<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Confidential, For Use of the Commission Only
(as permitted by 14a-6(e)(2))
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c)
or Rule 14a-12
SUPERCONDUCTOR TECHNOLOGIES INC.
----------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SUPERCONDUCTOR TECHNOLOGIES INC.
----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:____________
(2) Aggregate number of securities to which transaction
applies: ______________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined): __________________
(4) Proposed maximum aggregate value of transaction:_______
(5) Total fee paid: ________________
[ ] 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
SUPERCONDUCTOR TECHNOLOGIES INC.
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997
TO THE STOCKHOLDERS OF SUPERCONDUCTOR TECHNOLOGIES INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Superconductor Technologies Inc., a Delaware corporation (the "Company"), will
be held on May 20, 1997, at 10:30 a.m., local time, at the Sheraton-Palace
Hotel, Marina Room, Two New Montgomery Street, San Francisco, California, for
the following purposes:
1. To elect seven (7) directors to serve for the ensuing year and
until their successors are duly elected and qualified.
2. To approve an amendment to the Company's 1988 Amended and
Restated Stock Option Plan (the "1988 Plan") to increase the number of shares
reserved for issuance thereunder by 500,000 shares.
3. To ratify the appointment of Price Waterhouse LLP as
independent auditors of the Company for the year ending December 31, 1997.
4. To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on MARCH 21, 1997
are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the meeting, you are urged
to mark, sign, date and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any stockholder
attending the Annual Meeting may vote in person even if such stockholder has
previously returned a proxy.
James G. Evans, Jr.
Vice President and
Chief Financial Officer
Santa Barbara, California
April 17 , 1997
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENVELOPE PROVIDED.
<PAGE> 3
SUPERCONDUCTOR TECHNOLOGIES INC.
-----------
460 WARD DRIVE, SUITE F
SANTA BARBARA, CALIFORNIA 93111-2310
(805) 683-7646
MEETING TO BE HELD AT:
SHERATON-PALACE HOTEL
MARINA ROOM
TWO NEW MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The enclosed Proxy is solicited on behalf of Superconductor
Technologies Inc. (the "Company") for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held on Tuesday, May 20, 1997, at 10:30 a.m.,
local time, and at any adjournment(s) thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Sheraton-Palace Hotel, Marina Room, Two New
Montgomery Street, San Francisco, California.
These proxy solicitation materials were first mailed on or about April
18, 1997, to all stockholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE
Stockholders of record at the close of business on MARCH 21, 1997 (the
"Record Date"), are entitled to notice of the Annual Meeting and to vote at the
Annual Meeting. At the Record Date, 7,697,394 shares of the Company's Common
Stock, $0.001 par value, were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company at or before the taking of the vote at the Annual Meeting a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common
Stock on all matters presented at the Annual Meeting. Stockholders do not have
the right to cumulate their votes in the election of directors.
Shares of Common Stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated thereon. In the absence of specific instructions to
the contrary, properly executed proxies will be voted: (i) FOR the election of
each of the Company's nominees for director, (ii) FOR approval of an amendment
to the Company's Amended and Restated 1988 Stock Option Plan increasing the
number of shares authorized thereunder by 500,000 shares, and (iii) FOR
ratification of the appointment of Price Waterhouse LLP as independent auditors
for the Company for the period ending December 31, 1997. No business other
than that set forth in the accompanying Notice of Annual Meeting of
Stockholders is expected to come before the Annual Meeting. Should any other
matter requiring a vote of stockholders properly arise, the persons named in
the enclosed form of proxy will vote such proxy in accordance with the
recommendation of the Board of Directors.
<PAGE> 4
Proxies may be solicited by certain of the directors, officers and
employees of the Company, without additional compensation, personally or by
telephone, telegram, letter or facsimile. In addition, the Company may
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the votes eligible to be cast by holders of shares of
Common Stock issued and outstanding on the Record Date. Shares that are voted
"FOR" or "AGAINST" a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as shares entitled to
vote at the Annual Meeting (the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business and (ii) the total
number of Votes Cast with respect to a proposal (other than the election of
directors). In the absence of controlling precedent to the contrary, the
Company intends to treat abstentions in this manner. Accordingly, abstentions
will have the same effect as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware
Supreme Court held that, while broker non-votes should be counted for the
purpose of determining the presence or absence of a quorum for the transaction
of business, broker non-votes should not be counted for purposes of determining
the number of Votes Cast with respect to the particular proposal on which the
broker has expressly not voted. Accordingly, the Company intends to treat
broker non-votes in this manner. Thus, a broker non-vote will not affect the
outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1998 Annual Meeting of
Stockholders must be received by the Company no later than December 19, 1997 in
order to be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
2
<PAGE> 5
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
The Bylaws of the Company provide for a Board of seven (7) directors.
Unless otherwise instructed, the proxy holders will vote the proxies received
by them for management's seven (7) nominees named below, all of whom are
presently directors of the Company. In the event that any management nominee
is unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee who is designated by the present
Board of Directors to fill the vacancy. It is not expected that any nominee
will be unable or will decline to serve as a director. The term of office of
each person elected as a director will continue until the next annual meeting
of stockholders or until a successor has been duly elected and qualified.
The names of the nominees and certain information about them as of
March 21, 1997 are set forth below:
<TABLE>
<CAPTION>
Director
Name Age Since Principal Occupation
- - ---------------------------------------- --- -------- -----------------------------------------------------
<S <C> <C> <C>
Glenn E. Penisten 65 1987 Chairman of the Board of the Company
E. Ray Cotten 65 1996 Vice Chairman of the Board of the Company
M. Peter Thomas 55 -- President and Chief Executive Officer
Robert P. Caren, Ph.D.(l)(2) 64 1988 Director
Charles Crocker(l)(2) 58 1987 President and Chairman of the Board, BEI Electronics,
Inc.
Dennis Horowitz(l)(2) 50 1990 Corporate Vice President and President of the Americas,
AMP Incorporated
J. Robert Schrieffer, Ph.D.(l)(2) 65 1988 Chairman of the Technical Advisory Board of the
Company; University Professor, Florida State
University; Chief Scientist of the National High
Magnetic Field Laboratory
</TABLE>
- - ----------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Glenn E. Penisten has served as Chairman of the Board since May 1994.
Mr. Penisten is a founder of the Company and has served on its Board of
Directors since May 1987. He served as the Company's Chief Executive Officer
from August 1987 to June 1988. Mr. Penisten has been a General Partner of
Alpha Partners, a venture capital firm, since 1985. Mr. Penisten was Chairman
of the American Electronics Association in 1982, while he was CEO and Chairman
of the Board of Directors of American Microsystems Inc., a semiconductor
company. Mr. Penisten is a director of Bell Microproducts Inc., IKOS Systems,
Inc., Network Peripherals, Inc. and Pinnacle Systems. Mr. Penisten holds a
B.S. in electrical engineering from Oklahoma State University.
