<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:
[X] Preliminary proxy statement
[ ] 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)
- --------------------------------------------------------------------------------
(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)(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
PRELIMINARY COPIES
[LOGO OF SUPERCONDUCTOR TECHNOLOGIES INC.]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 2, 1999
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 JUNE 2, 1999, at 11:00 a.m., local time, at the Pacifica Suites, 5490
Hollister Avenue, Santa Barbara, 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 the removal of limitations on conversions of preferred
stock into common stock and exercises of warrants to purchase common
stock issued by the Company in private offerings in 1998 and 1999.
3. To approve a provision in the Company's Series C Preferred Stock
financing providing Wilmington Securities, Inc. (an indirect, wholly
owned subsidiary of The Hillman Company) representation on the Board
of Directors.
4. To approve the adoption of the Company's 1999 Stock Plan.
5. To ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors of the Company for the year ending December 31,
1999.
6. 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 APRIL 5, 1999
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 __, 1999
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
PRELIMINARY COPIES
[LOGO OF SUPERCONDUCTOR TECHNOLOGIES INC.]
460 WARD DRIVE
SANTA BARBARA, CALIFORNIA 93111-2310
(805) 683-7646
MEETING TO BE HELD AT:
PACIFICA SUITES
5490 HOLLISTER AVENUE
SANTA BARBARA, CA 93111
--------------
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 Wednesday, June 2, 1999, at 11:00 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 Pacifica Suites, 5490 Hollister Avenue, Santa Barbara, California
93111.
These proxy solicitation materials were first mailed on or about April
__, 1999, 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 APRIL 5, 1999 (the
"Record Date") are entitled to notice of the Annual Meeting and to vote at the
Annual Meeting. At the Record Date, the following types and amounts of the
Company's stock, each with a par value of $0.001 per share, were issued and
outstanding: 7,729,716 shares of Common Stock, 64,584 shares of Series A-2
Preferred Stock, 12,500 shares of Series A-3 Preferred Stock, 50,000 shares of
Series B-1 Preferred Stock and 41,667 shares of Series C Preferred Stock.
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 holder of Common Stock is entitled to one vote for each share of Common
Stock on all matters presented at the Annual Meeting. Holders of Series A-2,
Series A-3, Series B-1 and Series C Preferred Stock (collectively, the
<PAGE> 4
"Preferred Stock") shall be entitled to vote their pro rata share of the total
of 1,533,709 votes entitled to be cast by all of the holders of the Company's
Preferred Stock. Holders of Preferred Stock shall not be entitled to vote their
Preferred Stock on Proposals Two and Three. Stockholders do not have the right
to cumulate their votes in the election of directors.
Shares of Common Stock and Preferred 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 the removal of limitations on conversions of preferred stock and
exercises of warrants issued by the Company in private offerings in 1998 and
1999, (iii) FOR approval of the provision in the Company's Series C Preferred
Stock financing providing Wilmington Securities, Inc. ("Wilmington")
representation on the Company's Board of Directors, (iv) FOR the approval of the
adoption of the Company's 1999 Stock Plan, and (v) FOR the ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors of the Company
for the year ending December 31, 1999. As indicated above, the Preferred Stock
shall not be entitled to vote on Proposals Two and Three. 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.
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 and Preferred 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 2000 Annual Meeting of
Stockholders must be received by the Company no later than December 22, 1999 in
order to be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
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<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. If the
Company stockholders approve Proposal Three the size of the Company's Board of
Directors shall be increased to nine (9) at the meeting of the Board of
Directors immediately following the Annual Meeting and two directors designated
by Wilmington shall be appointed to fill the vacancies created by the expansion.
The reasons for the expansion and the background of the persons anticipated to
be designated by Wilmington for appointment to the new director positions are
detailed in Proposal Three below.
The names of the nominees and certain information about them as of March
31, 1999 are set forth below:
<TABLE>
<CAPTION>
Director
Name Age Since Principal Occupation
---- --- ----- --------------------
<S> <C> <C> <C>
Glenn E. Penisten 67 1987 Chairman of the Board of the Company
M. Peter Thomas 57 1997 President, Chief Executive Officer and
Director
E. Ray Cotten 68 1996 Senior Vice President, Marketing and Sales
and Director of the Company
Robert P. Caren, Ph.D. (1)(2) 66 1988 Retired Corporate Vice President, Science
and Engineering, Lockheed Corporation
Dennis Horowitz (1)(2) 52 1990 President, Chief Executive Officer and
Director of Wolverine Tube, Inc.
John D. Lockton (1)(2) 61 1997 Chairman of IPWireless, Inc.
J. Robert Schrieffer, Ph.D. (1)(2) 67 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 Chairman of the Board of
Directors and Chief Executive Officer of American Microsystems Inc., a
semiconductor company.
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<PAGE> 6
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 became Senior Vice President, Sales and Marketing in March
1999. Mr. Cotten joined the Board of Directors in July 1996 and served as Vice
Chairman of the Board from August 1996 to February 1999. 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 that he
also served as Vice Chairman and co-founder of NetAmerica, a digital networking
company, held vice-president positions 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 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.
M. Peter Thomas joined the Company as President and Chief Executive
Officer and member of the Board of Directors of the Company in April 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 the 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 that 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 May 1997
until September 1998, Dr. Caren was Chairman of the Board of Litex, Inc., an
automobile emissions technology company. 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, American Astronautics Society and the American
Association for the Advancement of Science. He is a member of the National
Academy of Engineering, a member of the California Commission on Science and
Technology and past Chairman of the Research Division of the Defense
Preparedness Association. Dr. Caren received his Ph.D., M.S. and B.S. in physics
from Ohio State University.
