notes (including $5 million in notes acquired pursuant to the
Additional Investment Option). In that event, the Investors would have the right
to have their Notes redeemed on the terms described above under "- Background."
The November financing also granted the Investors certain rights to
designate directors. See "Other Directors - Securityholders' Right to Designate
Directors."
19
<PAGE> 24
Effect of Increase. The additional shares of Common Stock 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. For
example, as of March 31, 2000, the Investors have the right to acquire
66,053,746 shares (including any shares payable as in-kind interest) upon
conversion of Investor Notes and exercise of Investor Warrants at exercise and
conversion prices of $.25, which would result in dilution of net tangible book
value per share if the exercises or conversions occurred at a time when the
Company's net tangible book value per share exceeded $.25. However, such
conversions or exercises at December 31, 1999 would not have diluted the
Company's tangible cash value per share at that date because the Company's net
tangible book value at that date was negative $9,291,712. Issuance of Common
Stock at a price less than the market price at the time of issuance is dilutive
to the per share market value.
REASONS FOR THE PROPOSAL TO INCREASE AUTHORIZED SHARES OF PREFERRED STOCK
The additional shares of Preferred Stock would and 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 of Common Stock 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
of Common Stock for such purpose.
The Company's stockholders have no preemptive rights to subscribe for
additional shares of Common Stock when issued.
In February 1996, the board of directors of the Company adopted a
stockholders rights plan (the "Rights Plan"). In connection with the adoption of
the Rights Plan, the board of directors created one series of Preferred Stock,
consisting of 10,000 shares of Series A Junior Participating Preferred Stock
(the "Series A Preferred"). Pursuant to the Rights Plan, a Series A Right is
associated with, and trades with, each share of Common Stock outstanding. The
record date for distribution of such Series A Rights was February 22, 1996 (the
"Series A Record Date") and, for so long as the Series A Rights are associated
with the Common Stock, each new share of Common Stock issued by the Company will
include one Series A Right. The board of directors has determined that the
authorized shares of Series A Preferred must be increased commensurate with the
proposed increase in the number of shares of Common Stock.
Description of Series A Junior Participating Preferred Stock. Each share
of the Series A Preferred, when and if issued, entitles the holder thereof to
receive dividends equal to 1,000 times the dividends per share declared with
respect to the Common Stock. Holders of the Series A Preferred are entitled to
exercise 1,000 votes per share on all matters submitted to a vote of
stockholders and, except as otherwise required by law, vote together with the
holders of Common Stock as a single class. In the event of liquidation, such
holders would receive a preference of 1,000 times the aggregate amount to be
distributed per share to the holders of Common Stock. In general, each share of
the Series A Preferred is intended to have a value and voting rights equal to
1,000 shares of Common Stock, and appropriate anti-dilutive adjustments will be
made in accordance with the terms of such Series A Preferred in the event of
certain changes in Common Stock.
20
<PAGE> 25
Each Series A Right will entitle its holder to purchase one-thousandth of
a share of Series A Preferred of the Company for $200 (subject to adjustment).
The Series A Rights are not exercisable until the earlier of (i) ten days after
any person or group becomes the beneficial owner of 15% or more of the
outstanding Common Stock or (ii) 10 business days (unless extended by the board
of directors) after the commencement of a tender offer or exchange offer that
would result in a person or group beneficially owning 15% or more of the Common
Stock.
If any person or group acquires 15% or more of the Common Stock
outstanding (the "Shares Acquisition Date"), each holder of a Series A Right
(except the acquiring party) has the right to receive, upon exercise, (i) shares
of Common Stock of the Company having a market value of two times the exercise
price of the Series A Right and (ii) one Series B Right (Series A Rights and
Series B Rights are hereinafter collectively referred to as the "Rights"). The
board of directors has the option, after the Shares Acquisition Date but before
there has been a 50% acquisition of the Company, to exchange both (i) one share
of Common Stock (or one-thousandth of a share of preferred stock) and (ii) one
Series B Right, for each Series A Right (other than Series A Rights held by an
acquiring party). If, after the Series A Rights become exercisable, the Company
is involved in a merger or other business combination, or if the Company sells
or transfers more than 50% of its assets or earning power, or if an acquiring
party engages in certain "self-dealing" transactions with the Company, each
Series A Right and Series B Right then outstanding (other than Rights held by an
acquiring party) will be exercisable for common stock of the other party to such
transaction having a market value of two times the exercise price of the Right.
The Company has the right to redeem the Series A Rights for $.01 per Series A
Right (the "Redemption Price") prior to the Shares Acquisition Date. The Series
B Rights, once issued, are not redeemable. The Rights expire on February 9,
2006.
COMMON STOCK MARKET PRICE
The Common Stock has been quoted, since April 1999, on the Nasdaq OTC
Bulletin Board under the symbol "ISCO." From 1993 until April 1999, the Common
Stock was quoted on the Nasdaq National Market. As of April 10, 2000, there
were approximately 270 record holders and approximately 35,000 beneficial
holders of Common Stock.
MARKET PRICES
The following table shows, for the periods indicated, the reported high
and low sale prices for the Common Stock.
TABLE 6
Common Stock Market Price
- -------------------------------------------------------------------------------
HIGH LOW CLOSE
-------------------------------------
1998:
First Quarter.................... $3.875 $ .875 $1.50
Second Quarter................... $3.25 $1.156 $1.75
Third Quarter.................... $1.96875 $ .8125 $1.375
Fourth Quarter................... $1.78125 $ .75 $1.00
1999:
First Quarter.................... $1.6875 $ .9375 $ .9375
Second Quarter................... $1.50 $ .46875 $ .75
Third Quarter.................... $1.125 $ .50 $ .6875
Fourth Quarter................... $2.0625 $ .328125 $1.96875
2000:
First Quarter.................... $49.453 $0.875 $6.875
21
<PAGE> 26
INTERESTS OF CERTAIN PERSONS IN THE MATTERS
TO BE ACTED UPON AT THE MEETING
You should be aware that directors, officers and principal stockholders
of the Company may have interests in the proposed Charter Amendment, including
those described below, that are different from, or in addition to, your
interests as a stockholder. The board of directors was aware of these potential
or actual conflicts of interest and considered them, along with the other
matters described herein under the section headed "REASONS FOR THE PROPOSAL TO
INCREASE THE AUTHORIZED SHARES OF COMMON STOCK." Mr. Brodsky is a director and
chairman of the board of the Company and provides management services to Elliott
Associates and Westgate. Mr. Perlman is a director of the Company and provides
management services to Elliott Associates. Elliott Associates, Westgate and the
third Investor, Alexander, are the principal beneficial owners of the Company's
common stock and have certain rights to elect directors of the Company. See
"Security Ownership of Certain Beneficial Owners and Management."