E. Ray Cotten joined the Board of Directors in July 1996 and since
August 1996 has served as Vice Chairman of the Board. Since August 1994, he
has served as Chairman of the Board of Impulse Telecommunications Corporation,
a wireless communications consulting and engineering firm ("Impulse"). Prior
to joining Impulse, from December 1992 to August 1994, Mr. Cotten was
President, Chief Executive Officer and Chief Operating Officer of Scott
Instruments Corporation, a pioneer in voice recognition systems, and from
December 1990 to November 1992, he was President and Chief Executive Officer of
ACS Software Products Group, a software company for the apparel industry.
Prior to December 1990, he also served as Vice Chairman and co-founder of
NetAmerica, a digital networking company, was a vice president at
Microdynamics, Inc., a CAD/CAM company for the apparel industry, Northern
Telecom, Inc., a telecommunications company, Data Transmission Corporation, a
digital networking company, and Danray, a communications switch manufacturing
company, and he spent nearly 10 years with Texas Instruments, where he held
various management positions. Mr. Cotten received his B.A. in business from
Oklahoma State University.
3
<PAGE> 6
M. Peter Thomas joined the Company as President and Chief Executive
Officer and member of the Board of Directors effective April 7, 1997. Prior to
joining the Company, Mr. Thomas was President and Chief Executive Officer of
First Pacific Networks, Inc., a telecommunications company, from June, 1995 to
January 1997, which company filed for bankruptcy in February 1997 under Chapter
11 of U.S. Bankruptcy Code. From August 1991 to May 1995, Mr. Thomas engaged
in general business consulting in conjunction with The Stanbridge Group, a
consulting firm which he co-founded in 1989. From January 1990 to July 1991,
he was President and Chief Executive Officer of Data-Design Laboratories, Inc.,
an electronics company, and from 1989 to 1990, he consulted for The Stanbridge
Group. Prior to 1989, Mr. Thomas also served as President and Chief Executive
Officer of Ericsson North America, Inc., the North American operating
subsidiary of Sweden's L.M. Ericsson, a telecommunications company, as
President and Chief Operating Officer of Telenova, Inc. a telecommunications
company, and as President of the Telecom Network Systems Division of ITT, Inc.,
a telecommunications company. Mr. Thomas received his B.S.E. in Aerospace
Engineering from Princeton University and his M.B.A. from the Harvard Business
School.
Robert P. Caren, Ph.D., has served on both the Board of Directors and
the Technical Advisory Board of the Company since January 1988. From 1988 to
1995, when he retired, Dr. Caren served as Corporate Vice President, Sciences
and Engineering, for Lockheed Martin Corporation. Dr. Caren is a fellow of the
American Institute of Aeronautics and Astronautics and the American Association
for the Advancement of Science. He is a member of the National Academy of
Engineering and past Chairman of the Research Division of the Defense
Preparedness Association. Dr. Caren received his Ph.D., M.S. and B.S. degrees
in physics from Ohio State University.
Charles Crocker is a founder of the Company and has served on its
Board of Directors since May 1987; from May 1987 to August 1987, he served as
President of the Company. Mr. Crocker has served as President and Chief
Executive Officer and Chairman of the Board of BEI Electronics, Inc., a sensor
and medical device company, since 1974. He founded and has served as President
of Crocker Capital, a private venture capital company, since its inception in
1971. He is a director of Kera Vision, Inc., Pope & Talbot, Inc. and Fiduciary
Trust Company International. Mr. Crocker holds an M.B.A. from the University
of California, Berkeley, and a B.S. from Stanford University.
Dennis Horowitz has served on the Board of Directors of the Company
since June 1990. Since September 1994, Mr. Horowitz has served as Corporate
Vice President and President of the Americas, AMP Incorporated, an
interconnection device company. From October 1993 to August 1994, Mr. Horowitz
served as President and Chief Executive Officer of Philips Technologies, a
Philips Electronics North America company. From April 1990 to September 1993,
Mr. Horowitz served as President of Philips Components, Discrete Products
Division. From 1988 to 1990, he served as Division President of Magnavox CATV,
and from 1980 to 1988 he was involved in the general administration of North
American Philips Corporation. Philips Components and Magnavox are divisions of
North American Philips Corporation. Mr. Horowitz is a director of Aerovox
Corporation. Mr. Horowitz holds an M.B.A. and a B.A. degree in economics from
St. John's University.
J. Robert Schrieffer, Ph.D., founded the Technical Advisory Board of
the Company in August 1987 and has served as its Chairman since that time. He
has also served on the Board of Directors of the Company since October 1988.
He received the Nobel Prize in Physics in 1972 for work in superconductivity
theory, and he has received many other professional honors including the
National Medal of Science. Dr. Schrieffer is currently the President of the
American Physical Society. He is also the University Eminent Scholar of the
State of Florida University System and has been the Chief Scientist of the
National High Magnetic Field Laboratory since January 1992. Dr. Schrieffer was
Chancellor's Professor of Physics and Director of the Institute for Theoretical
Physics at the University of California, Santa Barbara, from 1980 to 1991. Dr.
Schrieffer serves on a number of government and industrial committees and is a
Fellow of the Los Alamos National Laboratory, heading its Advanced Study
Program in High Temperature Superconductivity Theory from 1988 to 1993. Dr.
Schrieffer received his Ph.D. and M.S. in physics from the University of
Illinois and his B.S. in physics from the Massachusetts Institute of
Technology.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The seven (7) nominees receiving the highest number of affirmative
votes shall be elected as directors. Votes withheld from any director are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business but have no other legal effect under Delaware law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
NOMINEES SET FORTH ABOVE.
4
<PAGE> 7
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven (7)
meetings during the fiscal year ended December 31, 1996. The Board of
Directors has an Audit Committee and a Compensation Committee. The Board does
not have a nominating committee or any committee performing similar functions.
The functions of the Audit Committee are to recommend selection of
independent public accountants to the Board of Directors, to review the scope
and results of the year-end audit with management and the independent auditors
and to review the Company's accounting principles and its system of internal
accounting controls. The Audit Committee met one (1) time during fiscal 1996.
The functions of the Compensation Committee are to review and approve
salaries, bonuses and other benefits payable to the Company's executive
officers and to administer the Company's Amended and Restated 1988 Stock Option
Plan and the 1992 Director Option Plan. The Compensation Committee met five
(5) times during fiscal 1996.
No incumbent director attended fewer than 75% of the aggregate of (i)
the total number of meetings of the Board of Directors held during fiscal 1996,
except E. Ray Cotten, who joined the Board in July 1996 and has attended all
subsequent meetings, and Robert P. Caren, who attended five (5) of the seven
(7) Board of Directors meetings; and (ii) the total number of meetings held by
all committees of the Board of Directors during fiscal 1996 on which such
person served.