Dennis Horowitz has served on the Board of Directors of the Company
since June 1990. Mr. Horowitz is currently President, Chief Executive Officer
and a Director of Wolverine Tube Inc., a manufacturer and distributor of copper
and copper alloy tubes and fabricated products. From September 1994 to April
1997, he 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 and Chief Executive Officer of
Philips Components, Discrete Products Division. From 1988 to 1990, he served as
President and Chief Executive Officer of Magnavox CATV, and from 1980 to 1988 he
was involved in the general administration of North American Philips
Corporation. Philips Components and Magnavox CATV are divisions of North
American Philips Corporation. Mr. Horowitz is a and Aerovox Corporation. Mr.
Horowitz holds an M.B.A. and a B.A. in economics from St. John's University.
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<PAGE> 7
John D. Lockton joined the Board of Directors of the Company in December
1997. Mr. Lockton is currently Chairman of IPWireless, Inc., a wireless internet
access and IP telephony service provider. From August 1991 to March 1998, he was
President, Chief Executive Officer and a director of International Wireless
Communications, Inc. ("IWC"), an operator of cellular systems which filed for
bankruptcy protection in September 1998 under Chapter 11 of the U.S. Bankruptcy
Code. He was the Vice-Chairman and a director of IWC from March 1998 until June
1998 and remained involved with the company until September 1998. From May 1990
to August 1991, he was Managing Partner of Corporate Technology Partners, a
joint venture with Bell Canada Enterprises. In 1988 Mr. Lockton founded Cellular
Data, Inc., a cellular wireless data technology company, and Star Associates,
Inc., a cellular radio RSA company. He founded and was a director of Interactive
Network, Inc., a wireless-based television company, and was Chairman of the
Board of Directors until December 1994. From 1983 to 1987 Mr. Lockton was
Executive Vice President of Pacific Bell (now Pacific Telesis). From 1980 to
1983 he was President of Warner Amex (now Time Warner) Cable Television, Inc.
From 1968 to 1980, Mr. Lockton served in various capacities at Dun & Bradstreet.
Mr. Lockton is the primary inventor of a patented wireless technology for
Personal Communication Services (PCS). Mr. Lockton is a graduate of Yale
University (Phi Beta Kappa), and Harvard Law School and received an Executive
M.B.A. from Columbia 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.
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, 1998, three (3) of which were
telephonic. The Board of Directors has two standing committees, 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 1998.
The current members of the Audit Committee are Robert P. Caren, Ph.D., Dennis
Horowitz, John D. Lockton and J. Robert Schrieffer, Ph.D.
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
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<PAGE> 8
Plan, the 1992 Director Option Plan, the 1992 Stock Option Plan and the 1998
Nonstatutory Stock Option Plan. The Compensation Committee met five (5) times
during fiscal 1998. The current members of the Compensation Committee are Robert
P. Caren, Ph.D., Dennis Horowitz, John D. Lockton and J. Robert Schrieffer,
Ph.D.
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 1998;
and (ii) the total number of meetings held by all committees of the Board of
Directors during fiscal 1998 on which such person served.
DIRECTOR COMPENSATION
Between January and July 1998 each nonemployee director of the Company
was compensated $1,000 for each non-telephonic Board meeting in which the Board
member participated. In May, 1998 the Board of Directors revised the annual
compensation for nonemployee directors to provide each nonemployee director an
annual retainer of $6,000 payable quarterly so long as such director attends at
least 75% of the Company's Board meetings. The nonemployee directors serving
during 1998 were directors Robert P. Caren, Ph.D., Dennis Horowitz, J. Robert
Schrieffer, Ph.D., and John D. Lockton.
Nonemployee directors also participate in the 1992 Director Option Plan,
as amended (the "Director Plan"), and the 1992 Stock Option Plan, as amended.
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"). Nonemployee directors that have served on the
Board of Directors for at least six months also receive automatic grants of
nonstatutory stock options under the Directors Plan on June 1st of each year (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,
1998, directors Caren, Horowitz Schrieffer and Lockton each was granted an
option to purchase 5,000 shares of Common Stock at a per share exercise price of
$5.063 per share pursuant to the Director Plan
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 THE REMOVAL OF LIMITATIONS ON CONVERSIONS OF PREFERRED
STOCK AND EXERCISES OF WARRANTS ISSUED BY THE COMPANY IN PRIVATE
OFFERINGS IN 1998 AND 1999
During the past year, the Company issued shares of Preferred Stock and
warrants convertible into or exercisable for an aggregate of 3,856,687 shares of
Common Stock, but currently limited to 1,533,709 shares of Common Stock (the
"19.9% Limit") as a result of Nasdaq rules. The Company is seeking stockholder
approval to remove the 19.9% Limit. If stockholder approval is not obtained,
then the Company will be required to pay 20% cumulative dividends on the
Preferred Stock (instead of the current 6% and 7% rates), retroactive to the
date of issuance of the Preferred Stock.
BACKGROUND
Outside financing is critical to the Company in its current stage of development
because the Company does not yet generate sufficient cash from operations to
fund its operations and growth. Between March 26, 1998 and the date of this
Proxy Statement, the Company raised a total of $11,875,000 through the sale of
Preferred Stock and warrants for the purchase of Common Stock to Wilmington, an
institutional investor, in a series of private placements (the "Financings").