The Charter Amendment is being proposed for adoption in part because of
the commitment that the Company made to these investors to authorize additional
shares of common stock. The additional shares are needed to enable the Company
to comply with its obligations to these investors. At the time the Company's
commitment was given, Messrs. Brodsky and Perlman were not directors of the
Company.
The ability of Elliott Associates and Westgate to avail themselves of the
full conversion and exercise rights of their Notes and Warrants is dependent
upon adoption of the Charter Amendment. If the Charter Amendment is approved,
each of Elliott Associates, Westgate and Alexander has the right to convert or
exercise, respectively, its Investor Notes and Investor Warrants as shown in the
tables above titled "Investor Notes as of March 31, 2000" and "Investor
Warrants as of March 31, 2000." However, as discussed above, if the Charter
Amendment is not approved, Elliott Associates and Westgate have the right to
cause these Notes to be redeemed by the Company for cash at prices derived from
the conversion value inherent in their Notes (although, at the present time, the
Company is not financially capable of honoring such a redemption). Whether or
not the Charter Amendment is approved (and subject to the Company's ability to
meet a redemption demand), at the current market value of the Company's Common
Stock, the value of Elliott Associates' and Westgate's investment in the Company
is derived primarily from the value of the Company's Common Stock.
Messrs. Brodsky and Perlman, because of their respective positions with
Elliott Associates, owe duties to Elliott Associates in addition to the duties
each owes as a director of the Company to the stockholders of the Company. At
times, each may be confronted by issues, including the proposed Charter
Amendment, that present them with potentially conflicting interests and
obligations.
Mr. Craig and Dr. Abdelmonem, each an executive officer of the Company,
were granted stock options and DSUs, subject to stockholder approval of the
Charter Amendment and Proposal 3, described below.
22
<PAGE> 27
The beneficial ownership of Common Stock by each of the directors and
executive officers of the Company is set forth under the section headed
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" on pages 32
through 35 of this proxy statement.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED CHARTER AMENDMENT IS IN
THE BEST LONG-TERM INTERESTS OF STOCKHOLDERS AND THEREFORE RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE CHARTER AMENDMENT TO INCREASE THE COMPANY'S
AUTHORIZED CAPITAL STOCK AND THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND
PREFERRED STOCK.
23
<PAGE> 28
PROPOSAL 3
AMENDMENT TO THE 1993 STOCK OPTION PLAN
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 Old Plan was amended and
restated and the stockholders of the Company approved the Old Plan, as amended
and restated (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. In 1999,
stockholders approved an increase of an additional 806,468 shares to be reserved
for issuance under the 1993 Stock Option Plan to employees, consultants and
Non-Employee Directors bringing the total number of shares of Common Stock
reserved for issuance under the Plan to 2,511,468 shares. On November 5, 1999,
the 1993 Stock Option Plan was amended to temporarily suspend automatic grants
of options to Non-Employee Directors, as described below.
On March 15, 2000, the board of directors authorized and approved the
amendment and restatement ("Amendment and Restatement") of the 1993 Stock Option
Plan, subject to stockholder approval at the Annual Meeting. The Amendment and
Restatement (1) provides for the grant of deferred stock units ("DSUs"), (2)
provides for an additional 3,500,000 shares to be reserved for issuance under
the 1993 Stock Option Plan; (3) provides for an increase in the maximum number
of shares for which stock options may be granted to any individual employee,
consultant or Non-Employee Director during any calendar year from 100,000 to
500,000 and limits the number of shares for which DSUs may be granted to any
individual employee during any calendar year to 150,000, (4) provides that
except as otherwise provided in an award agreement, options and DSUs granted to
employees and consultants on or after February 15, 2000 will vest upon the
employee's or consultant's termination of employment following a change of
control of the Company if the employee's or consultant's employment is
terminated by the Company without cause (as defined in the Amendment and
Restatement) or by the employee or consultant for good reason (as defined in the
Amendment and Restatement), (5) modifies the circumstances under which a change
in board membership will constitute a change of control under the plan; and (6)
modifies the provisions relating to the Non-Employee Directors' annual automatic
option grants to provide that continuing Non-Employee Directors shall
automatically receive an option to purchase 10,000 shares of Common Stock on the
date of the annual meeting of the stockholders of the Company (modified from a
range of 3,000 to 10,000 shares of Common Stock, as determined by the board of
directors on the date of the annual stockholder's meeting).
The Amendment and Restatement set forth in Exhibit A identifies the
changes made to the 1993 Stock Option Plan since November 5, 1999 (the date of
the most recent amendment to the 1993 Stock Option Plan prior to March 15,
2000).
Assuming the approval of Proposal 3 by the stockholders and approval of
the Charter Amendment, if options or DSUs for all 6,011,468 shares of Common
Stock available under the 1993 Stock Option Plan were issued and exercised (or
vested, in the case of DSUs), such shares would constitute approximately 18.2%
of the issued and outstanding Common Stock as of March 15, 2000 without giving
effect to shares reserved for issuance on exercise of warrants and conversion of
notes, and
24
<PAGE> 29
5.8% of the issued and outstanding Common Stock as of that date on a fully
converted basis. The board believes that the size of the 1993 Stock Option Plan,
as set forth in Exhibit A, is appropriate.
The board of directors believes that the well recognized benefits of
stock option plans outweigh any burden to the stockholders arising from the
award of stock options and DSUs, 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT AND RESTATEMENT OF THE 1993 STOCK OPTION PLAN, AND BELIEVES THAT THE
AMENDMENT AND RESTATEMENT IS APPROPRIATE TO COMPENSATE EMPLOYEES, NON-EMPLOYEE
DIRECTORS AND CONSULTANTS.
The following brief summary of certain features of the Amendment and
Restatement of the Stock Option Plan is qualified in its entirety by reference
to the full text of the Amendment and Restatement, which is set forth in Exhibit
A.
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 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. Currently,
up to 31 employees (including four officers) and four Non-Employee Directors are
eligible. The Compensation Committee is comprised of Non-Employee Directors.
Subject to stockholder approval of the Charter Amendment and of Proposal 3,
during any calendar year, options for no more than 500,000 shares of Common
Stock shall be granted to any individual employee, consultant or Non-Employee
Director and deferred stock units ("DSUs") for no more than 150,000 shares of
Common Stock shall be granted to any individual Employee. An employee who has
been granted an option may be granted additional options and/or DSUs. Certain
stock options (as described below) were granted to a group of key management
personnel in 1999, including Non-Employee Directors and officers of the Company.