BOARD COMPENSATION
Each nonemployee director of the Company is paid $1,000 for each
non-telephonic Board meeting in which the Board member participates.
Nonemployee directors also participate in the 1992 Director Option Plan, as
amended (the "Director Plan"). The Director Plan provides for the automatic
grant of a nonstatutory stock option to purchase 15,000 shares of Common Stock
of the Company to each of the Company's nonemployee directors on the date on
which such person (i) first becomes a director or (ii) ceases to serve as a
representative of a stockholder of the Company (a "First Option"), and an
additional automatic grant of a nonstatutory stock option to purchase 3,000
shares of Common Stock of the Company on June 1 of each year provided such
person has served on the Board for at least six (6) months (a "Subsequent
Option"). First Options vest at the rate of twenty-five percent (25%) of the
shares granted on each anniversary of the date of grant, and Subsequent Options
vest at the rate of fifty percent (50%) of the shares on each anniversary of
the date of grant. During the fiscal year ended December 31, 1996, directors
Caren, Crocker, Horowitz and Schrieffer were each automatically granted an
option to purchase 3,000 shares at a per share exercise price of $7.50, and
Robert P. Caren, Dennis Horowitz and E. Ray Cotten each received an additional
15,000 shares at an exercise price of $7.625. Except as described above,
directors do not receive additional compensation for their services as
directors of the Company or as members of committees of the Board of Directors.
There are no family relationships between directors and executive
officers of the Company.
PROPOSAL TWO:
APPROVAL OF AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1988 STOCK OPTION PLAN
GENERAL
The Amended and Restated 1988 Stock Option Plan (the "Plan") was
adopted by the Board of Directors (the "Board") and the Stockholders in January
1993. The Plan provides for the grant of incentive and nonstatutory stock
options to employees and consultants ("Optionees") of the Company.
As of December 31, 1996, options to purchase an aggregate of 1,167,508
shares of Common Stock were outstanding and unexercised pursuant to the Plan,
and 302,045 shares remained available for future grant (giving effect to the
increase of 500,000 shares being presented to the stockholders for approval at
the Annual Meeting). Options to purchase 508,034 shares of Common Stock were
granted during the year ended December 31, 1996.
5
<PAGE> 8
PROPOSAL
In July 1996, the Board approved an increase in the number of shares
reserved for issuance under the Plan by 500,000 shares, and in January 1997,
the Board approved amendments to the Plan designed to meet the following
objectives: (i) to reflect the changes adopted in 1996 by the Securities
Exchange Commission to the rules governing employee benefit plans (Rule 16b-3
("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) and to meet the requirements of Section 162(m) ("Section
162(m)") of the Internal Revenue Code of 1986, as amended (the "Code"); (ii) to
delete from the Plan various provisions of the Plan which have become
inapplicable due to the Company's initial public offering; and (iii) to provide
the Administrator of the Plan greater flexibility with respect to option grants
under the Plan. At the Annual Meeting, the stockholders are being requested to
approve the increase in the number of shares reserved for issuance under the
Plan by 500,000 shares. All of the Plan amendments, including the increase in
the number of shares authorized for issuance under the Plan, are discussed in
detail below.
(i) Increase in Shares Reserved Under the Plan. The proposed
amendment increases the number of shares reserved for issuance under the Plan
by 500,000 shares (the "Increase"), for a total number of shares authorized for
issuance under the Plan of 1,972,883 shares. The continued success of the
Company depends upon its ability to attract and retain highly qualified and
competent employees. The Plan enhances that ability and provides additional
incentive to such personnel to advance the interests of the Company and its
stockholders. The Increase is necessary in order to meet the current number of
shares authorized for grant by the Board of Directors and to provide for an
adequate reserve for future grants enabling the Company to compete with other
companies to attract and retain valuable employees.
(ii) Revisions Reflecting Changes Made in 1996 to Rule 16b-3 and
Section 162(m). The Plan has been changed to incorporate the following changes
in Rule 16b-3 and to conform to the requirements of Section 162(m):
(A) The definition of "consultant" was changed to include
non-employee directors so that all directors may now receive discretionary
option grants;
(B) The administration provisions of the Plan are simplified
to permit options to qualify as "performance-based compensation" within the
meaning of Section 162(m);
(C) Tax withholding provisions upon exercise of a stock
option are no longer considered a derivative security;
(D) The Plan has been amended to expressly set forth the
requirements for the exercise price of options where (i) the options are
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) (Section 9(a)), and (ii) the options are granted in connection
with a merger or asset sale;
(E) At the discretion of the administrator, options may be
transferable; and
(F) Reference to Rule 16b-3 requiring stockholder approval of
a Plan amendment has been deleted as it is no longer applicable.
(iii) Deletion of Various Provisions Which Have Become Inapplicable.
Certain sections of the Plan have become inapplicable as a result of the
Company 's registration of its Common Stock pursuant to Section 12(g) of the
Exchange Act and have been deleted from the Plan.
(iv) Provide the Administrator of the Plan Greater Flexibility. A
number of provisions have been amended or added to the Plan to provide the
Administrator with greater flexibility in administering the Plan.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the amendment to the Plan increasing the authorized number
of shares reserved for issuance under the Plan by 500,000 shares requires the
affirmative vote of a majority of the Votes Cast.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
6
<PAGE> 9
SUMMARY OF THE AMENDED AND RESTATED 1988 STOCK OPTION PLAN
The essential features of the Plan, taking into account the above
described amendments, are summarized below:
Purposes. The purposes of the Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business. It is intended that these purposes will
be effected through the granting of stock options, which may be either
"incentive stock options," as defined in Section 422 of the Code, or
nonstatutory stock options.
Administration. The Plan provides for administration by a committee of
two or more "outside directors" to the extent that the Administrator determines
it to be desirable to qualify options as "performance-based compensation"
within the meaning of Section 162(m); however, the Plan may be administered by
different committees with respect to different groups of service providers, and
may be administered by either the Board of Directors or a committee constituted
to satisfy the legal requirements under state corporate and securities laws and
the Code. The Plan is currently administered by the Compensation Committee of
the Board of Directors of the Company (the "Administrator") made up of four
"outside directors" of the Company. Subject to the other provisions of the
Plan, the Administrator has the authority to determine the employees or
consultants to whom, and the time or times at which, options are granted and
the number of shares to be represented by each option. The interpretation and
construction of any provision of the Plan by the Administrator shall be final
and binding.
Eligibility. The Plan provides that incentive stock options may be
granted only to employees (including officers and directors who are employees)
and nonstatutory options may be granted to employees or consultants (which now
include non-employee directors) of the Company, or of any parent or subsidiary
of the Company. Currently, approximately 66 employees and a small number of
consultants of the Company are eligible to participate in the Plan. An
employee or consultant who has been granted an option may, if otherwise
eligible, be granted additional options.