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<PAGE> 9
Wilmington is an indirect, wholly owned subsidiary of The Hillman Company, a
private corporation engaged in diversified investments and operations, which is
controlled by a trust for the benefit of Henry L. Hillman. The chart below
reflects the funds raised by the Company in the Financings and the securities
outstanding as a result thereof:
<TABLE>
<CAPTION>
Common Stock
Issuable
upon
Series of Conversion Warrants for Total
Convertible Number of of Preferred Purchase of Consideration Effective Date
Preferred Stock(1) Shares Issued Shares Common Stock(2) Received of Issuance(3)
- ------------------ ------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Series A-2 64,584 1,291,680 100,000 $3,875,000 March 26, 1998
Series A-3 12,500 250,000 66,667 $1,000,000 August 11, 1998
Series B-1 50,000 1,000,000 120,000 $4,000,000 September 2, 1998
Series C 41,667 833,340 120,000 $3,000,000 March 5, 1999
</TABLE>
1 In the event that stockholders do not approve the removal of the 19.9%
Limit, each share of Preferred Stock shall be entitled to a cumulative
dividend equal to 20% of the purchase price of the Preferred Stock. Such
dividends shall be deemed to have accrued daily from the date of the
issuance of the Preferred Stock as described in footnote 3 to this
table.
2 The exercise prices of the warrants are as follows: Series A-2, $4.00
per share, Series A-3, $4.00 per share, Series B-1, $5.70 per share,
Series C, $4.50 per share. In connection with the Exchange the Company
issued warrants for the purchase of up to 75,000 shares of Common Stock
at a purchase price of $7.00 per share.
3 The Company issued Series A, Series A-1 and Series B Preferred Stock and
related warrants during 1998 that were exchanged for Series A-2, Series
A-3, Series B-1 and modified warrants, respectively, on February 26,
1999 (the "Exchange"). In the Exchange, the Series A-2 Preferred Stock
was exchanged for 500,000 shares of Series A Preferred Stock issued on
March 26, 1998 and 145,833 shares of Series A Preferred Stock issued on
September 3, 1998. The Series A-3 Preferred Stock was exchanged for
Series A-1 Preferred Stock issued on August 11, 1998 and the Series B-1
Preferred Stock was exchanged for Series B Preferred Stock issued on
September 2, 1998.
As described above, the Preferred Stock and warrants by their terms are
not exercisable for shares of Common Stock in excess of the 19.9% Limit.
However, if the removal of the 19.9% Limit is not approved by the stockholders,
then the current 7% cumulative dividend rate on the Preferred Stock will
automatically increase to a 20% cumulative dividend rate, retroactive to the
original date of issuance of the Preferred Stock.
Wilmington, the purchaser of Preferred Stock and warrants in the
Financings, together with its affiliates and related parties, obtained in excess
of 10% of the Company's Common Stock through open market purchases. As a result
of the Financings, and prior to elimination of the 19.9% Limit, Wilmington and
such affiliates and related parties beneficially own in excess of 26% of the
Company's voting securities. Upon removal of the 19.9% Limit, Wilmington and
such affiliates and related parties could potentially control over 40% of the
Company's voting securities. In addition, as described under Proposal Three
below, the Company has agreed to grant Wilmington the right to two seats on the
Company's Board of Directors, subject to stockholder approval.
Under the Nasdaq National Market System corporate goverance rules, Rule
4460(i)(1)(D) (the "20% Rule") requires stockholder approval of securities
issuances where (1) the securities issued are Common Stock or securities
convertible into or exercisable for Common Stock, (2) the price of the
securities is less than the market value of the Common Stock, and (3) the
proposed issuance would result in the issuance of 20% or more of the Common
Stock or voting power of the Company before the issuance. Additionally, Nasdaq
Rule 4460(i)(1)(B) (the "Control Rule") requires stockholder approval of the
adoption of a plan or the issuance of securities by the Company that would
result in a change of control of the Company. There is no concrete test to
determine the amount of securities that the Company may issue to a party without
triggering the Control Rule. Depending on the facts and circumstances, the
issuance by the Company of a small amount of securities may result in a change
of control of the Company where an investor already owns a sizable portion of
the Company's outstanding voting securities.
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<PAGE> 10
The Company is seeking stockholder approval to remove the 19.9% Limit in
order to ensure compliance with Nasdaq's 20% Rule and the Control Rule, and to
prevent the Company from having to pay 20% cumulative dividends on the Preferred
Stock retroactive to the date of issuance of the Preferred Stock.
PRINCIPAL EFFECTS OF APPROVAL OR NONAPPROVAL
In the event that stockholder approval is obtained, then the total
number of shares of Common Stock issuable to Wilmington and its affiliates and
related parties in connection with the Financings would be increased to
3,856,687 shares. The issuance of this number of shares to Wilmington, together
with its existing holders, could be deemed to effectively place Wilmington in
control of the Company.
In the event that stockholder approval is not obtained, then the 19.9%
Limit would continue to apply, and the total number of shares of Common Stock
issuable to Wilmington and its affiliates in connection with the Financings
would remain at 1,533,709 shares. In addition, the Company would be required to
pay 20% cumulative dividends on the Preferred Stock, retroactive to the original
issuance date.