The 1993 Stock Option Plan provides that Non-Employee Directors will
receive an the automatic grant of non-qualified stock options ("NQSOs") to
purchase 10,000 shares of Common Stock at the reported closing price of the
Common Stock on the date of each Non-Employee Director's initial election to the
board of directors. Assuming stockholder approval of Proposal 3 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 shall be automatically granted NQSOs to purchase 10,000
shares of Common Stock in consideration of the Non-Employee Director's service
on the board, 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. Prior to the adoption of the Amendment and
Restatement, the 1993 Stock Option Plan provided that the number of shares of
Common Stock for which the annual automatic option grants would be made would be
no less than 3,000 nor more than 10,000 shares of Common Stock, as determined by
the board on the date of the annual meeting of the stockholders of the Company.
These 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.
25
<PAGE> 30
The 1993 Stock Option Plan was amended April 1999 to provide that 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 (increased to 500,000 subject to stockholder
approval of Proposal 3) 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.
On November 5, 1999, the board of directors amended the 1993 Stock
Option Plan to suspend the automatic grants of options to Non-Employee Directors
during the period commencing on November 5, 1999 and ending on the date of
effectiveness, if any, of an amendment to the Company's Certificate of
Incorporation providing for at least 120,000,000 authorized shares of Common
Stock. In the event such an amendment is adopted, the 1993 Stock Option Plan
provides that any automatic grants of options that would otherwise have been
made during such period shall be made on the first business day following the
effective date of the amendment to Certificate of Incorporation authorizing at
least 120,000,000 shares of Common Stock. Accordingly, if the proposed Charter
Amendment is adopted at the annual meeting, automatic grants that would have
been made since November 5, 1999 will be issued on the first business day after
effectiveness of the Charter Amendment.
Assuming stockholder approval of Proposal 3, an aggregate of 6,011,468
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, or if any DSUs granted under the
1993 Stock Option Plan are forfeited, options or DSUs for the unpurchased or
forfeited shares subject thereto may again be granted under the 1993 Stock
Option Plan.
Assuming stockholder approval of Proposal 3, an employee may be granted
deferred stock units ("DSUs"), entitling the employee, without any payment in
cash or property, to receive shares of Common Stock in one or more installments
at a future date or dates. DSUs shall be non-transferable and may be conditioned
on such matters as the Compensation Committee may determine, including continued
employment or attainment of performance goals. No shares of Common Stock will be
issued at the time an award of DSUs is made and the Company is not required to
set aside a fund for the payment of any such award. The Company will establish a
separate recordkeeping account for the employee and will record in such account
the number of DSUs awarded to the employee. The Compensation Committee may
permit employees to further defer receipt of shares of Common Stock payable with
respect to DSUs.
An employee has no right to vote as a stockholder in respect of DSUs
awarded pursuant to the 1993 Stock Option Plan until the shares of Common Stock
attributable to such DSUs have been issued to the employee. The Compensation
Committee may determine whether and to what extent to pay dividend equivalents
to grantees of DSUs.
An employee will receive one share of Common Stock for each vested DSU
on such date or dates and/or upon the occurrence of such event as the
Compensation Committee may specify in the award agreement or on such later date
as may be elected by the grantee in a deferral election made accordance with the
rules and procedures established by the Compensation Committee. Upon an
employee's termination of employment for any reason, the employee will
immediately forfeit all rights with respect to any nonvested DSUs credited to
his or her account.
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
26
<PAGE> 31
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 March 15, 2000, the closing
price of a share of the Common Stock on the Nasdaq OTC Bulletin Board Market was
$9.7812 per share. No stock option shall be exercisable later than the tenth
anniversary date of its grant.
Upon the occurrence 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 DSUs and options, the exercise price of such
outstanding options and, assuming the stockholders approve Proposal 3, the
maximum number of shares for which options or DSUs may be granted to any
individual during any calendar year.
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. The board of directors or the Compensation Committee
may amend or terminate the 1993 Stock Option 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
Internal Revenue Code, the Company shall obtain stockholder approval of any such
amendment. Any such amendment or termination of the 1993 Stock Option Plan shall
not affect any options already granted and such options shall remain in full
force and effect as if the plan had not been amended or terminated, unless
mutually agreed otherwise between the option holder and the Compensation
Committee, which agreement must be in writing and signed by the option holder
and the Company. No options may be granted under the 1993 Stock Option Plan on
or after August 31, 2003.
The Amendment and Restatement of the 1993 Stock Option Plan would
change the vesting provisions for options and DSUs granted to employees and
consultants on or after February 15, 2000. The 1993 Stock Option Plan provides
for the full vesting of options upon a change of control of the Company.
Effective for options and DSUs granted to employees and consultants on or after
February 15, 2000 and prior to a change of control, such options and DSUs will
not automatically vest upon a change of control but, except as otherwise
provided in an award agreement, such options and DSUs will vest upon the
employee's or consultant's termination of employment after the change of control
if the employee's or consultant's employment is terminated by the Company
without cause (as defined in the Amendment and Restatement) or by the employee
for good reason (as defined in the Amendment and Restatement). This change does
not apply to any options granted to Non-Employee Directors or to any options
granted to employees or consultants prior to February 15, 2000.
27
<PAGE> 32
Under the change of control definition in the 1993 Stock Option Plan, a
change of control is deemed to have occurred, among other things, if, during any
period of any two consecutive years,
- - individuals who were directors at the beginning of the period, and
- - any new directors whose election or nomination for election was approved by
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
was previously so approved (directors at the beginning of the period and
directors whose election or nomination meets such approval requirements are
referred to as "Continuing Directors")
cease to constitute a majority of the board of directors.
The Amendment and Restatement of the 1993 Stock Option Plan would
delete language in the change of control definition that excludes from the
"Continuing Director" category directors designated by a person who has agreed
with the Company to acquire more than 25% of its outstanding voting securities
from a person other than the Company, even if such designated directors are
approved by a vote of two-thirds of the Continuing Directors. Although such an
acquisition would itself be a change of control, this change would eliminate the
acceleration of the change of control that would occur, absent the change, if,
prior to acquiring the securities, the person, with approval of two-thirds of
the Continuing Directors, designated a majority of the directors.
In the event of the proposed dissolution or liquidation of the Company,
each option will terminate, and each nonvested DSU will be forfeited,
immediately prior to the consummation of the proposed action, unless otherwise
provided by the Compensation Committee. Deferred shares of Common Stock payable
with respect to vested DSUs shall be issued to the employee immediately prior to
the consummation of the proposed liquidation or dissolution. The Compensation
Committee may, in the exercise of its sole discretion, declare that any option
shall terminate as of a date fixed by the Compensation Committee and give the
option holder the right to exercise his or her option, including any portion of
the option which is not then exercisable.