Terms and Conditions. Each option granted under the Plan is
designated as either an incentive stock option or a nonstatutory stock option
in a written stock option agreement between the optionee and the Company.
However, notwithstanding such designations, to the extent that the aggregate
"fair market value of the shares" (defined herein as the closing price per
share of the Common Stock of the Company as listed on the National Association
of Securities Dealers Automated Quotation National Market System on the date of
grant) with respect to which options designated as incentive stock options are
exercisable for the first time by any optionee during any calendar year (under
all plans of the Company) exceeds $100,000, such options will be treated as
nonstatutory stock options.
(a) Exercise Price.
(i) In the case of an incentive stock option granted
to an employee who, at the time the incentive stock 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 per share
exercise price must 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 other employee, the per share exercise price must be no less
than one hundred percent (100%) of the fair market value per share on the date
of grant;
(iii) In the case of a nonstatutory stock option,
the per share exercise price shall be determined by the Administrator but in no
event shall be less than 50% of the fair market value per share on the date of
grant;
(iv) In the case of a nonstatutory stock option
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the per share exercise price shall be no less than
100% of the fair market value per share on the date of grant.
Notwithstanding the foregoing, options may be granted with a per share exercise
price of less than 100% of the fair market value per share on the date of grant
pursuant to a merger or other corporate transaction.
(b) Exercise of Options. Any option granted under the
Plan is exercisable at such times and under such conditions as determined by the
Administrator and set forth in the written option agreement. Options granted to
date typically vest over three to four years, assuming continued employment. In
no event may an option granted under the Plan be exercised
7
<PAGE> 10
more than ten years after the date of grant. However, in the case of an option
granted to an optionee who, at the time the option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any parent or subsidiary, the term of the option will be
five (5) years from the date of grant or such shorter time as may be provided in
the notice of grant. No options granted under the Plan may be exercised for a
fraction of a share. An option is exercised by giving written notice of
exercise to the Company, specifying the full number of shares of Common Stock to
be purchased and by tendering payment of the purchase price to the Company.
(b) Form of Consideration. The consideration to be paid
for the shares of Common Stock issued upon exercise of an option shall be
determined by the Administrator and is set forth in the option agreement. Such
form of consideration may vary for each option, and may consist entirely of (i)
cash; (ii) check; (iii) promissory note; (iv) other shares of the Company's
Common Stock, which, in the case of shares acquired upon exercise of an option,
have been beneficially owned for at least six months on the date of surrender
and have a fair market value on the date of surrender equal to the aggregate
exercise price of the shares being purchased; (v) delivery of a properly
executed notice providing for cashless exercise together with such other
documentation as the Administrator and a broker, if applicable, shall require
to effect an exercise of the option and deliver to the Company of the sale or
loan proceeds required to pay the exercise price; (vi) any combination thereof;
or (vii) any other legally permissible form of consideration as may be provided
in the option agreement.
(c) Termination of Employment or Consulting Relationship.
In the event of an optionee's termination of employment or consulting
relationship (for a reason other than disability or death), such optionee may
exercise his or her option, but only within such period of time, of at least
thirty (30) days, as is determined by the Administrator, and only to the extent
that the optionee was entitled to exercise the option at the date of
termination (but in no event later than the expiration of the term of such
option as set forth in the notice of grant). In the case of an incentive
stock option, the Administrator shall determine such period of time (in no
event to exceed ninety (90) days from the date of termination) when the option
is granted. If, at the date of termination, the optionee is not entitled to
exercise his or her entire option, the shares of Common Stock covered by the
unexercisable portion of the option shall revert to the Plan. Notwithstanding
the foregoing, in no event may the option be exercised after its ten year term
has expired.
(d) Disability. In the event of termination of an
optionee's employment as a result of such optionee's total and permanent
disability (as defined in Section 22(e)(3) of the Code), the optionee may, but
only within twelve months from the date of such termination, exercise an option
to the extent the optionee was entitled to exercise it at the date of such
disability. Notwithstanding the foregoing, in no event may the option be
exercised after its ten year term has expired.
(e) Death. In the event of the death of an optionee, the
option may be exercised, but only within twelve months following the date of
death, by the optionee's estate or by a person who acquired the right to
exercise the option by bequest or inheritance, but only to the extent the
optionee was entitled to exercise it at the date of death. Notwithstanding the
foregoing, in no event may the option be exercised after its ten year term has
expired.
(f) Nontransferability of Options. Unless determined
otherwise by the Administrator, the option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the optionee, only by the optionee. If the Administrator makes an
option transferable, such option shall contain such additional terms and
conditions as the Administrator deems appropriate.
(g) Other Provisions. The stock option agreement may
contain such terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Board.
Adjustment Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Change of Control. In the event of changes in the outstanding Common
Stock of the Company by reason of any stock splits, reverse stock splits, stock
dividends, combinations or reclassifications, an appropriate adjustment shall
be made in the number of shares of Common Stock subject to the Plan, the number
and class of shares of stock subject to any option outstanding under the Plan,
and the exercise price of any such outstanding option. In the event of the
proposed dissolution or liquidation of the Company, all outstanding options
will terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board. The Board may, in the exercise of its
sole discretion in such instances, declare that any option shall terminate as
of a date fixed by the Board and give each optionee the right to exercise his
option as to all or any part of the optioned stock, including shares as to
which the option would not otherwise be exercisable.
8
<PAGE> 11
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each outstanding option shall be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of the
successor corporation. In the event the successor corporation does not agree
to assume the option or to substitute an equivalent option, subject to the
"change of control" provisions of the Plan set forth below, the Board shall in
lieu of such assumption or substitution, provide for the optionee to have the
right to exercise the option as to all of the stock subject to the option for a
period of fifteen (15) days from the date of notice of acceleration of
exercisability, including shares as to which the option would not otherwise be
exercisable.
In the event of a "change of control" of the Company, as defined
below, except as otherwise determined by the Board of Directors, in its
discretion, prior to the occurrence of any such change in control, any options
outstanding on the date such change in control is determined to have occurred
that are not yet exercisable and vested shall become fully exercisable and
vested and, except as otherwise determined by the Board of Directors, in its
discretion, all outstanding options, to the extent they are exercisable and
vested (including the options described above) shall be terminated in exchange
for a cash payment equal to the highest fair market value of a share of Common
Stock of the Company, or the highest price paid or offered per share, as
determined by the Board of Directors, in a bona fide transaction or bona fide
offer related to the change in control of the Company, within the 60-day period
immediately preceding the date of determination of the amount of such cash
payment by the Board of Directors, or some lower price as the Board of
Directors, in its discretion, determines to be a reasonable estimate of the
fair market value of a share of Common Stock of the Company. A "change of
control" means the occurrence of any of the following: (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company, a subsidiary of the Company or a Company employee benefit plan,
including any trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 13d-3), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities entitled to
vote generally in the election of directors; (ii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve an agreement for the
sale or disposition by the Company of all or substantially all of the
Company's assets; or (iii) a change in the composition of the Board of
Directors of the Company, as a result of which fewer than a majority of the
directors are "incumbent directors" (i.e., directors who either (A) are
directors of the Company as of the date the Plan is approved by the
stockholders, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of
such directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company)).