In the opinion of the Board a failure of the stockholders to approve
Proposal Two will have a severely detrimental effect on the Company and its
future. Wilmington and investors like Wilmington are fundamental to the ability
of the Company to raise funds to allow the Company to try to capitalize on
market opportunities for its products. The Company views Wilmington as an
investment partner and believes that Wilmington's investments in the Company
enhance the value of the Company for all stockholders. A failure of the Company
to obtain approval would have a negative effect on the Company's future
financing activities, which are critical to the long-term success of the Company
and maximizing value for the Company's stockholders. Stockholder approval will
also relieve the Company from an obligation to pay dividends on the Preferred
Stock equal to 20% of the purchase price of each preferred share retroactive to
the date of the issuance of such shares. Finally, in connection with the
Financings the Company agreed to use its best efforts to obtain stockholder
approval of the elimination of the conversion and exercise limitations. A
failure to obtain stockholder approval at the Annual Meeting would require the
Company to expend additional financial and management resources seeking such
approval in the future.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The approval of the removal of the 19.9% Limitation on the Preferred
Stock conversion and Warrant exercise limitations requires the affirmative vote
of a majority of Votes Cast (excluding, for purposes of determining the "Votes
Cast," the shares of Common Stock issuable upon conversion of the Preferred
Stock). The holders of Preferred Stock will not be entitled to exercise their
Preferred Stock voting rights with respect to this proposal due to their
interest in the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL THREE:
APPROVAL OF WILMINGTON SECURITIES, INC. BOARD REPRESENTATION
The Company is seeking stockholder approval of a provision in the
Company's Series C Preferred Stock financing requiring expansion of the
Company's Board of Directors by two directors following the Annual Meeting,
filling the vacancies created by representatives designated by Wilmington and
nominating two persons designated by Wilmington for election to the Board at the
Company's next election of directors.
As discussed above, during 1998 and 1999 the Company sold a total of
$11,875,000 in Company securities to Wilmington. Given the significant
investments made by Wilmington, in connection with the Series C Preferred Stock
financing Wilmington requested that the Company expand its Board of Directors by
two directors after the 1999
-9-
<PAGE> 11
Company stockholder meeting and appoint two representatives of Wilmington to
fill the vacancies. The Company also agreed to nominate two persons designated
by Wilmington for election to the Company's Board of Directors at the Company's
next annual stockholders' meeting provided that Wilmington retains at least
33,750 shares of Preferred Stock at that time. The Company is seeking approval
of Proposal Three to satisfy a provision in the Series C Preferred Stock
Purchase Agreement and to ensure compliance with the Nasdaq Control Rule.
Although Wilmington has discretion to substitute director designees
provided that such substitute nominees are suitable to the Company, it is
anticipated that Wilmington will designate Joseph C. Manzinger and Richard M.
Johnston to serve on the Board of Directors following stockholder approval. The
background of the anticipated Wilmington designees is as follows:
Richard M. Johnston is Vice President-Investments and a director of The
Hillman Company, the parent company of Wilmington, positions he has held for
more than five years. Mr. Johnston currently serves as Chairman of the Board of
Metrocall, Inc., a Nasdaq traded company that provides paging and other wireless
messaging services nationally. Mr. Johnston also currently is Chairman of the
Board of SCCI Health Services Corporation and Xypoint Corporation and is a
director of Park 'n View, Inc., Ralin Medical, Inc. and U.S. Media Holdings,
Inc., all privately held companies. Mr. Johnston holds a B.S. in commerce from
Washington & Lee University and an M.B.A. from the Wharton School of Finance at
the University of Pennsylvania.
Joseph C. Manzinger was appointed Vice President of The Hillman Company,
the parent company of Wilmington, in January 1998. Mr. Manzinger has also held
positions with The Hillman Company as Director - Investment Review and Manager
of Special Projects. Prior to joining The Hillman Company Mr. Manzinger served
as a consultant for McKinsey & Company, and also spent time with Price
Waterhouse & Co. and Parker/Hunter Inc., a regional investment bank and
brokerage firm. Mr. Manzinger serves as a director for a variety of private
companies, including Syvox Corporation where he is Chairman of the Board, The
MicroOptical Corporation, RPM Industries, Inc., Selectus Pharmaceuticals, Inc.,
InRoad, Inc. and Xypoint Corporation. Mr. Manzinger holds a B.S. in Accounting
from Indiana University and an M.B.A. from the University of Chicago.
PRINCIPAL EFFECTS OF THE APPROVAL OR NON-APPROVAL
Expanding the Company's Board of Directors by two directors and
appointing two representatives named by Wilmington to fill the positions will
have the effect of increasing the number of the Company's non-management
directors and enhancing Wilmington's influence over the Company. As described
above under Proposal Two, Wilmington currently has the power to vote more shares
than any other Company stockholder by virtue of its investments in Company
securities on the open market and in the Financings and it could acquire, and is
not restricted from acquiring, additional Company securities. In addition, the
ability to name two directors to the Company's Board places Wilmington in a
position to influence but not control the Company's Board of Directors.
According to the Schedule 13-D filed by Wilmington, last amended on March 16,
1999, Wilmington has no current plans that would result in a change in the
current Board of Directors or a material change in the Company's business or
corporate structure. Wilmington's investments in the Company during 1998 and
1999 have enabled the Company to meet its financing needs at that time.
Providing Wilmington with Board representation was central to Wilmington's
decision to continue to invest in the Company and a failure to obtain
stockholder approval of this provision may hinder the Company in obtaining
additional funds from this historically important financing source. Requiring
the Company to nominate two persons designated by Wilmington for election to the
Company's Board at the next election of directors will potentially allow
Wilmington to influence the Board for an additional time period.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The approval of this Proposal Three requires the affirmative vote of a
majority of Votes Cast (excluding, for purposes of determining the "Votes Cast,"
the shares of Common Stock issuable upon conversion of the Preferred Stock).