As of February 14, 2000, stock options for 1,907,497 shares (net of
cancellations) have been granted under the terms of the 1993 Stock Option Plan.
On February 15, 2000, DSUs for 440,000 shares and stock options for 585,000
shares with an exercise price of $ 4.1875 per share were granted to four
officers, subject to approval of the Charter Amendment and Proposal 3 by the
stockholders of the Company.
The following table furnishes information on grants of options and DSUs
on February 15, 2000 that are contingent on stockholder approval of Proposal 3
and the Charter Amendment. Such persons will be eligible for additional grants
of stock options and/or DSUs in the event of such approvals, but the amounts and
terms thereof are not determinable.
28
<PAGE> 33
NEW PLAN BENEFITS
1993 STOCK OPTION PLAN
<TABLE>
<CAPTION>
STOCK OPTIONS
DEFERRED STOCK UNITS (1) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
DOLLAR VALUE NUMBER OF NUMBER OF
NAME AND POSITION ($) (3) SHARES SHARES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dennis M. Craig, President......................................... $1,173,744 120,000 205,000
Amr Abdelmonem, Chief Technology Officer........................... $1,173,744 120,000 180,000
Non-Executive Officer Employee Group............................... $1,956,240 200,000 200,000
Non-Executive Director Group (4)................................... 0 0 200,000
</TABLE>
- ---------------------------
(1) DSUs for 440,000 shares of the Company's Common Stock were granted to four
executive officers on February 15, 2000. The closing price per share of
the Company's Common Stock on the date of grant on the NASDAQ OTC Bulletin
Board was $4.1875 per share. Under the terms of the February 15, 2000
grants, 10% of the DSUs vest on February 15, 2001, 20% vests on February
15, 2002, 30% vests on February 15, 2003 and the final 40% vests on
February 15, 2004.
(2) Options for 585,000 shares of the Company's Common Stock were granted to
four executive officers on February 15, 2000 with an exercise price of
$4.1875 per share, the closing price per share of the Company's Common
Stock on the NASDAQ OTC Bulletin Board on the date of grant. Under the
terms of February 15, 2000 option grants, 10% of the options become
exercisable on February 15, 2001, 20% of the options become exercisable on
February 15, 2002, 30% of the options become exercisable on February 15,
2003 and the remaining 40% of the options become exercisable on February
15, 2004.
(3) The reported dollar value of the DSU grants is equal to the number of DSUs
granted times the closing price of $9.7812 per share of the Company's
Common Stock on March 15, 2000 on the NASDAQ OTC Bulletin Board.
(4) The stock option grants to members of the non-executive director group are
described in greater detail above under "Other Directors - Director
Compensation."
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 DSUs and 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 March 13, 2000. 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 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
29
<PAGE> 34
exceeds the option exercise price will generally be taxable to the option holder
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.
Under Federal tax law, there are generally no Federal income tax
consequences to employees of the Company due to the grant of DSUs. In the
absence of a deferral election, the employee will generally recognize
compensation income when the employee's right to the shares of Common Stock to
which the DSUs relate are no longer subject to a substantial risk of forfeiture.
The amount of compensation income the officer recognizes is equal to the fair
market value of the shares that cease to be subject to a substantial risk of
forfeiture as of the date the risk of forfeiture lapses. If, however, the
employee elects to defer receipt of all or any portion of such shares subject to
DSUs in accordance with the provisions of the 1993 Stock Option Plan, the
employee will not recognize compensation income until the employee receives the
shares. The amount of compensation income recognized with respect to any shares
subject to DSUs deferred under the 1993 Stock Option Plan will equal the fair
market value of the shares at the time the employee receives the shares. Subject
to limitations under Code Section 162(m) of the Code (discussed below), the
Company will be entitled to a tax deduction at the time and in the amount that
the employee recognizes compensation income. The employee's basis in any shares
of Common Stock received with respect to DSUs granted under the 1993 Stock
Option Plan will equal the amount of compensation income recognized by the
employee and the employee's holding period on any shares received will begin
when the employee receives the shares.
Social Security and Medicare taxes with respect to the DSUs are payable
at the time the DSUs are no longer subject to a substantial risk of forfeiture
even if the employee elects to defer receipt of the shares. The amount of
compensation taken into account for purposes of Social Security and Medicare
taxes will equal the fair market value of the shares of Common Stock as of the
date on which the risk of forfeiture with respect to such shares lapses. The
amount of annual compensation that is subject to Social Security taxes is
limited to $76,200 in 2000 (subject to cost of living increases in later years).
There is no limit on the amount of compensation subject to Medicare taxes.
Neither DSUs nor the delivery of Common Stock with respect to DSUs will be
subject to Social Security or Medicare taxes attributable to any period after
the DSUs vest.
Section 162(m) of the Code provides that compensation payable to the
chief executive officer of the Company or to any of the four other highest-paid
executive officers of the Company as of the end of any taxable year in excess of
$1,000,000 cannot be deducted by the Company for Federal income tax purposes.
While performance-based compensation meeting certain requirements is not subject
to the compensation limitation under Section 162(m), the shares issued in
respect of DSUs will not qualify as performance-based compensation for purposes
of Section 162(m). Accordingly, to the extent that an executive officer's
compensation in any taxable year (taking into account any shares of Common Stock
delivered in respect of DSUs granted under the 1993 Stock Option Plan and
excluding any performance-based or other compensation not taken into account
under Section 162(m)) exceeds $1,000,000, the Company would not be entitled to a
Federal income tax deduction with respect to the portion of such compensation
that exceeds $1,000,000.
If a disqualified individual (i.e., an officer, shareholder or highly
compensated individual) receives any payments or rights (including payments
under a DSU Agreement) which are contingent upon a "change of control," such
payments may constitute "excess parachute payments" under Section 2080G of the
Code. A disqualified individual will be subject to an excise tax (in addition to
ordinary income tax liability) on the amount of such excess parachute payments
and the Company will not be allowed to deduct such excess parachute payments.
Payments under the DSU Agreements will be considered contingent on a change of
control to the extent that the change of control accelerates the vesting of
DSUs.
30
<PAGE> 35
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 2000. 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, 2000.
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.
31
<PAGE> 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership. The following table sets forth, as of February 29,
2000 (except as otherwise indicated), 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. Except as shown below, the address of each of
the persons in the table is c/o the Company at its principal executive office.