Amendment and Termination of the Plan. The Plan will continue in
effect until October 1998, unless sooner terminated as described below. The
Board may amend, alter, suspend or discontinue the Plan; provided, however,
that such action shall not impair (without optionee's consent) the rights of
any optionee under any grant under the Plan made before such amendment,
alteration, suspension or discontinuation, and provided further that the
Company shall obtain stockholder approval of any Plan amendment to the extent
necessary and desirable to comply with Section 422 of the Code (or any
successor rule or statute or other applicable law, rule or regulation).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Options granted under the Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not
recognize any taxable income either at the time the option is granted or upon
its exercise, although the exercise may subject the optionee to the alternative
minimum tax. Upon the sale or exchange of the shares more than two years after
grant of the option and one year after exercising the option, any gain or loss
will be treated as long-term capital gain or loss. If these holding periods
are not satisfied, the optionee will recognize ordinary income at the time of
sale or exchange equal to the difference between the exercise price and the
lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. A different rule for measuring
ordinary income upon such a premature disposition may apply if the optionee is
also an officer, director or ten percent (10%) stockholder of the Company.
Generally, the Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain
or loss, depending on the holding period.
9
<PAGE> 12
All other options that do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory option.
However, upon its exercise, the optionee will recognize taxable income
generally measured as the excess of the then fair market value of the shares
purchased over the purchase price. Upon resale of such shares by the optionee,
any difference between the sales price and the optionee's purchase price, to
the extent not recognized as taxable income as described above, will be treated
as long-term or short-term capital gain or loss, depending on the holding
period.
The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the optionee with respect to shares acquired
upon exercise of a nonstatutory option.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the Plan, does not purport to be complete, and does
not discuss the tax consequences of the optionee's death or the income tax laws
of any municipality, state or foreign country in which an optionee may reside.
PROPOSAL THREE:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected Price Waterhouse LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1997.
A representative of Price Waterhouse LLP is expected to be present at
the Annual Meeting and will have the opportunity to make a statement if such
person desires to do so. Such representative is expected to be available to
respond to appropriate questions.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
Ratification of the Board's appointment of Price Waterhouse LLP
requires the affirmative vote of a majority of the Votes Cast. In the event
the stockholders do not approve the selection of Price Waterhouse LLP, the
appointment of the independent auditors will be reconsidered by the Board of
Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
10
<PAGE> 13
VOTING SECURITIES OF PRINCIPAL
STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 21, 1997, by (i) each person known by the
Company to be the beneficial owner of more than 5% of the Company's Common
Stock, (ii) by each director, (iii) by each of the executive officers named in
the table under "Executive Compensation--Summary Compensation Table," and (iv)
all directors and executive officers as a group. Except as otherwise indicated
in the footnotes to the table, the persons and entities named in the table have
sole voting and investment power with respect to all shares beneficially owned,
subject to community property laws, where applicable.
<TABLE>
<CAPTION>
Number Percentage
Name of Shares Ownership
---- --------- ----------
<S> <C> <C>
Lockheed Martin Corporation(l)............................ 502,380 6.52%
6801 Rockledge Drive
Bethesda, Maryland 20817
Glenn E. Penisten(2)...................................... 225,521 2.88
Daniel C. Hu(3)........................................... 261,193 3.29
Charles Crocker(4)........................................ 131,281 *
Robert B. Hammond(5)...................................... 73,542 *
J. Robert Schrieffer(6)................................... 41,625 *
James P. Simmons, Jr.(7).................................. 28,375 *
Gregory L. Hey-Shipton(8)................................. 23,264 *
James G. Evans, Jr.(6).................................... 21,250 *
E. Ray Cotten(6).......................................... 15,655 *
Dennis Horowitz(6)........................................ 12,125 *
Robert P. Caren(6)........................................ 8,375 *
All executive officers and directors as a group
(11 persons)(9).......................................... 842,206 10.18%
</TABLE>
- - -----------------------
* Less than one percent.
(1) Includes 8,333 shares issuable upon the exercise of warrants that are
exercisable within 60 days of March 21, 1997.
(2) Includes 96,997 shares held by a trust for the benefit of Glenn and Mary
Louise Penisten. Also includes 128,264 shares issuable upon the exercise
of stock options that are exercisable within 60 days of March 21, 1997.
(3) Includes 245,709 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 21, 1997. Mr. Hu ceased service
with the Company in April 1997.
(4) Includes 1,035 shares held of record by Trust Fund FBO Charles Crocker.
Includes 4,625 shares issuable upon the exercise of stock options and
2,778 shares issuable upon the exercise of a warrant, all of which are
exercisable within 60 days of March 21, 1997. Does not include 113,094
shares beneficially owned by BEI Electronics, Inc., and 2,778 shares
issuable upon the exercise of a warrant which is exercisable by BEI
Electronics, Inc. within 60 days of March 21, 1997. Mr. Crocker is
Chairman of the Board of Directors of BEI Electronics, Inc., and he
disclaims any beneficial ownership of such shares.
(5) Includes 41,042 shares issuable upon the exercise of stock options
that are exercisable within 60 days of March 21, 1997.
(6) All shares are issuable upon the exercise of stock options that are
exercisable within 60 days of March 21, 1997.
(7) Includes 28,125 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 21, 1997.
(8) All shares issuable upon the exercise of stock options that are
exercisable within 60 days of March 21, 1997; however, Dr. Hey-Shipton
ceased service with the Company in January 1997, and his options will
expire as of April 24, 1997 if not exercised prior to such date.
(9) See footnotes (2)-(8). Includes 2,778 shares issuable upon exercise of
a warrant held by Mr. Crocker and 570,059 shares issuable upon exercise
of stock options held by executive officers and directors that are
exercisable within 60 days of March 21, 1997.