-10-
<PAGE> 12
The holders of Preferred Stock will not be entitled to exercise their Preferred
Stock voting rights due their interest in the Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL FOUR
APPROVAL OF THE 1999 STOCK PLAN
The Board of Directors determined that it is in the best interests of
the Company and its stockholders to adopt the 1999 Stock Plan (the "Plan")
(described below). On February 4, 1999, the Board of Directors adopted the Plan
and reserved Common Stock for issuance thereunder subject to stockholder
approval in the amount of 1,000,000 shares plus (a) an annual increase to be
added on each anniversary date of the Plan equal to the lesser of (i) 600,000
shares, (ii) 5% of the outstanding shares (as defined in the Plan) on such date
or (iii) a lesser amount determined by the Board, (b) any shares which have been
reserved but unissued under the Company's 1992 Stock Option Plan (the "Option
Plan") as of the date of stockholder approval of this Plan, and (c) any shares
returned to the Option Plan after the date of stockholder approval of this Plan
as a result of the termination of options under the Option Plan. As of the date
of stockholder approval of the Plan, no options had been granted pursuant to the
Plan.
For a description of the principal features of the Plan, see "Appendix A --
Description of the Superconductor Technologies, Inc. 1999 Stock Plan."
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The approval of this Proposal Four requires the affirmative vote of a
majority of Votes Cast.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL FIVE:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP,
independent auditors, to audit the financial statements of the Company for the
fiscal year ending December 31, 1999.
A representative of PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP
requires the affirmative vote of a majority of the Votes Cast. In the event the
stockholders do not approve the selection of PricewaterhouseCoopers 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.
-11-
<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 31, 1999, 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. Wilmington and its affiliates are the
sole holders of 100% of the Company's Preferred Stock and are entitled to cast a
total of 1,533,709 votes with respect to the Preferred Stock on certain matters
at the Annual Meeting. As described in footnote 1 to the following table,
following stockholder approval of Proposal Two, Wilmington and its affiliates
will be entitled to 3,375,020 votes by virtue of their ownership of Preferred
Stock.
<TABLE>
<CAPTION>
Number of Percentage
Name Shares Ownership
---- ------ ---------
<S> <C> <C>
Wilmington Securities, Inc. and Affiliated Parties(1)............. 2,423,709 26.16%
824 Market Street, Suite 900
Wilmington, Delaware 19801
Glenn E. Penisten(2).............................................. 185,591 2.37%
M. Peter Thomas(3)................................................ 157,100 1.99%
Robert B. Hammond(4) ............................................. 126,980 1.62%
James P. Simmons, Jr.............................................. 250 *
E. Ray Cotten(5).................................................. 85,778 1.10%
James G. Evans, Jr.(5)............................................ 73,750 *
J. Robert Schrieffer(6)........................................... 52,984 *
Robert P. Caren(7)................................................ 34,017 *
Dennis Horowitz(8)................................................ 25,784 *
John D. Lockton(5)................................................ 3,750 *
All executive officers and directors as a group (12 persons)(9)... 838,226 9.96%
</TABLE>
- -------------
* Less than one percent.
(1) Based on information contained in a Schedule 13D, as amended, filed by
Wilmington and persons affiliated with Wilmington. Includes a total of
1,533,709 shares issuable upon the conversion of Preferred Stock or
exercise of warrants for the purchase of Common Stock that are
convertible or exercisable within 60 days of March 31, 1999. Following
stockholder approval of Proposal Two the total Common Stock Ownership of
Wilmington shall be equal to 4,746,687 shares (which represents
ownership of 40.97% of the Company's voting securities), including a
total of 3,375,020 shares issuable upon the conversion of Preferred
Stock and a total of 481,667 shares issuable upon the exercise of
warrants for the purchase of Common Stock. Wilmington is an indirect,
wholly owned subsidiary of The Hillman Company, a private corporation
engaged in diversified investments and operations. The Hillman Company
is controlled by Henry L. Hillman, Elsie Hilliard Hillman and C.G.
Grefenstette, Trustees of the Henry L. Hillman Trust dated November 18,
1985 (the "HLH Trustees"). Each of the HLH Trustees shares voting and
disposition power over the assets of The Hillman Company. The above
total includes 20,000 shares of Series B-1 Preferred Stock and warrants
exercisable for an aggregate of 50,000 shares of Common Stock owned
beneficially of record by four trusts for members of the Hillman family.
The HLH Trustees (other than Mr. Grefenstette, who is a trustee of such
trusts) disclaim beneficial ownership of such shares
(2) Includes 96,997 shares held by a trust for the benefit of Glenn and Mary
Louise Penisten. Also includes 88,334 shares issuable upon the exercise
of stock options that are exercisable within 60 days of March 31, 1999.
(3) Includes 156,667 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 31, 1999.
(4) Includes 94,480 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 31, 1999.
-12-
<PAGE> 14
(5) All shares are issuable upon the exercise of stock options that are
exercisable within 60 days of March 31, 1999.
(6) Includes 48,334 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 31, 1999.
(7) Includes 26,667 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 31, 1999.
(8) Includes 18,334 shares issuable upon the exercise of stock options that
are exercisable within 60 days of March 31, 1999.
(9) See footnotes (2)-(8). Includes 687,386 shares issuable upon exercise of
stock options held by executive officers and directors that are
exercisable within 60 days of March 31, 1999.