<TABLE>
<CAPTION>
Beneficial Ownership
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES PERCENT OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED (1) BENEFICIALLY OWNED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alexander Finance, LP (5).................................. 29,907,329 58.3%
1560 Sherman Avenue
Evanston, Illinois 60201
Westgate International, L.P. (2)(3)(4)..................... 18,138,700 46.0%
c/o Midland Bank Trust Corporation
(Cayman) Limited
P.O. Box 1109
Mary Street, Grand Cayman
Cayman Islands, British West Indies
Elliott Associates, L.P. (2)(3)(4)......................... 18,138,700 46.0%
712 Fifth Avenue
New York, New York 10019
Amr Abdelmonem............................................. 82,150 *
Mark Brodsky............................................... See Footnote (6) 0%
George Calhoun............................................. 210,000 *
Dennis Craig (7)........................................... 66,750 *
Howard S. Hoffmann (8)..................................... 3,333 *
Ted Laves (9).............................................. 0 0%
Samuel Perlman............................................. See Footnote (10) 0%
Tom L. Powers (11)......................................... 7,734 *
Cynthia Quigley (12)....................................... 30,000 *
All executive officers and directors as a group
(9 persons) (13)...................................... 399,967 1.9%
</TABLE>
* Denotes beneficial ownership of less than one percent.
32
<PAGE> 37
NOTES
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, under which shares that can be
acquired by a person within 60 days (but not shares that can be acquired
by others) are deemed to be owned by him and to be outstanding for
purposes of determining such person's beneficial ownership. 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) The Company believes that as of March 31, 2000, Elliott Associates',
Westgate's and Martley International, Inc.'s ("Martley") aggregate
beneficial ownership of Common Stock equaled 36,277,405 shares. The
Company further believes that, as of March 31, 2000, Elliott Associates
had sole voting and investment power with respect to 18,138,705 shares of
Common Stock. The Company believes Elliott Associates held the following
securities of the Company (the "Elliott Shares") (i) 60,500 shares of
Common Stock held outright; (ii) $833,334 face principal amount of the
March Notes, which, together with accrued interest thereon, are
convertible into 3,538,440 shares of Common Stock; (iii) $125,000 face
principal amount of the May Notes, which, together with accrued interest
thereon, are convertible into 518,427 shares of Common Stock; (iv)
$1,288,889 face principal amount of the Amended May Notes, which, together
with accrued interest thereon, are convertible into 5,559,361 shares of
Common Stock; (v) $1,666,668 face principal amount of the November Notes,
which, together with accrued interest thereon, are convertible into
6,744,586 shares of Common Stock; (vi) November Warrants exercisable for
666,666 shares of Common Stock; (vii) March Warrants exercisable for
333,334 shares of Common Stock; (viii) Amended May Warrants exercisable
for 555,556 shares of Common Stock; (ix) May Warrants exercisable for
144,444 shares of Common Stock; and (x) G Warrants exercisable for 17,391
shares of Common Stock. (The March Notes, May Notes, Amended May Notes,
March Warrants, May Warrants, Amended May Warrants and G Warrants are all
as amended by the November Financing.)
(3) The Company believes that as of March 31, 2000, Elliott Associates',
Westgate's and Martley's aggregate beneficial ownership of Common Stock
equaled 36,277,405 shares. The Company further believes that, as of March
31, 2000, Westgate and Martley had shared voting and investment power with
respect to 18,138,700 shares. The Company believes that Westgate and
Martley held the following securities of the Company (the "Westgate
Shares") (i) 60,500 shares of Common Stock held outright; (ii) $833,333
face principal amount of the March Notes which, together with accrued
interest thereon, are convertible into 3,538,436 shares of Common Stock;
(iii) $125,000 face principal amount of May Notes which, together with
accrued interest thereon, are convertible into 518,427 shares of Common
Stock; (iv) $1,288,889 face principal amount of Amended May Notes which,
together with accrued interest thereon, are convertible into 5,559,361
shares of Common Stock; (v) $1,666,668 face amount of November Notes
which, together with accrued interest thereon, are convertible into
6,744,586 shares of Common Stock; (vi) November Warrants exercisable for
222,222 shares of Common Stock; (vii) March Warrants exercisable for
333,333 shares of Common Stock; (viii) Amended May Warrants exercisable
for 555,555 shares of Common Stock; (ix) May Warrants exercisable for
144,445 shares of Common Stock; and (x) G Warrants exercisable for 17,391
shares of Common Stock. (The March Notes, May Notes,
33
<PAGE> 38
Amended May Notes, March Warrants, May Warrants, Amended May Warrants and
G Warrants are all as amended by the November Financing.)
(4) The amount of shares of Common Stock into which convertible notes and
warrants of Elliott Associates, Westgate and Martley are each convertible
or exchangeable is subject to the provision contained in the Investor
Notes and Investor Warrants that the amount of shares of Common Stock into
which such Investor Notes and Investor Warrants are each convertible or
exchangeable is limited to that amount which would result in such Investor
and its affiliates together having beneficial ownership of Common Stock
not exceeding 9.99% of all of the outstanding shares of Common Stock (the
"Ownership Limitation"); provided that (i) the Investor shall have the
right, at any time and from time to time, to reduce the Ownership
Limitation applicable to it immediately upon written notice to the
Company, (ii) the Investor shall have the right to increase its Ownership
Limitation and otherwise waive in whole or in part the related
restrictions upon 61 days prior notice to the Company and immediately upon
written notice to the Company in the event of an occurrence or notice of
an intended or pending Business Combination or the delivery by the Company
of a notice of a redemption of the relevant Investor Note and (iii) unless
such right is waived by the Investor, the Investor can make subsequent
adjustments pursuant to (i) or (ii) any number of times (which adjustments
shall be effective upon 61 days prior written notice or immediately in the
event of a reduction in the Ownership Limitation or in the event of a
Business Combination or redemption). (Business Combination is defined as
(1) an acquisition by an individual, legal entity or "group" within the
meaning of Section 13(d) under the Exchange Act of voting securities of
the Company pursuant to which, after giving effect to such acquisition,
such individual, legal entity or group will beneficially own in excess of
50% of the issued and outstanding voting securities of the Company, (2) a
replacement of more than one-half of the members of the Company's board of
directors which is not approved by those individuals who are members of
the Company's board of directors on the date thereof in one or a series of
related transactions, (3) the merger of the Company with or into another
entity, consolidation or sale, transfer or disposition of all or
substantially all of the assets of the Company in one or a series of
transactions or (4) the execution by the Company of an agreement to which
the Company is a party or by which it is bound providing for an event set
forth in (1), (2) or (3) above, pursuant to which the Common Stock is
converted into other securities, cash or property.) However the Ownership
Limitation is suspended during any periods when such Investor has the
status of "director by deputization" of the Company for purposes of
Section 16 under the Securities Exchange Act of 1934, as amended, as is
currently the case with respect to Elliott Associates and Westgate due to
the election of their affiliates and designees, Messrs. Brodsky and
Perlman, to the board. Although Alexander is also subject to the Ownership
Limitation, it has waived it effective May 10, 2000.