11
<PAGE> 14
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation received for services
rendered to the Company in all capacities during the fiscal years ended
December 31, 1996, 1995 and 1994 by the Company's Chief Executive Officer at
December 31, 1996 and the four executive officers other than the Chief
Executive Officer whose total salary and bonus for fiscal year 1996 exceeded
$100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------- ------------
Securities All Other
Other Annual Underlying Compensation(2)
Name and Principal Position Year Salary($) Bonus($) Compensation($)(1) Options(#) ($)
- - -------------------------------- ---- --------- --------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Daniel C. Hu(3) 1996 236,248 -- -- 160,000(3) 1,529
President and Chief Executive 1995 180,857 -- 12,546(4) -- 1,558
Officer 1994 166,291 -- 12,706(4) -- 1,558
Robert B. Hammond 1996 148,265 -- -- 25,000 839
Senior Vice President and Chief 1995 141,921 -- -- -- 851
Technical Officer 1994 134,244 -- -- 15,000 788
James G. Evans, Jr. 1996 130,260 -- -- 35,000 463
Vice President and Chief 1995 91,281 -- -- 45,000 358
Financial Officer 1994 N/A N/A N/A N/A N/A
James P. Simmons, Jr. 1996 130,155 -- -- 20,000 750
Vice President Marketing and 1995 121,233 -- -- 15,000 419
Sales 1994 66,752 -- 24,581(5) 45,000 407
Gregory L. Hey-Shipton 1996 119,685 -- -- 20,000(6) 422
Vice President and General 1995 112,395 -- -- 10,000 383
Manager, Government Products 1994 105,720 -- -- 10,000 369
Business Unit
</TABLE>
- - -----------------
(1) Excludes certain perquisites and other amounts that, for any executive
officer, in the aggregate did not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus for such executive officer.
(2) Term life insurance premiums.
(3) Mr. Hu resigned from his positions with the Company in April 1997;
amounts shown include options to purchase 160,000 shares which will
terminate prior to the vesting of any shares under such options.
(4) Hotel and transportation expenses.
(5) Relocation expenses.
(6) Mr. Hey-Shipton ceased service with the Company in January 1997;
amounts shown include options to purchase 20,000 shares which
terminated prior to the vesting of any shares under such option and
options to purchase an additional 20,000 shares, of which 6,806 are
vested, and all of which, if not sooner exercised, will expire on
April 24, 1997.
12
<PAGE> 15
OPTION GRANTS IN FISCAL 1996
The following table sets forth certain information regarding stock
options granted during the fiscal year ended December 31, 1996 to each of the
executive officers named in the table under "Executive Officer
Compensation--Summary Compensation Table."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
Potential Realizable Value
at Assumed Annual
% of Total Rates of Stock Price
Number of Options Appreciation for
Securities Granted to Option Term (2)
Underlying Employees Exercise --------------------------
Options in Fiscal Price Expiration
Name Granted (#) Year(1) ($/Sh) Date 5%($) 10%($)
--------------------------- ----------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel C. Hu(3) 160,000 31.43 7.13 07/11/06 716,940 1,816,866
Robert B. Hammond(4) 10,000 1.96 7.50 02/22/06 47,167 119,531
15,000 2.95 7.38 08/20/06 69,571 176,308
James G. Evans, Jr.(4) 15,000 2.95 7.50 05/16/06 71,930 182,284
20,000 3.93 7.38 08/20/06 92,762 235,077
James P. Simmons, Jr.(4) 10,000 1.96 7.50 05/23/06 47,167 119,531
10,000 1.96 7.38 08/20/06 46,381 117,539
Gregory L. Hey-Shipton(5) 10,000 1.96 7.50 07/10/06 47,167 119,531
10,000 1.96 7.38 08/20/06 46,381 117,539
</TABLE>
- - ------------
(1) Total number of shares subject to options granted to employees in fiscal
1996 was 509,034, which number includes options granted to employee
directors, but excludes options granted to nonemployee directors and
consultants.
(2) The Potential Realizable Value is calculated based on the fair market
value on the date of grant, which is equal to the exercise price of
options granted in fiscal 1996, assuming that the stock appreciates in
value from the date of grant until the end of the option term at the
annual rate specified (5% and 10%). Potential Realizable Value is net of
the option exercise price. The assumed rates of appreciation are
specified in rules of the SEC and do not represent the Company's estimate
or projection of future stock price. Actual gains, if any, resulting from
stock option exercises and Common Stock holdings are dependent on the
future performance of the Common Stock and overall stock market
conditions, as well as the option holders' continued employment through
the exercise/vesting period. There can be no assurance that the amounts
reflected in this table will be achieved.
(3) Mr. Hu resigned from his positions with the Company in April 1997. The
options to purchase 160,000 shares will terminate prior to the vesting of
any shares under such options.
(4) Each option vests over a four-year period at the rate of 1/4th of the
shares subject to the option at the end of the first twelve months and
1/36th of the remaining shares subject to the option at the end of each
monthly period thereafter so long as such optionee's employment with the
Company has not terminated.
(5) Mr. Hey-Shipton ceased service with the Company in January 1997. Options
to purchase 20,000 shares terminated prior to the vesting of any shares
under such options, and the balance of Mr. Hey-Shipton's options to
purchase will expire as of April 24, 1997, if not exercised prior to such
date.
13
<PAGE> 16
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND 1996 FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning the
value of unexercised options as of December 31, 1996 for each of the executive
officers named in the table under "Executive Compensation--Summary Compensation
Table."
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at Fiscal Year-End: Fiscal Year-End:
Shares Value --------------------------- --------------------------
Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Name Exercisable ($) (#) (#) ($) ($)
----------------------- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel C. Hu (1) -- -- 108,466 291,827 N/A(2) N/A(2)
Robert B. Hammond 5,312 16,998 29,584 50,416 N/A(2) N/A(2)
James G. Evans, Jr. -- -- 12,188 67,812 N/A(2) N/A(2)
James P. Simmons, Jr. -- -- 20,313 59,687 N/A(2) N/A(2)
Gregory L. Hey-Shipton(3) -- -- 22,049 41,701 19,612(4) N/A(2)
</TABLE>
- - ------------
(1) Mr. Hu ceased service with the Company in April 1997, and his options to
purchase 160,000 shares (all of which were unexercisable at December 31,
1996) will terminate prior to the vesting of any shares under such
options. Mr. Hu's remaining options to purchase 240,293 shares at
December 31, 1996 became fully vested as of April 7, 1997.
(2) The fair market value of the Company's Common Stock as of December 31,
1996 was $3.938, which did not exceed the exercise price of such
exercisable or unexercisable options held by such person.
(3) Dr. Hey-Shipton's options will expire on April 24, 1997, if not exercised
prior to such date.
(4) Market value of underlying securities based on the $3.938 closing price of
the Company's Common Stock on December 31, 1996 (the last market trading
day in 1996), minus the exercise price.
14
<PAGE> 17
TEN YEAR OPTION REPRICINGS
The following table identifies stock options to purchase shares of the
Company's Common Stock held by the Named Officers which were granted at a lower
exercise price during the last fiscal year, pursuant to the January Repricing
in exchange for options previously granted to the Named Officers. The
Compensation Committee Report on Repricing of Options on page 17 sets forth the
basis for these exchanges.