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, 1998, 1997 and 1996 by the Company's Chief Executive Officer and the four
executive officers other than the Chief Executive Officer whose total salary and
bonus for fiscal year 1998 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>
M. Peter Thomas 1998 229,806 -- 40,000 2,293
President and Chief 1997 162,798(3) -- 15,000(4) 280,000 1,644
Executive Officer 1996 N/A N/A N/A N/A N/A
E. Ray Cotten 1998 159,764 -- -- -- 6,300
Senior Vice President, 1997 166,076 -- -- -- 6,542
Sales and Marketing 1996 51,003 -- -- 108,934 1,249
Robert B. Hammond 1998 171,888 17,000 1,400
Senior Vice President and 1997 165,080 -- -- 60,000(5) 932
Chief Technical Officer 1996 148,265 -- -- 25,000(6) 839
James G. Evans, Jr. 1998 152,626 20,000 870
Vice President and Chief 1997 146,908 -- -- 30,000(7) 847
Financial Officer 1996 130,260 -- -- 35,000(8) 463
James P. Simmons, Jr.(11) 1998 143,760 15,000 782
Vice President Marketing 1997 144,277 -- -- 20,000(9) 819
and Sales 1996 130,155 -- -- 20,000(10) 750
</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. Thomas commenced employment with the Company in April 1997; amount
shown reflects pro rated annual salary of $200,000.
(4) Relocation expenses.
(5) Includes 15,000 shares which replaced a 1996 grant of an option to
purchase 15,000 shares which was canceled.
(6) Includes 15,000 shares which were canceled and replaced by a 1997 grant
of an option to purchase 15,000 shares.
(7) Includes 20,000 shares which replaced a 1996 grant of an option to
purchase 20,000 shares which was canceled.
(8) Includes 20,000 shares which were canceled and replaced by a 1997 grant
of an option to purchase 20,000 shares.
(9) Includes 10,000 shares which replaced a 1996 grant of an option to
purchase 10,000 shares which was canceled.
-13-
<PAGE> 15
(10) Includes 10,000 shares which were canceled and replaced by a 1997 grant
of an option to purchase 10,000 shares.
(11) Mr. Simmons ceased service with the Company in September 1998: amounts
shown include options to purchase 15,000 shares which terminated prior
to the vesting of any shares under such options.
EMPLOYMENT AGREEMENTS
In addition to the executive compensation set forth in the table above,
pursuant to a letter agreement between M. Peter Thomas and the Company dated
April 3, 1997, Mr. Thomas is entitled to six months' salary as severance in the
event of a change in position not for cause, and 70,000 of the 280,000 options
to purchase Common Stock of the Company will be accelerated to vest immediately
upon a change of control involving a change in Mr. Thomas' position. E. Ray
Cotten is entitled to twelve months severance, including a continuation of base
salary and employee and dependent health and insurance benefits, in the event of
involuntary termination as set forth in an Employment Agreement between the
Company and Mr. Cotten dated July 1, 1997. There are no other employment
agreements between the Company and any of its executive officers.
OPTION GRANTS IN FISCAL 1998
The following table sets forth certain information regarding stock
options granted during the fiscal year ended December 31, 1998 to each of the
executive officers named in the table under "Executive Officer
Compensation--Summary Compensation Table."
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
---------------------------------------------- -----------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#)(1) YEAR(2) ($/SH) DATE 5%($) 10%(%)
- ---- ------------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
M. Peter Thomas 40,000 9.39 5.00 5/20/08 125,779 318,748
E. Ray Cotten -- -- -- -- -- --
Robert B. Hammond 17,000 3.99 3.88 12/10/08 41,428 104,988
James G. Evans, Jr. 20,000 4.70 5.00 5/20/08 62,889 159,374
James P. Simmons, Jr.(4) 15,000 3.52 5.00 5/23/08 -- --
</TABLE>
- ---------
(1) 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.
(2) Total number of shares subject to options granted to employees in fiscal
1998 was 425,950, which number includes options granted to employee
directors, but excludes options granted to nonemployee directors and
consultants.
(3) 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 1998, 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.
(4) Mr. Simmons ceased service with the Company in September 1998; options
to purchase 15,000 shares terminated prior to the vesting of any shares
under such options.
-14-
<PAGE> 16
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND 1998 FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning the value
of unexercised options as of December 31, 1998 for each of the executive
officers named in the table under "Executive Compensation--Summary Compensation
Table."
<TABLE>
<CAPTION>
SHARES VALUE
ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
NAME ON EXERCISE ($) (#) (#) ($) ($)
---- ----------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
M. Peter Thomas -- -- 116,667 203,333 14,583 20,417
E. Ray Cotten2 -- -- 72,732 36,202 N/A(3) N/A(3)
Robert B. Hammond -- -- 87,188 54,812 10,935 26,555
James G. Evans, Jr -- -- 58,959 51,041 2,734 3,516
James P. Simmons, Jr.(4) -- -- -- -- -- --
</TABLE>
(1) Market value of underlying securities based on the $3.875 closing price
of the Company's Common Stock on December 31, 1998 (the last market
trading day in 1998), minus the exercise price.
(2) Of a total of 108,934 options to purchase Common Stock of the Company
granted to Mr. Cotten during fiscal 1996, 93,934 options will be
accelerated to vest immediately upon "acquisition of the Company"
defined as "the acquisition or merger of the Company into another entity
or the acquisition or merger of another entity into the Company which is
valued at or in excess of $2.5 million or is significant to the Company
as determined by the Board of Directors of the Company in its sole
discretion."
(3) The fair market value of the Company's Common Stock as of December 31,
1998 was $3.875, which did not exceed the exercise price of such
exercisable or unexercisable options held by such person.
(4) Mr. Simmons ceased service with the Company in September 1998 and had no
outstanding options on December 31, 1998.
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 1998 fiscal year and prior years were complied with.
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., Dennis
Horowitz, John D. Lockton and J. Robert Schrieffer, Ph.D. 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.