(5) According to Schedule 13 D/A, Alexander Finance, LP ("Alexander"), as of
March 27, 2000, had sole voting and investment power with respect to
29,907,329 shares of Common Stock. As of March 27, 2000, Alexander held
the following securities of the Company (i) $1,333,333 face principal
amount of March Notes which, together with accrued interest thereon, are
convertible into 5,656,888 shares of Common Stock; (ii) $804,778 face
principal amount of May Notes which, together with accrued interest
thereon, are convertible into 3,340,723 shares of Common Stock; (iii)
$1,972,222 face principal amount of Amended May Notes which, together with
accrued interest thereon, are convertible into 8,505,974 shares of Common
Stock; (iv) $2,666,664 face amount of November Notes which, together with
accrued interest thereon, are convertible into 10,803,446 shares of Common
Stock; (v) November Warrants exercisable for 1,066,668 shares of Common
Stock; (vi) March Warrants exercisable for 533,334 shares of Common Stock;
and (vii) 296 shares of
34
<PAGE> 39
Common Stock. The amount of shares of Common Stock into which Alexander's
convertible notes and warrants are each convertible or exchangeable is
limited by the Ownership Limitation. On March 10, 2000, Alexander gave
the Company notice that it waives the application of the Ownership
Limitation. The waiver is effective 61 days from the date of the notice,
or April 30, 2000. (The March Notes, May Notes, Amended May Notes, March
Warrants, May Warrants, Amended May Warrants and G Warrants are all as
amended by the November Financing.)
(6) Mr. Brodsky did not individually own any shares as of February 29, 2000.
However, Mr. Brodsky provides management services to Elliott Associates,
L.P. and Westgate International, L.P., each of which beneficially owns
18,071,279 shares. See Notes (2)(3) and (4), above.
(7) Includes 53,750 shares which Mr. Craig had a right to acquire within 60
days of February 29, 2000.
(8) All shares beneficially owned by Mr. Hoffman were acquirable by him within
60 days of February 29, 2000.
(9) Dr. Laves resigned from the Company in November 1999. He did not have
beneficial ownership of any shares of the Company as of February 29, 2000.
(10) Mr. Perlman did not individually own any shares as of February 29, 2000.
However, Mr. Perlman provides management services to Elliott Associates,
L.P., and Westgate International, L.P., each of which beneficially owns
18,071,279 shares. See Notes (2)(3) and (4), above.
(11) Includes 5,334 shares which Mr. Powers had a right to acquire within 60
days of February 29, 2000.
(12) All shares beneficially owned by Ms. Quigley were acquirable by her within
60 days of February 29, 2000.
(13) Includes shares beneficially held by all current executive officers and
directors of the Company as of February 29, 2000.
35
<PAGE> 40
CHANGE IN CONTROL
The effect of the November Financing and related matters, including
changes in the membership of the board of directors described on page 5 of this
Proxy Statement may have been an acquisition of control of the Company by the
Investors and/or by their designees to the board of directors, from the board of
directors of the Company as previously constituted.
MISCELLANEOUS AND OTHER MATTERS
Solicitation. The cost of this proxy solicitation will be borne by the
Company. The regular employees of the Company may solicit proxies in person or
by telephone or facsimile. 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.
Stockholder Proposals for 2001 Annual Meeting. The Company intends to
hold its next annual meeting of stockholders in June 2001. Proposals of
stockholders intended to be included in the Company's proxy statement and proxy
for the Company's 2001 Annual Meeting of Stockholders must be received by the
Secretary of the Company not later than December 15, 2000. Other proposals of
stockholders intended to be considered at the Company's 2001 Annual Meeting of
Stockholders must be received by the Secretary of the Company between November
16 and December 15, 2000. The Company may generally exercise discretionary
authority conferred by proxies at the 2001 annual meeting in the case of any
such proposals not included in the Company's proxy material and not timely
submitted.
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.
MATERIAL INCORPORATED BY REFERENCE
The financial statements of the Company listed below and Management's
Discussion and Analysis of Financial Conditions and Results of Operations are
included in the Company's Annual Report to Stockholders on Form 10-K for the
year ended December 31, 1999, which is being sent to stockholders along with
this proxy statement:
Report of Independent Auditors
Balance Sheets as of December 31, 1999 and 1998
Statements of Operations for the Years Ended December 31, 1999,
1998, and 1997
Statements of Stockholders' Equity (Net Capital Deficiency) for the
Years Ended December 31, 1999, 1998, and 1997
Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Financial Statements
By Order of the Board of Directors,
/s/ Cynthia Quigley
-----------------------------------
CYNTHIA QUIGLEY
Secretary
April 13, 2000
36
<PAGE> 41
EXHIBIT A
The following is the text of the 1993 Stock Option Plan, as amended and
restated through March 15, 2000. Insertions since November 5, 1999 are
identified by double underscore and deletions are identified by strike-out.
ILLINOIS SUPERCONDUCTOR CORPORATION
A DELAWARE CORPORATION
1993 STOCK OPTION PLAN
(as amended and restated through MARCH 15, 2000)
1. Purpose. The purposes of this Amended and Restated 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) "Cause" means any of the following: (i) willful
malfeasance or willful misconduct by the Employee or Consultant in
connection with his or her employment; (ii) gross negligence in
performing any of the Employee's or Consultant's duties to the Company;
(iii) conviction of, or entry of a plea of guilty to, or entry of a
plea of nolo contendere with respect to, any crime other than a traffic
violation or infraction which is a misdemeanor; or (iv) willful and
continuing breach of any written policy applicable to all employees
adopted by the Company concerning conflicts of interest, political
contributions, standards of business conduct or fair employment
practices, procedures with respect to compliance with securities laws
or any similar matters, or adopted by the Company pursuant to the
requirements of any government contract or regulation.
(c) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations promulgated
thereunder.
(d) "Committee" means the Committee appointed by the
Board or otherwise determined in accordance with Section 4(a) of this
Plan.
(e) "Common Stock" means the common stock of the Company, par
value $.001 per share.
(f) "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.
A-1
<PAGE> 42
(g) "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.
(h) "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.
(i) "DSU" means a deferred stock unit granted pursuant to this
Plan.
(j) "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.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations promulgated
thereunder.
(l) "Good Reason" means any of the following: (i) any change
in, or diminution of, the Employee's or Consultant's duties or
responsibilities that is inconsistent in any material and adverse
respect with such person's duties and responsibilities with the Company
immediately prior to the Change of Control; (ii) any reduction in the
Employee's or Consultant's base salary or annual target bonus
opportunity as in effect immediately prior to the Change of Control; or
(iii) any requirement that the Employee or Consultant relocate his or
her principal office to a location that is more than 35 miles from such
person's principal office immediately prior to the Change of Control.