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF OPTION TERM
SECURITIES MARKET PRICE REMAINING
UNDERLYING OF STOCK AT EXERCISE PRICE NEW AT DATE OF
OPTIONS TIME OF AT TIME OF EXERCISE REPRICING
NAME DATE REPRICED (#) REPRICING ($) REPRICING ($) PRICE
------------------------- ---------- ------------ ------------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel C. Hu (1) 01/12/96 96,117 4.68 7.00 4.88 7 yrs
President and Chief 01/12/96 144,176 4.68 7.00 4.88 7 yrs 2 mos
Executive Officer
Robert B. Hammond 01/11/96 25,000 4.63 7.00 4.88 7 yrs
Senior Vice President 01/11/96 15,000 4.63 6.25 4.88 7 yrs 9 mos
and Chief Technical 01/11/96 15,000 4.63 7.25 4.88 8 yrs 9 mos
Officer
James G. Evans, Jr. 01/12/96 45,000 4.69 6.25 4.88 9 yrs 4 mos
Vice President and Chief
Financial Officer
James P. Simmons, Jr. 01/15/96 45,000 4.75 6.50 4.88 8 yrs 7 mos
Vice President, 01/15/96 15,000 4.75 6.25 4.88 9 yrs 7 mos
Marketing and Sales
Gregory L. Hey-Shipton(2) 01/09/96 10,000 4.75 7.00 4.88 7 yrs
Vice President and 01/09/96 7,500 4.75 7.50 4.88 7 yrs 8 mos
General Manager, 01/09/96 10,000 4.75 6.38 4.88 8 yrs 8 mos
Government Products 01/09/96 10,000 4.75 5.88 4.88 9 yrs 8 mos
Business Unit
</TABLE>
- - ------------
(1) Mr. Hu ceased service with the Company in April 1997. Mr. Hu's options
listed in this table are fully vested effective April 7, 1997.
(2) Dr. Hey-Shipton ceased service with the Company in January 1997. Dr.
Hey-Shipton's unexercised options expire on April 24, 1997, if not
exercised prior to such date.
CERTAIN TRANSACTIONS
In connection with his relocation at the time of accepting employment
with the Company in May 1991, the Company entered into an employment agreement
with Gregory Hey-Shipton, formerly the Vice President and General Manager,
Government Products Business Unit of the Company, pursuant to which he was
appointed Engineering Manager at a base annual salary of $90,000. The
agreement provided for a loan by the Company to Dr. Hey-Shipton of $150,000
without interest and payable on or before April 1997 (the "Hey- Shipton Loan").
This loan, the purpose of which was to assist Dr. Hey-Shipton in the purchase
of a residence in Santa Barbara (where the Company's facilities are located),
was secured by a second mortgage on Dr. Hey-Shipton's Santa Barbara house and
was to be repaid in April 1997 or upon the sale of his Santa Barbara residence,
if consummated prior to that date. During 1996, the maximum principal amount
outstanding under the Hey-Shipton Loan was $150,000, and the amount outstanding
as of December 31, 1996 was $150,000. Dr. Hey-Shipton paid the loan in full on
March 31, 1997.
15
<PAGE> 18
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and the holders of more
than 10% of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
equity securities of the Company. Based solely upon a review of such forms, or
on written representations from certain reporting persons that no other reports
were required for such persons, the Company believes that all reports required
pursuant to Section 16(a) with respect to its executive officers, directors and
10% stockholders for the 1996 fiscal year and prior years were complied with,
except that the Forms 4 required to be filed on behalf of Robert B. Hammond for
transactions occurring in September 1993, October 1994 and November 1994; the
Forms 4 required to be filed on behalf of Gregory Hey-Shipton for transactions
occurring in August and September of 1994; and the Form 3 required to be filed
on behalf of James P. Simmons in connection with his employment by the Company
in May of 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors is
composed of four nonemployee directors, namely, Robert P. Caren, Ph.D.,
Charles Crocker, Dennis Horowitz and J. Robert Schrieffer. No interlocking
relationship exists between the Company's Board of Directors and the
compensation committee of any other company, and no such interlocking
relationship has existed in the past.
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the "Committee") of the Board of Directors
of the Company is comprised of four independent, non-employee directors who
have no interlocking relationships with the Company or any of its affiliates.
As part of their duties, the Compensation Committee reviews compensation levels
of the executive officers to insure compensation is in line with performance
and industry practices. The goal of the Committee is to insure the
compensation practices of the Company are sufficient to attract the necessary
technical and manufacturing talent to enable the growth from a development
stage company into one with commercialized products.
The Committee meets with the Chief Executive Officer to gather input
on the performance of the other executive officers. In determining individual
salaries for officers, consideration is given to individual factors, such as
experience, performance and responsibilities within the Company, as well as
industry-specific comparables. Because the superconductivity industry is
small, the Committee uses other industries for comparable measures which have
similar manufacturing techniques and challenges, in particular the
semiconductor industry. As the Company is still in the development stages,
bonus plans are based upon goal attainment rather than upon profitability.
Historically, the Company has not given bonuses on an annual or recurring
basis.
The Compensation Committee also administers the Company's Stock Option
Program, which is made available to all employees. In addition to the
executive officers, the Committee also reviews stock option grants to all
employees. The size of the stock option awards is based primarily on an
individual's performance, responsibilities and position with the Company, as
well as such individual's present equity ownership and unvested and vested
stock options. The Committee believes the stock option program is crucial to
the retention and motivation of all employees. The Committee also believes it
is essential to insure all employees have a stake in the Company. With all
employees as stakeholders, the Committee believes this enhances the overall
stockholder value and creates an environment in which creativity and technical
achievement will excel.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
When reviewing the Chief Executive Officer's compensation, the
Committee did so without his attendance. The Chief Executive Officer earned a
salary of $236,248 in fiscal 1996, which was determined based on a number of
factors, including the Company's overall achievement of milestones, his
individual performance and comparable salaries of chief executive officers in
comparable technology companies. As stated previously, the superconductivity
industry is small; the Committee uses other industries for comparable measures
which have some of the same manufacturing techniques and challenges. Daniel C.
Hu, who served as the Company's Chief Executive Officer during all of fiscal
1996, ceased service with the Company in April 1997. The options he was
granted upon joining the Company, which were in part based upon performance,
have been accelerated to vest on April 7, 1997. In addition, during 1996 Mr.
Hu received an additional grant of options to purchase 160,000 shares, which
options will terminate prior to the vesting of any shares under such options.
16
<PAGE> 19
$1,000,000 LIMIT ON TAX DEDUCTIBLE COMPENSATION
Section 162(m), enacted as part of the Omnibus Budget Reconciliation
Act of 1993, limits to $1,000,000 the deductibility, for any year beginning
after December 31, 1993, of compensation paid by a public corporation to the
chief executive officer and the next four most highly compensated executive
officers unless such compensation is performance-based within the meaning of
Section 162(m) and the regulations thereunder.