-15-
<PAGE> 17
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 wireless and
semiconductor industries. 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 setting the Chief Executive Officer's compensation, the Committee
does so without such person's attendance. The Chief Executive Officer's
compensation is determined based on 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.
M. Peter Thomas, who served as the Company's Chief Executive Officer
during all of fiscal 1997, began his employment with the Company in April 1997.
At the time of his hire the Board set Mr. Thomas' annual salary at $200,000. In
addition to his salary, at the time of hire Mr. Thomas was granted an option to
purchase 280,000 shares of the Company's Common Stock, vesting over a period of
4 years. During 1998 Mr. Thomas' compensation was increased to $230,000 and he
was granted an additional option, vesting over a period of 4 years, for the
purchase of 40,000 shares of Common Stock. The Company also leases a car for Mr.
Thomas' use.
$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.
Robert P. Caren, Ph.D.
Dennis Horowitz
John D. Lockton
J. Robert Schrieffer, Ph.D.
-16-
<PAGE> 18
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total stockholders' return on
the Company's Common Stock since December 31, 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>
BASE YEARS ENDING
Period
Company / Index Dec93 Dec94 Dec95 Dec96 Dec97 Dec98
- --------------- ----- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
SUPERCONDUCTOR TECHNOLOGIES 100 101.96 70.59 61.76 49.02 60.78
NASDAQ US INDEX 100 97.75 141.44 122.97 122.68 140.57
H&Q TECHNOLOGY INDEX 100 120.12 149.52 124.29 117.24 155.54
</TABLE>
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF
THE ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES
AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO SUPERCONDUCTOR TECHNOLOGIES
INC., 460 WARD DRIVE, SANTA BARBARA, CALIFORNIA 93111, ATTN: INVESTOR RELATIONS.
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 __, 1999
-17-
<PAGE> 19
APPENDIX A
DESCRIPTION OF THE SUPERCONDUCTOR TECHNOLOGIES, INC. 1999 STOCK PLAN
General. The purpose of the Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees, directors and
consultants of the Company and to promote the success of the Company's business.
Options granted under the Plan may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonstatutory stock options. Stock purchase rights may also be
granted under the Plan.
Administration. The Plan may generally be administered by the Board or a
Committee appointed by the Board (as applicable, the "Administrator"). The
Administrator may make any determinations deemed necessary or advisable for the
Plan.
Eligibility. Nonstatutory stock options and stock purchase rights may be
granted under the Plan to employees, directors and consultants of the Company
and any parent or subsidiary of the Company. Incentive stock options may be
granted only to employees. The Administrator, in its discretion, selects the
employees, directors and consultants to whom options or rights may be granted,
the time or times at which such options or rights shall be granted, and the
exercise price and number of shares subject to each such grant.
Limitations. Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to certain
executive officers of the Company. In order to preserve the Company's ability to
deduct the compensation income associated with options granted to such persons,
the Plan provides that no employee may be granted, in any fiscal year of the
Company, options to purchase more than 200,000 shares of Common Stock.
Notwithstanding this limit, however, in connection with such individual's
initial employment with the Company, he or she may be granted options to
purchase up to an additional 200,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock
option agreement between the Company and the optionee, and is subject to the
following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Common
Stock on the date such option is granted; provided, however, the exercise price
of an incentive stock option granted to a 10% shareholder may not be less than
110% of the fair market value of the Common Stock on the date such option is
granted. The fair market value of the Common Stock is generally determined with
reference to the closing sale price for the Common Stock (or the closing bid if
no sales were reported) on the day of or the last market trading day prior to
the date the option is granted.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable, and may in its discretion,
accelerate the vesting of any outstanding option. The means of payment for
shares issued upon exercise of an option is specified in each option agreement.
The Plan permits payment to be made by cash, check, promissory note, other
shares of Common Stock of the Company (with some restrictions), cashless
exercises, a reduction in the amount of any Company liability to the optionee,
any other form of consideration permitted by applicable law, or any combination
thereof.
(c) Term of Option. The term of an incentive stock option may be no more
than ten (10) years from the date of grant; provided that in the case of an
incentive stock option granted to a 10% shareholder, the term of the option may
be no more than five (5) years from the date of grant. No option may be
exercised after the expiration of its term.
(d) Termination of Employment or Consultancy. If an optionee's
employment or consulting relationship terminates for any reason (including death
or disability), then the optionee may exercise the option within such period of
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<PAGE> 20
time as is specified in the option agreement to the extent that the option is
vested on the date of termination, (but in no event later than the expiration of
the term of such option as set forth in the option agreement). The Plan and the
option agreement may provide for a longer period of time for the option to be
exercised after terminations due to the optionee's death or disability than for
other terminations. The optionee (or the optionee's estate or the person who
acquires the right to exercise the option by bequest or inheritance) may
exercise all or part of his or her option to the extent the option is
exercisable at the time of such termination.
(e) Nontransferability of Options and Stock Purchase Rights: Unless
otherwise determined by the Administrator, options and stock purchase rights
granted under the Plan are not transferable other than by will or the laws of
descent and distribution, and may be exercised during the optionee's lifetime
only by the optionee.
(f) Other Provisions: The stock option agreement or restricted stock
purchase agreement may contain other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the stock
of the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the Plan, the number and class of shares of stock subject to any
option or right outstanding under the Plan, and the exercise price of any such
outstanding option or right.
In the event of a liquidation or dissolution, any unexercised options
will terminate. The Administrator may, in its sole discretion, provide that each
optionee shall have the right to exercise all of the shares subject to the
optionee's option including those not otherwise vested or otherwise exercisable.