No action taken by the company in good-faith shall constitute good
reason unless the employee or Consultant provides the chief executive
officer of the Company and the Committee with a written notice
describing the action(s) that the Employee or Consultant believes to
constitute Good Reason and the company fails to remedy such action(s)
within 30 days after the Chief Executive Officer of the Company and the
Committee receive such written notice.
(m) "Grantee" means an Employee, Consultant or Outside
Director who receives an Option or an Employee who receives a Deferred
Stock Unit (a "DSU").
(n) "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.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(p) "Option" means a stock option granted pursuant to this
Plan.
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(q) "Optioned Stock" means the Common Stock subject to an
Option.
(r) "Outside Director" means any member of the Board of
Directors of the Company who is not an Employee or Consultant.
(s) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this Illinois Superconductor Corporation
Plan, as amended from time to time.
(u) "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.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section of this Plan.
(w) "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 11 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 6,011,468, and such Shares are
hereby made available and shall be reserved for issuance under this Plan.
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
Options and DSUs under this Plan. If any DSUs granted under this Plan are
forfeited, the Shares subject to such forfeited DSUs shall (unless the Plan
shall have terminated) become available for grants of Options and DSUs 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, Nonstatutory Stock Options and DSUs, (ii) determine, upon
review of relevant information and in accordance with Section 8 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 and DSUs shall be granted, and the number of
shares to be represented by each Option or DSU; (v) cancel, with the
consent of the Grantee, outstanding Options and grant new Options in
substitution therefor; (vi) interpret this Plan; (vii) accelerate or
defer (with the consent of the Grantee) the exercise date
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<PAGE> 44
of any Option or the vesting date of any DSU; (viii) prescribe, amend
and rescind rules and regulations relating to this Plan; (ix) determine
the terms and provisions of each Option and DSU granted (which need not
be identical) by which Options and DSUs 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
of any Option and the obligation of any Grantee to sell purchased or
granted Shares to the Company upon specified terms and conditions) of
any Option or DSU; (x) require withholding from or payment by a Grantee
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 or DSU, 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 or DSU,
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. Except as provided in Section 5(b), 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 Grantees and
any other holders of any Options or DSUs granted under this Plan.
5. Eligibility.
(a) DSUs may be granted to any Employee and 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 and DSUs shall be granted, as well as in determining
the number of Options and DSUs 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 3 above a
Grantee may, if he or she is otherwise eligible, be granted additional Options
and/or DSUs if the Committee shall so determine. Subject to adjustment as
provided in Section 11 below, during any calendar year, Options for no more than
500,000 Shares of Common Stock shall be granted to any individual Employee,
Consultant or Outside Director, and DSUs for no more than 150,000 Shares of
Common Stock shall be granted to any individual Employee.
(b) All grants of Options to Outside Directors under this Plan 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; 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 11 below). On
the date of the Annual Meeting of Stockholders of the Company
in each calendar year, each Outside Director who is
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<PAGE> 45
reelected at that meeting, or whose term of office does not
expire at that meeting, shall be automatically granted an
option to purchase 10,000 Shares (subject to adjustment as
provided in Section 11 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).
(iii) The terms of each Option granted under this Section 5(b)(ii)
above shall be as follows:
(A) the term of the option shall be ten (10) years;
(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.
(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.
Notwithstanding anything to the contrary herein, no automatic grants of
options shall be made under the Plan during the period commencing on
November 5, 1999 and ending on the date of effectiveness, if any, of an
amendment to the Corporation's Certificate of Incorporation providing
for at least 120 million authorized shares of Common Stock, provided,
however, that, in the event of adoption of such an amendment, any such
automatic grants that would otherwise have been made during such period
shall be made on the first business day following the effective date of
the aforementioned amendment.
(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 Grantee 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.
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<PAGE> 46
(d) This Plan shall not confer upon any Grantee 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 or
DSUs granted hereunder shall not be construed to give any Grantee 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; Consideration and Tax Withholding.
(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 11 below.
(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
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<PAGE> 47
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 Grantee'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 Grantee 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 Grantee for Federal
income tax purposes with respect to an option, the Grantee 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 Grantee.
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 a Grantee 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
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<PAGE> 48
the Grantee, and as shall otherwise be permissible under
the terms of this Plan. An Option may not be exercised
for a fraction of a Share. 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. A Grantee may exercise an Option, in
whole or in part, at any time during the option period by
the Grantee'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 Grantee 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 Grantee
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
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<PAGE> 49
Option is granted. No shares of Common Stock shall be
issued until full payment therefor has been made. A
Grantee 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 Grantee 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 a Grantee's Continuous Status as an
Employee, Consultant or Outside Director (as the case
may be) is terminated for any reason whatever, such
Grantee 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 Grantee; (A) lend to the Grantee, with
recourse, an amount equal to such portion of the option
exercise price as the Committee may determine; or (B)
guarantee a loan obtained by the Grantee from a
third-party for the purpose of tendering the option
exercise price.
9. Deferred Stock Units.
(a) Grant of Deferred Stock Units. Subject to such terms and
conditions as the Committee shall determine, an Employee may be granted
Deferred Stock Units ("DSUs"), entitling the Employee to receive Shares
of Common Stock without any payment in cash or property in one or more
installments at a future date or dates. DSUs shall be non-transferable
and may be conditioned on such matters as the Committee shall
determine, including continued employment or attainment of performance
goals. No Shares of Common Stock will be issued at the time an award of
DSUs is made and the Company shall not be required to set aside a fund
for the payment of any such award. The Company will establish a
separate recordkeeping account for the Employee and will record in such
account the number of DSUs awarded to the Grantee. The Committee may
permit Grantees to further defer receipt of Shares of Common Stock
payable with respect to DSUs.
(b) Rights as a Stockholder; Dividend Equivalents. A Grantee
shall not have any right in respect of DSUs awarded pursuant to the
Plan to vote on any matter submitted to the Company's stockholders
until such time as the Shares of Common Stock attributable to such DSUs
have been issued to such Grantee or his beneficiary. The Committee will
determine whether and to what extent to pay dividend equivalents to
Grantees of DSUs.
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<PAGE> 50
(c) Settlement of Deferred Stock. An Employee shall receive one
share of Common Stock for each vested DSU on such date or dates and/or
upon the occurrence of such event as the Committee may specify in the
award agreement or on such later date as may be elected by the Grantee
in a deferral election made accordance with the rules and procedures
established by the Committee. If a Grantee's Continuous Status as an
Employee is terminated for any reason, the Grantee shall immediately
forfeit all rights with respect to any nonvested DSUs credited to his
or her account.