The Committee intends to continue to utilize performance-based
compensation in order to minimize the effect of the limits imposed by Section
162(m) and seeks to assure the maximum tax deductibility of all compensation it
authorizes. However, the Committee believes that its primary responsibility is
to provide a compensation program that will attract, retain and reward the
executive talent necessary to the Company's success. Consequently, the
Committee recognizes that the loss of a tax deduction may be necessary in some
circumstances.
Charles Crocker
Robert P. Caren
Dennis Horowitz
J. Robert Schrieffer, Ph.D.
REPORT ON REPRICING OF OPTIONS
On November 9, 1995, the Board of Directors of the Company voted to
offer to all employees of the Company, including the Named Officers, the
opportunity, extending through January 15, 1996, to exchange existing, higher
priced options granted under the 1988 Plan at an exercise price greater than
$4.875 per share for new options with an exercise price of $4.875 per share,
which price was equal to the closing price of the Company's Common Stock on
that date. If the employee elected to reprice the options, vesting of the
repriced options restarted as of November 9, 1995, the date of approval of the
repricing by the Board. For options repriced with less than one year vesting,
a new four-year vesting schedule was started. For options with more than one
year and less than two years vesting, a three-year vesting schedule was
started, with the first vesting occurring after nine months. For options with
over two years vesting, a two-year vesting schedule was started, with the first
vesting in six months. Fifty-one employees with a total of 135 grants equal to
797,055 shares were eligible for repricing. No options were repriced as of
December 31, 1995, but as of January 15, 1996, forty-two employees elected to
reprice 102 grants with an aggregate of 633,268 shares. The Ten Year Option
Repricings Table on Page 15 lists the Named Officers who participated in the
repricing and the extent of such participation.
The Company believes that given the disparity in November of 1995
between the trading price of its Common Stock and the exercise price of certain
existing stock options, the repricing was desirable in order to incentivize the
Company's employees to work towards the future growth of the Company and to
retain key personnel. In exchange for the reduction in the exercise price, the
vesting commencement date of each exchanged option was restarted to commence
with the date of the repriced option.
Charles Crocker
Robert P. Caren
Dennis Horowitz
J. Robert Schrieffer, Ph.D.
17
<PAGE> 20
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total stockholders' return on
the Company's Common Stock since the Company's initial public offering in March
1993 with the NASDAQ-U.S. Index and the Hambrecht & Quist Technology Index over
the same period (assuming the investment of $100 in the Company's Common Stock
and in the two other indices, and reinvestment of all dividends).
<TABLE>
<CAPTION>
Superconductor Nasdaq Stock Market-
Dates Technologies H&Q Technology U.S.
-------- -------------- -------------- --------------------
<S> <C> <C> <C>
3/9/93 100 100 100
Mar-93 86.25 98.76 100.17
Apr-93 72.50 93.17 95.90
May-93 63.75 101.58 101.63
Jun-93 80.00 100.88 102.10
Jul-93 75.00 95.76 102.22
Aug-93 62.50 100.85 107.50
Sep-93 70.00 102.68 110.70
Oct-93 68.75 105.49 113.19
Nov-93 62.50 106.84 109.81
Dec-93 63.75 109.37 112.88
Jan-94 66.25 115.82 116.30
Feb-94 57.50 117.16 115.21
Mar-94 70.00 110.36 108.13
Apr-94 91.25 108.15 106.72
May-94 62.50 108.81 106.99
Jun-94 68.75 102.35 103.07
Jul-94 67.50 106.23 105.19
Aug-94 65.00 116.87 111.89
Sep-94 75.00 116.77 111.61
Oct-94 71.25 125.03 113.80
Nov-94 68.75 124.14 110.03
Dec-94 65.00 126.95 110.33
Jan-95 70.00 126.36 110.95
Feb-95 61.25 135.84 116.82
Mar-95 58.44 141.29 120.28
Apr-95 64.69 150.27 124.07
May-95 61.25 154.71 127.27
Jun-95 58.75 171.40 137.58
Jul-95 55.00 186.25 147.69
Aug-95 58.75 189.79 150.69
Sep-95 53.75 195.19 154.15
Oct-95 52.50 197.70 153.27
Nov-95 47.50 196.58 156.87
Dec-95 45.00 190.61 156.03
Jan-96 42.50 194.84 156.80
Feb-96 87.50 202.28 162.78
Mar-96 80.00 194.41 163.32
Apr-96 80.00 215.62 176.87
May-96 77.50 218.62 184.99
Jun-96 75.00 203.34 176.65
Jul-96 76.25 184.00 160.92
Aug-96 73.75 194.91 169.94
Sep-96 70.00 216.52 182.94
Oct-96 50.00 212.83 180.94
Nov-96 42.50 233.85 192.15
Dec-96 39.38 228.71 191.93
</TABLE>
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Santa Barbara, California
April 17, 1997
18
<PAGE> 21
DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SUPERCONDUCTOR TECHNOLOGIES INC.
P ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
R
The undersigned stockholder of SUPERCONDUCTOR TECHNOLOGIES INC., a
O Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated April 17, 1997
X and hereby appoints E. Ray Cotten and James G. Evans, Jr. or either of
them, proxies and attorneys-in-fact, with full power to each of substi-
Y tution, on behalf and in the name of the undersigned, to represent the
undersigned at the Annual Meeting of Stockholders of Superconductor
Technologies Inc. to be held on May 20, 1997 at 10:30 a.m., local time,
at the Sheraton-Palace Hotel, Marina Room, located at Two New Montgomery
Street, San Francisco, California, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned
would be entitled to vote if then and there personally present, on the
matters set forth on the reverse side.
[SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE]
<PAGE> 22
DETACH HERE
[X] Please mark
votes as in
this example
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1988 STOCK OPTION PLAN AND FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
1. ELECTION OF DIRECTORS
Nominees: Glenn E. Penisten; E. Ray Cotten; M. Peter Thomas;
Robert P. Caren, Ph.D.; Charles Crocker; Dennis Horowitz;
J. Robert Schrieffer, Ph.D.
FOR WITHHELD
[ ] [ ]
[ ]
----------------------------------------------
(INSTRUCTION: To withheld authority to vote for any individual nominee, write
their name in the space provided above.)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE [ ] [ ] [ ]
COMPANY'S AMENDED AND RESTATED 1988 STOCK
OPTION PLAN TO INCREASE THE AUTHORIZED
SHARES THEREUNDER BY 500,000 SHARES.
FOR AGAINST ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE [ ] [ ] [ ]
WATERHOUSE LLP AS INDEPENDENT AUDITORS OF
THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997.
</TABLE>
and in their discretion, upon such other matter or matters, which may properly
come before the meeting or any adjournment or adjournments thereof.
MARK HERE [ ]
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Signature:_______________Date:_________Signature:________________Date:__________