In connection with any merger, consolidation, acquisition of assets or
like occurrence involving the Company, each outstanding option and stock
purchase right shall be assumed or an equivalent option or right substituted by
the successor corporation. If the successor corporation refuses to assume the
options or rights or to substitute substantially equivalent options or rights,
the Administrator shall have the discretion to allow the optionee to exercise
the option or stock purchase right as to all the optioned stock, including
shares not otherwise exercisable. In such event, the Administrator shall notify
the optionee that the option or right is fully exercisable for fifteen (15) days
from the date of such notice and that the option or stock purchase right
terminates upon expiration of such period.
Change of Control. In the event of a change of control, except as
otherwise determined by the Board, the optionee shall fully vest in and have the
right to exercise the option as to all of the optioned stock, including shares
as to which the option would not otherwise be exercisable. In such event, the
Administrator shall notify the optionee that the option or right is fully
exercisable for fifteen (15) days from the date of such notice and that the
option or stock purchase right terminates upon expiration of such period. A
change of control included (i) the purchase of 50% of the Company's
then-outstanding securities by any person; (ii) a merger or consolidation; (iii)
a sale of all or substantially all of the Company's assets; and (iv) certain
changes in the composition of the Board.
Amendment and Termination of the Plan. The Board may amend, alter,
suspend or terminate the Plan, or any part thereof, at any time and for any
reason. However, the Company shall obtain shareholder approval for any amendment
to the Plan to the extent necessary and desirable to comply with applicable law.
No such action by the Board or shareholders may alter or impair any option
previously granted under the Plan without the written consent of the optionee.
Unless terminated earlier, the Plan shall terminate ten years from the date of
its approval by the shareholders or the Board of the Company, whichever is
earlier.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
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<PAGE> 21
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income. If these
holding periods are not satisfied, the optionee recognizes ordinary income at
the time of disposition 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. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. Unless limited by Section 162(m) of
the Code, the Company is entitled to a deduction in the same amount as the
ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Upon a disposition of
such shares by the optionee, any difference between the sale price and the
optionee's exercise price, to the extent not recognized as taxable income as
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income.
Stock Purchase Rights. Generally, no income will be recognized by a
recipient in connection with the grant of a stock purchase right of unvested
stock, unless an election under Section 83(b) of the Code is filed with the
Internal Revenue Service within 30 days of the date of grant in the case of an
award of stock. Otherwise, at the time the stock purchase right vests, the
recipient generally will recognize compensation income in an amount equal to the
difference between the fair market value of the stock at the time of vesting and
the amount paid for the stock, if any. Generally, the recipient will be subject
to tax consequences similar to those discussed under "Nonstatutory Stock
Options." In the case of a recipient who is also an employee, any amount treated
as compensation will be subject to tax withholding by the Company. The Company
will be entitled to a tax deduction in the amount and at the time the recipient
recognizes ordinary income with respect to the stock purchase right to the
extent permitted under Section 162 of the Code.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
UNDER THE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX
CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE OR CONSULTANT MAY RESIDE.
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<PAGE> 22
PRELIMINARY COPY
APPENDIX A
DETACH HERE
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SUPERCONDUCTOR TECHNOLOGIES INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 2, 1999
The undersigned stockholder of SUPERCONDUCTOR TECHNOLOGIES INC., a
Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated April __, 1999 and
hereby appoints M. Peter Thomas and James G. Evans, Jr. or either of them,
proxies and attorneys-in-fact, with full power to each of substitution, 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
June 2, 1998 at 11:00 a.m., local time, at the Pacifica Suites, located at 5490
Hollister Avenue, Santa Barbara, 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.
<TABLE>
[SEE REVERSE SIDE] CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE SIDE]
<S> <C> <C>
</TABLE>
[BACK OF PROXY]
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 removal of limitations on
conversions of preferred stock and exercises of warrants issued by the Company
in private offerings in 1998 and 1999, FOR the provision in the Company's Series
C Preferred Stock financing providing Wilmington Securities, Inc. representation
on the Company's Board of Directors, FOR the adoption of the Company's 1999
Stock Plan, and FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as independent auditors of the Company for the year
ending December 31, 1999 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; M. Peter Thomas; E. Ray Cotten; Robert P. Caren,
Ph.D.; Dennis Horowitz; John D. Lockton; J. Robert Schrieffer, Ph.D.
FOR ALL NOMINEES [ ] WITHHELD FROM ALL NOMINEES
[ ]
--------------------------------------
<PAGE> 23
(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 THE REMOVAL OF LIMITATIONS [ ] [ ] [ ]
ON CONVERSIONS OF PREFERRED STOCK AND EXERCISES
OF WARRANTS TO PURCHASE COMMON STOCK ISSUED
BY THE COMPANY IN PRIVATE OFFERINGS IN 1998 & 1999
FOR AGAINST ABSTAIN
3. PROPOSAL TO APPROVE A PROVISION IN THE [ ] [ ] [ ]
COMPANY'S SERIES C PREFERRED STOCK FINANCING
PROVIDING WILMINTON SECURITIES, INC.
REPRESENTATION ON THE COMPANY'S BOARD OF
DIRECTORS.
FOR AGAINST ABSTAIN
4. PROPOSAL TO APPROVE THE ADOPTION OF THE [ ] [ ] [ ]
COMPANY'S 1999 STOCK PLAN.
FOR AGAINST ABSTAIN
5. PROPOSAL TO RATIFY THE APPOINTMENT OF [ ] [ ] [ ]
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999.
</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 [ ]
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
(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:_____