10. Non-transferability of Options and DSUs. Except as otherwise
provided in an Option Agreement, Options and DSUs granted hereunder shall by
their 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 Grantee's lifetime only by the Grantee.
11. 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 or DSUs have yet been granted or which have been returned to
this Plan upon cancellation or expiration of an Option, or forfeiture
of a DSU, the maximum number of Shares for which Options or DSUs may be
granted to any Employee, Consultant or Outside Director during any
calendar year (as provided in Section 5(a) above), and the number of
shares of Common Stock subject to each outstanding Option and DSU, as
well as the exercise price per share of Common Stock covered by each
outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number of shares of Common Stock issued as a result
of 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 exercise price of shares of Common Stock
subject to an Option or DSU.
(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 Grantee 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. In the event of a proposed dissolution or
liquidation of the Company, each nonvested DSU shall be forfeited,
unless otherwise provided by the Committee, and the deferred Shares of
Common Stock payable with respect to each vested DSU shall be issued to
the Grantee immediately prior to the consummation of the proposed
action notwithstanding any deferral election made by the Grantee.
(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
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<PAGE> 51
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
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. With respect to Options granted to any Employee
or Consultant prior to February 15, 2000 and with respect to any
Options granted to any Outside Director (whether granted before or
after February 15, 2000), each such Option that is outstanding
immediately prior to a Change of Control shall become exercisable in
full regardless of any vesting conditions otherwise expressed in the
award agreement. Except as otherwise provided in an award agreement
with respect to Options or DSUs granted to an Employee or Consultant
on or after February 15, 2000 and prior to a Change of Control, each
such outstanding DSU shall vest, and each such outstanding Option
shall become exercisable in full, regardless of any vesting conditions
otherwise expressed in the award agreement, upon the Employee's or
Consultant's termination of employment with the Company following the
Change of Control of the Company if the Employee's or Consultant's
employment is terminated by the Company without Cause or by the
Employee or Consultant for Good Reason.
(d) Purchased Shares. No adjustment under this Section 11
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 11, the Company shall give each
Grantee 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 a Grantee 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 Grantee 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 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 Grantee with respect to any Subject Options,
such Grantee shall have the right, whether or not the Subject Option is
fully exercisable or may be otherwise realized by the Grantee, 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 Grantee 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;
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provided, however, that if the end of such 60-day period from and after
a sale of the Company is within six months of the date of grant of a
Subject Option held by a Grantee (except a Grantee 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
Grantee, 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 Grantee 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 of the Company, and the Committee shall have sole discretion,
if necessary, to approve the Grantee'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 Grantee 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 of the Company or (b) if the sale of the Company 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 a Grantee under this Plan (without the application of this Section),
either alone or together with other payments or rights accruing to the
Grantee 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 Grantee. The Grantee 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 Grantee
as the Committee may deem relevant to its determination.
12. 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 Grantee, 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 Grantee may exercise the
substituted Option at the same time as if the Grantee had held the substituted
Option since the date the canceled Option was granted.
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<PAGE> 53
13. 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 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.
(b) Effect of Amendment or Termination. Any such amendment or
termination of this Plan shall not affect Options or DSUs already
granted and such Options and DSUs shall remain in full force and
effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Grantee and the Committee, which
agreement must be in writing and signed by the Grantee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to a DSU or to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares pursuant to a DSU or upon
exercise of an Option hereto 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.
15. Restrictions on Shares. Shares of Common stock issued in respect of
DSUs or 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 or receiving shares in respect of
DSUs 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.
16. Shareholder Rights. No person shall have any rights of a
shareholder as to shares of Common Stock subject to an Option or DSU until,
after proper exercise of the Option or other action required or, in the case
of DSUs, after the conditions for delivery of Shares subject to DSUs have been
satisfied and such shares shall have been recorded on the Company's official
shareholder records
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<PAGE> 54
as having been issued or transferred. Subject to the preceding Section and upon
exercise of the Option or any portion thereof or satisfaction of the conditions
for delivery of Shares subject to DSUs, the Company will have thirty (30) days
in which to issue the shares, and the Grantee 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.
17. 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
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 or issuance of the last Share subject to an outstanding DSU, (b)
the date the Company is no longer a reporting company under the Exchange Act and
(c) the date all Grantees have disposed of all shares delivered
pursuant to any Option or DSU. 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 Grantees.
18. 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
and the issuance of Shares subject to all outstanding DSUs. 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.
19. Option and DSU Agreements. Options and DSUs shall be evidenced by
written agreements in such form as the Committee shall approve.
20. Information to Grantees. To the extent required by applicable law,
the Company shall provide to each Grantee, during the period for which such
Grantee has one or more Options or DSUs 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 Grantee, and no
Grantee 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.
21. 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.
22. 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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ILLINOIS SUPERCONDUCTOR CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEE[S] LISTED IN
PROPOSAL 1 AND "FOR" PROPOSALS 2, 3, 4 AND 5.
1. ELECTION OF DIRECTOR:
NOMINEES: GEORGE CALHOUN [ ] FOR [ ] WITHHOLD AUTHORITY
SAMUEL PERLMAN [ ] FOR [ ] WITHHOLD AUTHORITY
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 AND THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S 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,
2000:
[ ] 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.
Dated:
---------------------
---------------------------
Signature
---------------------------
Signature (if held jointly)
NOTE: Please date your
proxy and sign exactly as
the name or names appears
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,
officer, etc.
[ ] Please check this box if you plan to attend the meeting.
<PAGE> 56
PROXY PROXY
ILLINOIS SUPERCONDUCTOR CORPORATION
451 KINGSTON COURT - MT. PROSPECT, ILLINOIS 60056
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE MAY 17, 2000 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Dr. George Calhoun and Ms. Cynthia
Quigley and either 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
10, 2000 at the Annual Meeting of Stockholders of Illinois Superconductor
Corporation, to be held on May 17, 2000, at the Renaissance Hotel located at One
West Wacker, Chicago, Illinois 60601, beginning at 1:00 p.m. local time, or at
any adjournment or postponement thereof, upon the matters set forth in the
Notice of Annual Meeting of Stockholders and Proxy Statement, receipt of which
is hereby acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE NOMINEES 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 AND THE NUMBER OF SHARES OF PREFERRED STOCK, "FOR" THE PROPOSAL TO
APPROVE THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S 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, 2000.
PLEASE SIGN, DATE AND RETURN THIS PROXY IMMEDIATELY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
(Continued and to be signed on reverse side.)
